Income investors, including retirees living on fixed incomes, are often frustrated by the fact that while they have to pay bills on a monthly basis, income from investments usually only arrives, at best, on a quarterly basis. One solution that can help is investing in dividend stocks that pay dividends on a monthly basis instead. Of course, you shouldn't invest in a stock just because it pays monthly dividends, but plenty of good stocks also feature the bonus of monthly dividend payments.

Key Takeaways

  • Dividends can be a great way to provide stable income to those looking for less growth and a greater emphasis on cash flows coming in.
  • Many dividend stocks only pay out once, twice or four times a year. Others pay out monthly.
  • These monthly dividend stocks tend to be mortgage REITs, which carry generous dividends, but are highly sensitive to interest rate changes.

Dividends and REITs

SureDividend.com provides a list of all stocks paying monthly dividends, updated weekly. The types of shares that tend to pay out monthly dividends with greater than average yields tend to be real estate investment trusts (REITs).In particular, these tend to be mortgage REITs, which invest in mortgages or mortgage-backed securities. While equity REITs typically generate their incomes from renting out real estate, mortgage REITs mainly generate their revenues from the interest that earned on their mortgage loans. Mortgage REITs invest in mortgages only, and they make up less than 10% of the REIT market. One should be cautious, however, about owning a portfolio focused on mortgage REITs, since these shares tend to be quite sensitive to interest rates, and underperform when interest rates are low or falling.

Below we discuss three such monthly dividend REITs, data as of January 13, 2020.

ARMOUR Residential REIT (ARR)

ARMOUR is a REIT that carries a 10.8% dividend yield paid out monthly. ARMOUR, founded in 2008, invests in residential mortgage backed securities (MBS) that are primarily issued or guaranteed by the Federal National Mortgage Association (FNMA), better known as Fannie Mae, and the Federal Home Loan Mortgage Corporation (Freddie Mac) - or, those loans guaranteed by the Gov't National Mortgage Administration (Ginnie Mae). Since Inception, ARMOUR has paid out more than $1.6 billion in dividends to shareholders through December 2019.

Dynex Capital (DX)

Dynex Capital is another mortgage REIT paying monthly dividends, with an annual yield of 10.21%. Formed in 1988, Dynex Capital, Inc.manages a diversified, high-quality, leveraged fixed-income portfolio of mortgage bonds. Unlike ARMOUR, which looks mostly at guaranteed loans, Dynex's portfolio has a larger portion of non-agency debt (i.e. not issued or backed by a government agency), which are higher risk but also tend to produce greater returns.

AGNC Investment Corp. (AGNC)

AGNC Investment Corp. is yet another mortgage REIT, but which only invests in agency debt. Formed in 2008 at the height of the housing crisis, AGNC seeks to capitalize on mortgages financed primarily through collateralized borrowings structured as repurchase agreements (repo's), utilizing a generous amount of leverage. The shares currency carry a 10.65% dividend yield, paid out monthly.