Wednesday, February 8, 2012

Dividend investing for monthly income

Investors spend a large portion of their working lives accumulating wealth. When a person is in the workforce, they tend to get accustomed to generating income on a consistent basis either every two weeks or once a month. The only investment vehicles which could provide investment income on a consistent basis without too much maintenance include dividend stocks and bonds.

By focusing on dividend growth stocks, investors could not only generate a consistent stream of income, but also effectively hedge their income against inflation. This is because many dividend growth stocks tend to regularly increase distributions every year.

Most dividend stocks like Coca Cola (KO) pay distributions quarterly. Some foreign stocks like Diageo (DEO) pay distributions semi-annually, while others like Nestle (NSRGY) pay distributions once per year. This makes budgeting for investors living off dividends somewhat difficult. As a result, some investors try to include monthly dividend stocks in their portfolios. However, the universe of monthly dividend payers which pay stable and rising distributions is very limited. Most monthly dividend payers tend to pay a fluctuating dividend, which makes it impossible to budget for recurring expenses.

One strategy that investors could implement is to find quality dividend stocks which pay dividends at different months. Thus, by laddering dividend stocks with differing payout dates, it is possible to generate a portfolio which pays a consistent monthly distribution without limiting one’s investment options strictly to monthly dividend stocks.

For example the following three companies pay dividends in January, April, July and October.

Kimberly-Clark (KMB) engages in the manufacture and marketing of health care products worldwide. Yield: 3.90% (analysis)

Automatic Data Processing (ADP) provides business outsourcing solutions. Yield: 2.90% (analysis)

Sysco (SYY) engages in the marketing and distribution of a range of food and related products primarily to the foodservice or food-away-from-home industry. Yield: 3.50% (analysis)

The following three companies pay distributions in February, May, August and November.

Abbott Labs (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. Yield: 3.50% (analysis)

Clorox (CLX) manufactures and markets consumer and institutional products worldwide. Yield: 3.50% (analysis)

Procter & Gamble (PG) provides consumer packaged goods in the United States and internationally. Yield: 3.30% (analysis)

These three corporations below pay dividends in March, June, September and December.

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. Yield: 3.50% (analysis)

McDonald's (MCD) franchises and operates McDonald’s restaurants that offer various food items, soft drinks, coffee, desserts, snacks, and other beverages, as well as full or limited breakfast menu. Yield: 2.80% (analysis)

Chevron (CVX) engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. Yield: 3.10% (analysis)

Investors could allocate funds in this sample list of stocks in different ways. They could either allocate the same amount to each of the nine companies. They could also allocate their funds based off the current yield at the time of purchase, in order to generate an income stream that is consistent from month to month at least in the first year.

The goal of the above list of stocks was simply to illustrate how laddering income stocks with different dividend payout dates can create a monthly income stream. Income investors should still focus on quality, diversification and valuation when constructing their dividend portfolios.

Full Disclosure: Long all companies listed in this article

Relevant Articles:


  1. It would seem easiest to focus on building a solid annual income stream, then keeping the next year or two worth of expenses in a cash fund, rather than worry about the ups and downs of monthly dividend.

  2. First I'd like to thank you for the great information you put out. Second, I have a question. How do you address the issue of double taxation on dividends? I've been reading quite a bit about dividends (your material, Lowell Miller, etc.) and thought I was totally sold, but lately I've been reading stuff related to W. Buffett and have become confused. Any comments you have will be much appreciated. Thanks!

  3. You might be surprised that if you build a portfolio of 15-20 stocks you probably already are getting dividends monthly without even trying.

    Here are a few more specific options.

    Companies don't go to the trouble of paying monthly dividends due to the extra work and expense required. But a few due. Realty Income (O) pays dividends out monthly. Their preferreds, D/F do as well

    Also the ETF which tracks the Dow Jones Industrial Average (DIA) pays dividends out monthly.

  4. @lucedale

    Since I started investing in dividend stocks I have paid very little tax on dividend income. For instance in 2011, I only owe taxes on Non-Qualified dividends and short term capital gains. I will pay no tax on 90% of my dividend income and no tax on long term capital gains. In most cases dividends from corporations that pay income tax will be what the IRS considers Qualified. Assuming you don't make too much money AFTER DEDUCTIONS (single: $34.5K or married: $69K) then you wouldn't need to pay taxes. There are some stocks that pay non-qualified dividends. O (Realty Income Corp) is one of these. You have to pay the tax because they don't pay taxes. So for the most part there is not currently double taxation for the small investor. That could change at any time, but that is not the current situation. Hope that helps
    For more information see the 1040 instructions line 9 and the Qualified Dividends and Capital Gain Tax Worksheet on page 37.

  5. I'm taking this strategy a step further. I already have monthly dividend stocks(23 total) that is working out nicely. My goal is to get paid a dividend every day :)

    I will say I do find it challenging to find the pay dates for good quality dividend stocks. The challenge is you have to actually look up each stock, when it pays individually( is useful).

  6. Hi,I am really thankful for the information you have put out there for some basic investors in the market who are seeking a dividend growth portfolio. I have two questions, much appreciated if you could answer them when you get a chance.

    1- Could you please suggest some good Canadian stocks that pay out acceptable dividends that fit your criteria? (I am canadian so I would like to benefit from the dividend credit that only applies to Canadian corporations even though I also buy US stocks)

    2- How do you generally calculate the value of a stock if its worth buying or not i.e. fairly valued or even under valued? I can never seem to stick to one formula and I understand there are so many indicators but a rule of thumb i.e. general formula would be nice to know.

    Thanks a lot.


Questions or comments? You can reach out to me at my website address name at gmail dot com.

Popular Posts