It’s always a perk to get paid more frequently, especially if you’re a passive income investor who’s retired, on sabbatical, on some sort of early semi-retirement (a member of the so-called barista FIRE (Financial Independence, Retire Early) movement), or just seeking another income stream to help keep up with the rising cost of living in an era where it’s really hard to get a raise to keep up with inflation.
When given the choice between a monthly or quarterly payout, the former would probably be favoured any day of the week unless, of course, it costs more in administrative fees. When it comes to some GIC (Guaranteed Investment Certificate) products, the more frequent the payouts, the lower your rate will be (a slightly higher rate on annual payouts versus biannual, for example).
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It’s better to be paid monthly… right?
Any way you look at it, I think that the whole monthly versus quarterly payout debate is ridiculously overdone. In my view, it shouldn’t really matter all too much if you’re getting paid monthly or quarterly.
In fact, it’ll probably work against you if you choose a stock or ETF (Exchange-Traded Fund) because of the payout frequency. Yes, it’s nice to get paid more often, especially as the bills accumulate. But at the same time, investing should be more about the value you stand to unlock. Paying two or three quarters to get a dollar of value ought to be the number-one focus of investors, rather than how often they should expect a dividend to trickle into their brokerage account.
Personally, I couldn’t care less if a firm or fund pays out every month or every three months. Even if you’re putting together a monthly budget of sorts, the solution is simple when it comes to those quarterly payers: just divvy up the quarterly payout into thirds for the next three months! Also, if it costs a bit more (even the slightest bit) to go through the extra work of distributing monthly, I’d much rather go for less-frequent payments.
Why frequency of dividend payments shouldn’t matter as much
So, in short, it doesn’t matter to me whether we’re talking quarterly or monthly payouts. And while it might matter to some income investors, my argument is that it shouldn’t, at least not compared to management expense ratio (MER) minimization, tax efficiency, landing the most amount of value possible, and, of course, the underlying fundamentals.
That’s not to say that monthly payers can’t happen to check all the boxes for value, low MER, tax efficiency and all the sort.
Rather, the frequency of payment, at least in my view, should be a perk that shouldn’t really make too large a difference when you’re going on the hunt for a new stock or basket of stocks, especially when you consider how trivial it is to turn a quarterly payout into a monthly one by splitting the dividend or distribution up yourself.
Why I actually prefer quarterly over monthly
Fortunately for passive ETF investors, monthly payouts are pretty much standard, at least when it comes to the yield-heavier funds out there.
Still, the wildly popular Vanguard S&P 500 ETF (TSX: VFV) pays distributions quarterly, and I prefer it that way. The VVFV is more about appreciation than dividends. And Vanguard is a knight in shining armour at keeping things running efficiently. That means keeping costs low and avoiding any bit of cash drag.
