The Motley Fool

Increase Your Total Return Potential with 2 Monthly Dividend Stocks

Image source: Getty Images.

Seasoned dividend investors know very well the power of compounding. The more you accumulate stocks and reinvest dividend earnings, the more your income stream grows. Most dividend stocks pay every quarter. However, some investors desire to increase their total return potential.

These discerning investors take it a notch higher by chasing after monthly dividend stocks. You churn money faster if dividends are paid 12 times in a year instead of four. There aren’t many companies that pay monthly. Luckily, high-yield stocks like Pembina Pipeline (TSX:PPL)(NYSE:PBA) and TransAlta Renewables (TSX:RNW) belong to a select few.

A Dividend Aristocrat in the renewable space

TransAlta Renewables is a $5.2 billion is a renewable energy company and the largest wind power generator in Canada. You can purchase the stock at $19.47 per share to partake of the 4.83% dividend. Assuming you invest $100,000, the monthly dividend is $402.50. With the earnings, you can buy 20.67 more shares.

The current share price is a good entry point because the utility stock trades at a discount (-9.19%). TransAlta’s total return in the last 7.73 years is 226.06% (16.52% CAGR). The company operates and derives revenue from fully contracted renewable power generation facilities such as wind (23), hydro (13), natural gas (7) and solar (1).

Since the renewable and natural gas power generation assets are highly contracted, if not covered by long-term contracts, TransAlta’s cash flows are predictable, recurring, and stable. It should translate to uninterrupted monthly payouts to investors.

The underperformance thus far in 2021 belies TransAlta’s Dividend Aristocrat status. It has a decent dividend growth, 4% annually over the last five years. TransAlta’s strong balance sheet and ample liquidity provide additional flexibility in the current market environment.

Best of the lot

Pembina Pipeline is the superior choice of yield-hungry investors. Besides the monthly dividend payouts, the energy stock pays a generous 6.64% dividend. Again, if you have $100,000 to invest, the monthly dividend is $533.33. Since the stock trades at $37.94 per share, you can purchase 14.58 more shares.

Some industry experts think Pembina is the best in the lot, particularly pipelines. The $20.87 billion company owns and operates a pipeline network that stretches 18,000 kilometers long. Also, the company has 19 gas processing facilities. Because the assets are in strategic locations or mostly in rich resource areas, Pembina has plenty of opportunities to grow further.

Pembina’s competitive advantages are the full spectrum of midstream and marketing services, commercial operations of more than 65 years, and integrated assets. Currently, the company holds the leading position in the Canadian Oil Sands region. Thus, the energy stock isn’t a hard sell. The contracts for conventional pipelines are fee-for-service, and therefore, there’s cash flow visibility.

The dividend king’s year-to-date gain is 29.04%, and market analysts forecast a potential 10.7% upside to $42 in the next 12 months. Like TransAlta, Pembina is a Dividend Aristocrat. It has a proven history of maintaining and growing its dividend. Over the last five years, the dividend growth rate is 6.5% compound annual growth rate (CAGR). Finally, Pembina’s integrated business models make it an excellent source of lasting monthly income.

Generate more income

Shrewd dividend investors will always go for monthly income stocks. The monthly payouts work in their favour because they can generate more income by reinvesting the dividends consistently into additional shares of stock.

Speaking of why investors can generate more income from two monthly dividend payers...

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends PEMBINA PIPELINE CORPORATION.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.