Today, I’m going to show how you can build a diversified monthly dividend income portfolio to meet your monthly expenses.
I’m a big fan of stocks that send monthly dividend cheques. A simple reason that attracts me to monthly dividend-paying stocks is that it’s much easier to sync your monthly expenses with a monthly income stream.
In your golden age, when you may need to rely on your income portfolio to pay for your electricity, gas, and grocery bills, having monthly cheques arrived in your mailbox will be a great thing to have.
Another big benefit of investing in monthly dividend stocks is that you get a much better compounding when you reinvest dividends to buy more shares.
If you’re receiving dividends every month, you can use them to reinvest in more stocks and have those dividends grow more. The faster you reinvest those dividends, the faster they’ll compound interest.
Here is simple math to show you how you can inflate your portfolio by a monthly reinvestment plan. Let’s say you owned 1,000 shares of a $10 stock at a 5% annual dividend. At the end of the year, you’ll have earned 5% at $500.
Let’s assume you start getting monthly dividend for the same investment rather than annually. If you received monthly dividends, you could reinvest those dividends each month and earn 5.12% at $511.62. This is assuming the company paying dividend has a dividend-reinvestment plan set up.
In Canada, unfortunately, there aren’t many companies that pay monthly dividends. You’ll mostly find real estate investment trusts (REITs) in this space. Having said that, I’ve selected some quality stocks from different sectors to build a monthly dividend stream for you.
| Stock | Current Yield | Market Cap |
| RioCan Real Estate Investment Trust (TSX: REI.UN) | 5.90% | $7.82 billion |
| Inter Pipeline Ltd. (TSX:IPL) | 6.52% | $9.27 billion |
| Altagas Ltd. (TSX: ALA) | 7.27% | $4.19 billion |
| Pizza Pizza Royalty Corp. (TSX: PZA) | 5.10% | $518 million |
| Shaw Communications Inc. (TSX: SJR.B)(NYSE: SJR) | 4.06% | $13.76 billion |
Source: Yahoo! Finance
RioCan Real Estate Investment Trust is Canada’s largest REIT, managing quality assets. It has a long history of rewarding investors with monthly dividends. I think the time is ripe to collect a nice 6% yield on this top REIT after its shares have declined more than 10% so far this year.
Investors are shunning REITs on worries that a potential correction in Canada’s real estate market and rising interest rates will eat into their profits. But I don’t think you can paint every REIT with the same brush. RioCan has solid brands as its tenants which unlikely to go out of business anytime soon.
In the energy space, I’ve picked Altagas and Inter Pipeline. Both of these companies aren’t pure commodity plays. They run a mix of energy infrastructure, utilities, and power generation in North America. They generate hefty cash flows from very stable line of businesses. That means you’re not in a danger of losing your monthly cheques if oil prices plunge.
Finally, Pizza Pizza and Shaw Communications run great consumer businesses, offering very juicy yields to improve your monthly returns.
Shaw is a relatively small telecom play when compared to the “Big Three,” but the company is expanding fast to capture a larger share in the Canadian growing wireless market.
For investors hungry for a higher yield, Pizza Pizza offers a best deal with a great brand and attractive valuations. The stock pays $0.0713 per share monthly divided, or $0.8556 annually. The dividend has increased since 2012 to reflect the strong quarterly results, positive same-store sales growth, and growth in the working capital reserve.
