Are you looking for regular monthly dividend income?
If so, you have some options.
Real estate investment trusts (REITs) usually pay monthly. Some high-yield sectors within energy, such as pipelines, also have monthly payout schedules.
For the most part, quarterly payment schedules are most common in the world of equities. If you seek individual stocks with monthly payout schedules, seeing the monthly payout as a must-have characteristic, you risk buying low-quality securities by screening for a fairly irrelevant criterion that doesn’t boost total returns but does narrow your options. However, if you buy a diversified portfolio of well-selected monthly pay REITs, bonds and stocks, you might do well. In this article, I’ll share a Canadian monthly paying exchange-traded fund (ETF) that offers a widely diversified high-yield portfolio — much of it discounted and undervalued.
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BMO Monthly Income ETF
BMO Monthly Income ETF (TSX:ZMI) is a monthly paying ETF offered by the Bank of Montreal. It consists of a number of other BMO funds wrapped into a larger whole, making it highly diversified (although this “fund of funds” structure does increase fees somewhat).
In addition to being numerically diversified (i.e., having a large number of stocks under the hood), ZMI’s portfolio also invests in several uncorrelated asset classes. These include stocks, bonds, covered calls and preferred shares. “Uncorrelated” refers to the tendency of assets not to move in the same direction; it reduces risk by limiting your exposure to downside moves in multiple portfolio assets. You can basically think of it as another form of diversification.
By giving you a portfolio of highly diversified and uncorrelated assets, BMO’s Monthly Income ETF allows you to earn monthly income without having to search through online databases for monthly payers — which are rare and often not great. So, a position in ZMI could be a sensible option for someone who depends on regular portfolio income to pay their bills.
Basic fund characteristics
Having explored the BMO Monthly Income ETF’s portfolio, we can now turn to the fund’s basic technical characteristics.
BMO Monthly Income ETF is pretty diversified, holding eight funds, each of them having many securities inside them. BMO U.S. Dividend ETF, for example, has 102 securities. BMO Monthly Income ETF has many such diversified funds, making it more diversified than one ETF. This diversification reduces the investor’s risk by “spreading their eggs across many baskets.” The fund also has a 0.18% management fee and a 0.2% management expense ratio. These fees are pretty low in themselves, but do remember that they’re layered on top of the constituent funds’ fees. Total expenses will be greater. Last but not least, ZMI has a 4.9% yield, which is above average by the standards of TSX stocks.
Foolish bottom line
When it comes to monthly dividend income, there are many options out there. These include stocks, bonds, REITs and more. Trying to pick individual small-cap monthly pay dividend stocks won’t always work out. However, a diversified monthly pay fund like ZMI should provide reasonably satisfactory performance.
