For investors focused on dividend growth investing – companies that pay monthly dividends can be highly attractive. Monthly dividends are attractive for two primary reasons. First, they provide steady passive income you can count on month after month which will generally smooth out your income stream. Second, monthly dividends will compound over time faster than quarterly dividends and that will pay off over the long haul.The most popular, and potentially best known company in this category is Realty Income Corp (O). After all, their slogan is,”The monthly dividend company” which pretty much says it all.
Companies that pay monthly dividends are often classified as a Real Estate Investment Trusts (REITs) or a Business Development Company (BDC). These types of investments vehicles have some potential drawbacks as it relates to negative tax consequences and unique fundamentals. REITs throw off a lot of dividends and can trigger a very high tax liability if you are not utilizing a tax advantaged account. I try very hard to not have REITs in my taxable accounts. Also, these types of investments can sometimes be difficult to evaluate properly because they have different types of fundamentals than traditional companies. If you are not looking at these types of investments consistently than they can add a lot of complexity to your investment approach. This is why I try to gain exposure to these types of investments inside ETFs or mutual funds.
If you find yourself in a situation where you want predictable monthly passive income, but are not ready to wade into the REIT and BDC waters yet – ETFs can be a great option for you. ETFs generally will collect dividends from all the companies within the fund and distribute those dividends quarterly. However, there are some funds that distribute their dividends monthly and these types of funds can be great options for those looking for truly passive income.
The 5 best ETFs that distribute monthly dividends:
- Ticker: DIA
- Yield: 2.48%
- Expense Ratio: .17%
- AUM: 12.61 bil
The SPDR Dow Jones is a low-cost index fund ETF that corresponds
to the price and yield performance of the Dow Jones Industrial Average, according to the fund’s prospectus. All SPDR funds were created and managed by State Street Global Advisors (SSGA). The fund was started in 1998 and has produced almost a 7% return since inception. 3M Company (MMM), International Business Machines (IBM) and Goldman Sachs Group Inc (GS) are the three biggest holdings in the fund.
- Ticker: DTD
- Yield: 2.8%
- Expense Ratio: .28%
- AUM: 523.58 mil
The WisdomTree Total Dividend fund tracks the The WisdomTree Dividend Index which is a fundamentally-weighted index that defines the dividend-paying portion of the U.S. stock market. The Index measures the performance of US companies, listed on the NYSE, AMEX or NASDAQ Global Market, that pay regular cash dividends and that meet other liquidity and capitalization requirements established by WisdomTree, according to the fund’s prospectus. The fund was started in 2006 and has a 7.32% return since inception. AT&T Inc (T), Exxon Mobil Corp (XOM) and Microsoft Corp (MSFT) are the three biggest holdings in the fund.
- Ticker: SPLV
- Yield: 2.08%
- Expense Ratio: .25%
- AUM: 7.93 bil
The PowerShares S&P 500 Low Volatility by Inveso tracks the S&P 500® Low Volatility Index (Index). The Index is compiled, maintained and calculated by Standard & Poor’s and consists of the 100 stocks from the S&P 500® Index with the lowest realized volatility over the past 12 months. The fund was started in 2011 and has a 14.03% return since inception. AT&T Inc (T), Waste Management (WM) and PepsiCo Inc (PEP) are the three biggest holdings for the fund.
- Ticker: SPHD
- Yield: 3.22%
- Expense Ratio: .30%
- AUM: 2.53 bil
The PowerShares S&P 500® High Div Low Vol fund by Inveso seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500 Low Volatility High Dividend Index. The fund was started in 2012 and has a 16.68% return since inception. HCP Inc (HCP), Garmin Ltd (GRMN) and CenturyLink Inc (CTL) are the three biggest holdings for the fund.
- Ticker: PFF
- Yield: 5.74%
- Expense Ratio: .47%
- AUM: 17.24 bil
The iShares U.S. Preferred Stock ETF seeks to track the investment results of an index composed of U.S. preferred stocks., according to the fund’s prospectus. The fund was started in 2007 and has produced a 4.55% return since inception. Allergan PLC (AGN), GMAC Capital Trust I (ALLY) and Barclays Bank PLC (BACR) are the three biggest holdings in the fund.
Any of these ETFs can be great options for investors looking for low-cost index funds and the benefits of monthly dividends. Each fund provides an adequate yield, broad diversification and minimal costs (expense ratio). These funds can even be a great starting point for any dividend growth investors because their diversification and tracking of established indexes – greatly minimizes the inherent risk.
Make sure you check these funds out and let me know if you think there are others that should be included on the list.
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Disclaimer: I am not a investment or financial professional of any kind. Any information contained within this site is for informational purposes only and should not be considered advice or a recommendation of any kind. The investment ideas and opinions expressed in this article are not specific recommendations. All ideas and concepts should simply serve as a starting point for further research. Actual buy and sell decisions for your own portfolio are entirely up to you.