It is far more common for dividends to be paid quarterly or annually, but some stocks and other types of investments pay dividends monthly to their shareholders.

Only about 50 public companies pay dividends monthly out of some 3,000 that pay dividends on a regular basis. The monthly payers are often related to commercial or residential real estate, since those businesses run on monthly payments. But the monthly payers run the gamut from hospitality to aviation to finance. Some real estate investment trusts (REITS) pay monthly.

Key Takeaways

  • Only 50 or so out of 3,000 companies that pay dividends pay them monthly rather than quarterly or annually.
  • Real estate investment trusts (REITs) and other trusts and partnerships are more likely to pay monthly dividends.
  • There are benefits to monthly dividends, particularly for reinvestors.

Dividends: The Basics

Many public companies pay dividends to their shareholders, typically in cash but sometimes in additional shares of stock.

Shares of stock represent part-ownership in a company. Dividends are the shareholder's portion of the profit the company has earned. It's easy to lose sight of those facts given the day-trading mentality of many individual investors.

Not all public companies pay dividends. In recent years, the fastest-growing companies have chosen to invest their profits back into the business. Their investors are amply rewarded by the growth in the price of their shares.

Dividends are for long-term investors. Cash dividends are issued as a dollar amount paid per share of stock owned, so all investors receive dividends commensurate with their ownership stake in the company.

For example, if company ABC has seven million shares outstanding and declares a 50 cent dividend, it pays $3.5 million in total dividends. A shareholder who owns 2,000 shares receives $1,000.

Seeking the Dividend Stars

Investment in dividend-paying stocks is a popular way for many to supplement their existing incomes, particularly in retirement.

Dividends on common stocks are not guaranteed. Whether a dividend will be paid, and in what amount, is decided by the board of directors while looking at the actual numbers on the company's profits for each period. (Only preferred stock shares guarantee dividends, and these types of shares are a kind of hybrid of a stock and a bond.)

There are, however, some companies that are considered dividend stars because of their steady and generous dividend payments to common shareholders. They tend to be mature companies with stable earnings in industries like consumer staples and utilities.

Occasionally, a company that is doing quite well may choose to issue a very large one-time dividend that can provide a generous windfall for big investors. In 2004, for example, Microsoft (MSFT) paid out an unprecedented $3-per-share dividend, paying out a total of $32 billion.

Benefits of Monthly Dividends

If you are looking to maximize your retirement income, an investment in stocks that pay monthly dividends can be a great help. Having a steady stream of income throughout the year makes balancing your day-to-day budget much easier.

However, one of the chief benefits of monthly dividends is the opportunity they offer the investor for reinvestment and compounding. Dividend reinvestment means using the dividend funds to purchase additional shares of stock.

To be eligible for a dividend payment, make sure you buy the stock before the ex-dividend date.

Many stock trading sites offer the option of automatically reinvesting your dividends. As the number of hares you own grows each year, so does your dividend, assuming the company's dividends remain stable.

When you retire, you can begin taking your monthly dividends in cash to supplement other income.

Who Pays Monthly Dividends?

Companies in certain industries are more likely to pay monthly dividends than others, so it pays to do your research. Real estate investment trusts (REITS) receive their income in the form of monthly rents, so it makes sense that some REITs also pay monthly dividend distributions.

Other companies required by tax law to pay out the majority of their income to shareholders are likely candidates for monthly dividend payments, as they need to redistribute their earnings regularly to avoid taxation. These companies tend to be trusts or partnerships. They do not produce a product or service but own rights to royalties.

Qualifying for a Dividend

Many people choose stocks for their history of paying dividends. However, timing is everything when it comes to qualifying for the payments. When a company declares a dividend, it also announces the ex-dividend date, which is the date after which any new share purchases are ineligible for the current dividend.

For example, if ABC company declares an ex-dividend date of April 15, the owners of stock purchased on or after April 16 do not receive the dividend. The dividend is paid to the shareholder who owned the stock prior to April 15, even if that person no longer has a financial interest in the company.