Top 7 Monthly Dividend Stocks with the Highest Returns

Use these rules for avoiding the biggest risk in monthly dividend stocks, the tradeoff between high dividend yield and a falling stock price. In this video, I’ll show you how to find the best monthly dividend stocks to buy. I’ll share three simple rules for dividend investing and then reveal seven monthly dividend stocks to watch.

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The biggest problem in dividend investing is that investors buy a stock for its high dividend yield but then get burned with a falling stock price. The total return on the shares is less than they would have gotten in other stocks, even if the dividend payments kept coming.

Of the 46 monthly dividend stocks I watch, four have produced total returns less than the dividend yield. That means the stock price fell and wiped out some of that dividend return! Another 16 stocks underperformed the market because of poor price returns.

You can have both, high dividends and high price return but you have to follow these rules.

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Follow these rules for investing in monthly dividend stocks! Rule #1...just look at the stock chart. It’s not a fool-proof way of avoiding that yield trap but it’s a good start when the stock price has gone up in the past. You can calculate the actual return like we looked at earlier or just look at the chart over the past five years. I wouldn’t rule out a stock just based on the chart but if it doesn’t check the next two rules, better to just find another stock.

Rule #2 for investing in monthly dividend stocks, use relevant cash flow coverage measures and this is something a lot of investors misunderstand.

You see, the problem is, a lot of these high dividend stocks are in different types of company structures and you’ll need to use different measures for dividend safety and cash flow.

For example, for real estate stocks, these companies have very high depreciation taken off the income statement so earnings are skewed and not a good measure of actual cash flow. That means you need to use a different measure, the funds from operations or FFO, to compare how much cash is being generated and how much goes to paying the dividend.

For BDCs, we already talked about using that average portfolio yield to make sure a company is earning a higher yield than it’s paying out. And for regular types of companies, you can use the payout ratio which is the annual dividend per share divided by the company’s earnings per share. This is going to show you how much of a company’s profits go to paying the dividend. Too high and it isn’t saving enough back for growth…too low and it’s not much of a dividend stock.

The third rule for creating your monthly dividend portfolio is to diversify into different types of dividend stocks.

These different types of companies; from BDCs to REITs and MLPs, they all have different ways the economy and other factors affect the stocks. Higher interest rates might be great for BDCs but not so much for MLPs or other stocks. Your first goal is to invest in good companies but you also want to make sure you spread your risk out over different sectors and types of companies.

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
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Видео Top 7 Monthly Dividend Stocks with the Highest Returns канала Let's Talk Money! with Joseph Hogue, CFA