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7 Monthly Dividend Stocks for Income Investors

Source: Getty Images.

As low interest rates punish savers, more investors are turning to monthly dividend stocks to generate income from their investment portfolios. The seven stocks and exchange-traded funds distribute dividends monthly, providing a reliable income stream on a current basis. 

Stock or ETF

Ticker symbol

Dividend yield

Realty Income Corp.

 O  3.4%

EPR Properties

 EPR  4.8%

LTC Properties

 LTC  4.1%

American Capital Agency

 AGNC  12.5%

WisdomTree LargeCap Dividend Fund

 DLN  2.6%

WisdomTree MidCap Dividend Fund

 DON  2.5%

WisdomTree SmallCap Dividend Fund

 DES  3.5%

Sources: Company IR, WisdomTree

With just one exception, American Capital Agency, all of the stocks and funds above have not only paid consistent monthly dividends, but increased their dividends to investors over the last 5 years. 

All-in on REITs

Real estate investment trusts dominate any list of monthly dividend companies. From Realty Income, which invests in single-tenant commercial property, to American Capital Agency, which invests in mortgages, many REITs pay their shareholders a monthly dividend. Here's the case for every REIT.

Realty Income is the undisputed leader in monthly dividends. The company specializes in long-term triple-net commercial leases wherein its tenants are responsible for property taxes, insurance, and maintenance. Its average lease is currently scheduled to last 10 more years.

Net leasing places many of the risks of owning a building on the tenant, thus giving the Realty Income more visibility into its future cash flows. Its top tenants are listed in the table below.

Source: Realty Income

Investors have taken notice of its historical record, and rarely let the company trade cheaply. Shares trade at about 24 times its estimated funds from operations (a common measure of earnings) in 2016.

EPR Properties underwrites triple-net leases like Realty Income, but it specializes in entertainment properties -- megaplex theaters, water parks, ski parks, and entertainment-focused retail centers. It also has a smaller, but faster-growing portfolio of real estate occupied by public charter schools and private schools. Getting its start as a REIT that owned just a handful of AMC Theatre locations, it now owns 131 megaplex theatre properties, by far its biggest earnings driver, making up about 56% of its net operating income, according to a recent presentation. Shares currently trade at about 17 times its adjusted FFO guidance for 2016.

Source: EPR Properties

LTC Properties is a bet on a growing population of seniors needing long-term care. The company primarily invests in skilled nursing and assisted living facilities as an owner and lessor, though it also makes mortgage loans to other owners of skilled nursing and assisted living facilities.

LTC seeks to reduce its risks by writing so-called "master leases," so that its tenants, many of which lease several properties from the company, cannot back out of a lease on a single property. These contracts are especially important given its limited operator diversification -- just four companies produce about 49% of its annual leasing income.

Source: LTC Properties

Like many of the above REITs, its record and opportunities for growth haven't gone unnoticed. LTC Properties currently trades for about 27 times its FFO guidance for 2016, which was increased in the first quarter.

Finally, American Capital Agency is something of an outlier on this list in that it is a mortgage REIT. The company uses borrowed money to buy agency mortgage-backed securities, earning income based on the spread between its borrowing costs and the yield on its investments. You can think of American Capital as something like a bank that, instead of operating branches to collect deposits, raises funds to invest from banks and the capital markets instead.

Earnings for the company are inherently volatile, as it must record unrealized gains and losses from its portfolio of securities as interest rates rise and fall. Its long-term earnings power is at its strongest when spreads between short- and long-term rates are highest, as it borrows short-term capital at lower rates to invest in long-term mortgages at higher yields.

Monthly dividend ETFs

If individual stock picking isn't your thing, or you'd like a more-diversified portfolio of stocks, consider monthly dividend exchange-traded funds, which can be bought and sold just like a stock. A pioneer in the category, some of WisdomTree's best ETFs are its monthly dividend ETFs, which are broken down into small-, mid-, and large-cap funds.

Unlike other monthly dividend ETFs, these funds don't simply chase the highest-yielding stocks on the market. Instead, the funds weight their portfolios by expected total dividends a company will pay over the next year, rather than by dividend yield alone, an interesting twist that protects it from investing in the highest-yielding companies that may have the most suspect dividend policies.

Importantly, these funds can fit very well into an otherwise diversified portfolio by swapping some of your traditional small, medium, or large cap exposure for a higher-yielding ETF that invests similarly.

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Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends WisdomTree Investments. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.