The first rule of investing for retirement is to hold a diversified portfolio consisting of many securities in different, uncorrelated asset classes. Many financial advisors recommend holding thousands of stocks through ETFs; the Motley Fool generally recommends holding at least 25. Taking this view, it might sound strange to place a particular emphasis on “monthly-pay dividend stocks.” After all, prioritizing such stocks entails screening for a criterion that isn’t related to total returns. Nevertheless, monthly pay dividend stocks do merit a place in a diversified portfolio. With that in mind, here are three monthly pay dividend stocks that might be worth taking a look at.
First National
First National Financial (TSX: FN) is a Canadian non-bank lender that pays a $0.204167 monthly dividend. That works out to $2.45 per year, giving the stock a 6.5% yield at its current price of $37.96.
First National has a lot of things going for it. As a mortgage lender that does not take deposits, it faces less liquidity risk (i.e., the risk of not having enough cash) than banks do. It’s fairly cheap, trading at 10 times earnings. Finally, it has experienced considerable growth over the last five years, with its revenue up 8.8% and earnings up 8.9% over that period. These figures are on a per year basis; the cumulative five-year growth is much higher.
Another thing that FN has going for it is high profitability. Over the last 12 months, its profit margin was 32% and its return on equity was 34%. It was a great showing. Now, with the Bank of Canada cutting interest rates, we’d have to expect FN’s earnings to decline somewhat. But with a 63% payout ratio, the mortgage lender can afford to have a medium-sized decline in earnings and still keep paying its dividend.
RioCan
RioCan Real Estate Investment Trust (TSX: REI.UN) is a Canadian REIT (real estate company) that owns valuable properties in Toronto and other major centres. Its stock has been beaten down in recent years but it might start doing better thanks to the Bank of Canada’s recent interest rate cuts. As a REIT, it has to (by law) pass on a huge amount of its profit to shareholders as dividends. A consequence of this is that it has a large amount of debt. Highly leveraged companies like this tend to do well when rates go down, because their debt gets cheaper, which causes earnings to spike.
Despite its high debt load, Riocan has a lot of things going for it. It has a 6% dividend yield, it trades at 0.7 times book value, and its free cash flow is up 186% year over year. Of course, there are issues here too. Partially thanks to interest rates, its long-term growth track record isn’t great. But that could change in the new, lower rate environment we’re anticipating.
Sienna Senior Living
Sienna Senior Living (TSX: SIA) is a company that profits off of one of Canada’s most talked about demographic trends: the aging population. Canada’s population is growing older, and with that comes demand for retirement homes, which is what Sienna Senior Living provides. Consistent with that observation is SIA’s year-over-year growth rates. Revenue is up 12.5% and free cash flow is up 166%. The stock has a 6.1% dividend yield, and the payout is monthly.
I certainly wouldn’t go putting a huge percentage of my portfolio in SIA stock. It does have issues like fairly slim profit margins and a high debt load. Nevertheless, SIA is an example of how stocks do sometimes pay dividends monthly.
