I found this photo of a New York Daily 1929 issue declaring the stock market crises over because the number of trades had crushed a previous peak by 4 million. Wouldn’t it be great to see this in print again this year? Or, maybe not, because we all know that the stock crisis rebounded in 1932, three years later, to worst ever lows. I don’t pretend to know when the current stock market crisis will end, but I don’t propose behaving as if it will crash again in the next three years. While I am aware of the risks lurking in the stock market now, I tend to believe that, with good leveraging behavior, there is still some money to be made there, such as with dividend-paying stocks. Some of the risk of market depreciation can be offset by the income paid by these companies.
I first introduced the topic of dividend investing in this post about choosing dividend stocks. I discussed ways to screen dividend stocks for further consideration as presented by Mr. Harry Domash in an article he published on MSN.com. In that post, I looked at quarterly dividend stocks for investment at this stage in the stock market. But, what about stocks that pay dividends on a monthly basis? Do the same parameters apply? How reliable a passive income source are such stocks?
What are monthly dividend stocks?
Monthly dividend stocks are stocks that pay out a fixed amount of cash per share of the stock on a monthly basis, as opposed to the more traditional quarterly, semi-annual or annual dividend payment schedules of most companies. A dividend is the total annual amount paid out by a publicly-traded company based on that company’s earnings. A company that pays out monthly dividends pays out a twelfth of its annual total dividend amount each month. Christian M. Archer wrote a great article about the characteristics of monthly dividend stocks. His explanation is very comprehensive and easy to follow. It also makes sense that one could apply Mr. Domash’s parameters for screening dividend stocks to monthly dividend stocks. His parameters look at the fundamentals of a company, which wouldn’t change based on its dividend schedule.
Building a Steady Passive Income Stream
In his article, Mr. Christian Archer tells us that monthly dividend stocks are a reliable income source because of payment schedules enforced by SEC regulation. He also tells us that the dividends paid by these stocks can be liquidated to cash or can be reinvested to our stock portfolio for purchasing shares of these or other stocks. If dividends are reinvested to acquire additional dividend paying stocks, over time, our passive dividend income will also increase.
While there is inherent risk in investing in publicly-traded companies on the stock market, a well-diversified portfolio – one containing different types of companies from different industries – should operate to provide leverage against significant market depreciation or decreasing dividends. The dividends themselves also provide some leverage against depreciation.
A great starting point for researching top monthly dividend stocks is at the Wall Street News Network. There, you can download the list of approximately 300+ monthly dividend stocks having a yield range from around 0.4% to around 48.9%. The list apparently updates pretty frequently so this information is based on the March 1, 2009 list.
I plan to keep an eye on monthly dividend stocks, as it is my intention to boost the number of income-producing companies in my portfolio over the next year. Even still, I take all market information with a grain of salt these days as market conditions stabilize.
What is your experience with monthly dividend stocks? Do you think this is a good investment at this time in the stock market?
MAKE MONEY MONDAYS is a forum to discuss ways in which you can create additional sources of income. I try to focus on particular ideas and steps you can take to create alternative income and passive income sources.