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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
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Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| Earn
Better Returns With Monthly Dividend Payers |
Published: February 28,
2007
You may have noticed that most securities pay their dividends quarterly,
that is, every three months. Others pay monthly and a few securities may
pay annually or semi-annually. Although quarterly payments are far more
typical, the more frequent monthly dividends do provide a slight
advantage for investors.
For starters, monthly payments give you a simple way to get a steady
income stream throughout the year. That said, with a little effort you
can also create a consistent income stream by carefully selecting stocks
that pay their quarterly dividends at different time slots. For example,
you could buy one stock that pays a dividend in January, April, July,
and October. Meanwhile, you could buy another that pays in February,
May, August, and November. Finally, you could add one that pays its
dividend in March, June, September, and December. By holding these three
securities, you would receive regular a dividend check every month.
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If you are letting your
dividends grow instead of using them for income, then investing in
securities that pay monthly dividends can give you a slight edge here,
too. They allow you to grow your dividend income somewhat faster through
the magic of compounding. In the short-term, the difference between
monthly and quarterly dividends is fairly negligible, but over the
long-term, the monthly installments do add up.
For example, let's say you buy 1,000 shares of a $10 stock, which pays a
$1.20 per share annual dividend. That equates to a 12% yield per year,
or 1% per month. If the dividend is paid monthly and then reinvested
back into the stock, then in one year you would receive $1,268.25 in
dividends. As a fraction of your original $10,000 investment, your total
compounded returns would be 12.68%.
Now let's say the dividend is distributed quarterly instead. Every three
months, you receive 3% of your original investment. At the end of the
year, you would earn $1,255.09 in compounded returns, or a 12.55% return
on your original $10,000 investment.
As you can see from the table below, your compounded returns are
slightly better -- by 13 basis points -- from the monthly versus
quarterly payout if you hold the stock for one year only.
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Monthly
Payments
|
| Month |
Principal |
Dividend |
| 1 |
$10,000.00 |
$100.00 |
| 2 |
$10,100.00 |
$101.00 |
| 3 |
$10,201.00 |
$102.01 |
| 4 |
$10,303.01 |
$103.03 |
| 5 |
$10,406.04 |
$104.06 |
| 6 |
$10,510.10 |
$105.10 |
| 7 |
$10,615.20 |
$106.15 |
| 8 |
$10,721.35 |
$107.22 |
| 9 |
$10,828.57 |
$108.28 |
| 10 |
$10,936.85 |
$109.37 |
| 11 |
$11,046.22 |
$110.46 |
| 12 |
$11,156.68 |
$111.57 |
|
$11,268.25 |
|
| Total
Dividends |
$1,268.25 |
| Return
on Investment |
12.68%
|
|
| Quarterly
Payments |
| Quarter |
Principal |
Dividend |
| 1 |
$10,000.00 |
$300.00 |
| 2 |
$10,300.00 |
$309.00 |
| 3 |
$10,609.00 |
$318.27 |
| 4 |
$10,927.27 |
$327.82 |
|
$11,255.09 |
|
| Total
Dividends |
$1,255.09 |
| Return
on Investment |
12.55%
|
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The advantage of the monthly
payouts becomes somewhat more significant for a long-term investment.
Using the same calculations as we did above, your compounded gains on
the monthly dividend if you hold the stock for 10 years come to
$23,003.87. That gives you a 230.04% return on your original $10,000
investment, or an average of 23.00% annually.
Your compounded returns on a quarterly dividend payout over 10 years are
$22,620.38, giving you a 226.20% gain, or 22.62% annually. Over this
longer term, your compounded returns improve by 38 basis points per year
for a monthly dividend payer.
The bottom line is that monthly dividends do have a slight edge over
quarterly or less frequent payouts. They provide a steady income stream
and marginally higher returns on your investment. Still, the differences
are not that great, and the main focus of your stock selection should be
on the quality of the dividend payments, not on their frequency. In
other words, considerations like earnings prospects and dividend growth
potential are far more critical to your overall returns than dividend
frequency.
For investors seeking that added advantage of more frequent dividend
payments, the list below should serve as an excellent starting point. It
presents a fairly complete list of monthly dividend-payers with yields
of 5% or more. Some of these securities may have stronger fundamentals
than others, so it's important to check them out more closely before you
reach for the monthly payout . . .
Important Note: Throughout the remainder of
this article, editor Carla Pasternak and our research staff provide a
list of over 100 securities that pay dividends monthly and yield at
least 5%. However, in order to view the remainder of this article,
you'll need to subscribe to our premium newsletter -- High-Yield
Investing. After you subscribe you'll receive immediate access to
this full article, as well as our monthly High-Yield Investing
newsletter and a host of additional premium content. Please visit one of
the following links to continue. . .
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Editor's
Note: Carla Pasternak's model portfolios focus exclusively
on investment opportunities with ultra-high yields. In fact, in each
of her monthly High-Yield Investing newsletters she
provides readers with an entire portfolio of stocks, funds and
preferreds that are delivering annual dividend yields of +10% or
more. That's right -- in order to even be considered for
inclusion in this portfolio, an investment
must deliver cash payments of at least 10% per year. Visit
this link to learn more about Carla Pasternak's High-Yield
Investing newsletter.
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Good investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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receive in-depth guidance on today's leading income investing
opportunities each month, plus access to several model portfolios,
please subscribe to Carla Pasternak's premium newsletter -- High-Yield
Investing. |
Carla
Pasternak draws on a variety of financial backgrounds to make profitable
calls on income-generating stocks for her readers.
Carla has
been employed in the investment industry for more than two decades. In
addition to her work as a writer for several other nationally recognized
financial publishers, her previous experience includes a position as
President of a well-respected investor relations firm. She has also been
writing shareholder reports for public companies (annual reports,
speeches, corporate profiles, slide shows, etc.) since 1980.
A highly
successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select
companies that not only pay rich dividends, but that also have the
potential to deliver strong long-term capital gains.
On the
educational front, Carla holds both MBA and Ph.D. degrees. When she's
not watching the market, she's teaching business courses at the college
level and managing several million dollars in portfolio assets.
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