The standard practice for U.S. exchange-traded stocks and other investments is to pay quarterly dividends. This practice makes sense because U.S. corporations are required to report business and earnings results every quarter.

However, in our regular lives, bills and payments typically come due every month. Wouldn’t it be nice to own some investments that pay monthly dividends? For an investor or retiree who draws income from their investments, shifting gears to plan around quarterly dividend payments can be a challenge.

While in the minority of dividend-paying companies, there are some securities from different categories that have chosen a monthly payout schedule. Investment choices should be made with a focus on the potential return criteria used for any new investment, but the fact a company or fund pays monthly dividends is a nice bonus.

However, monthly dividends are not just for retirees looking to invest for a “dividend paycheck.” Investors still in the accumulation phase of their wealth benefit from more frequent compounding of earnings. For example, with a 7% annual yield, $10,000 will turn into $20,016 in 10 years. That same yield compounded monthly grows to $20,096. That’s like getting free money, just from investing in monthly dividend stocks instead of quarterly dividend payers.

One feature you may not be aware of is that most online brokers now offer free automatic reinvestment of dividends. You select whether or not to reinvest on a security-by-security basis automatically. For example, in my brokerage account with the Dividend Hunter recommended investments, I have the monthly dividend stocks on automatic reinvestment, and I used the quarterly dividends for selective reinvestment.

One thing you need to understand is that there are different types of securities that trade on the stock exchanges and pay monthly dividends. Not all are common stock shares of individual companies.

For common stocks, many monthly dividend payers are organized as real estate investment trusts (REITs). These companies operate under special tax rules that allow them not to pay corporate income tax as long as 90% of net income is paid to investors as dividends. As the name notes, an REIT will own commercial properties or real estate finance investments.

1.) LTC Properties, Inc. (LTC) is an REIT that owns a portfolio of seniors housing and health care properties. Currently, the company owns 107 assisted living facilities, 72 skilled nursing facilities, and five “others.” The properties are operated by independent operators and make rent payments to LTC Properties.

LTC has paid a steady and growing monthly dividend since mid-2005. Its current yield is 6.3%.

Business Development Companies (BDCs) are another type of pass-through business entity. By pass-through, I mean that at least 90% of income must be paid out as dividends. BDCs make debt and equity investments in small-to-mid-sized corporations.

2.)Gladstone Investment (GAIN) is a small-cap BDC with an attractive dividend payment track record. As of the 2020 first quarter, the Gladstone investment portfolio’s value is $565 million. The company has a $340 million market cap. Gladstone has paid a growing monthly dividend since spring 2009. The current yield is 8.2%.

The closed-end fund (CEF) universe contains over 380 monthly dividend-paying funds. The fund sponsors do not redeem shares. CEFs trade on the stock exchanges. There is a wide range of investment categories in the CEF world, including U.S. equity funds, international equity funds, taxable fixed income, and tax-free fixed income. Many CEFs employ a managed distribution policy, which keeps dividends at a fixed rate. The level dividend payments can help you with your income planning.

3.) The Reaves Utility Income Fund (UTG) owns a portfolio of utility and infrastructure stocks. The fund managers use realized capital gains to support the managed distribution and pay a higher yield than the utility ETFs. Reaves has paid a steady and growing monthly dividend since its inception in 2004. This CEF has been a great total return investment for my Dividend Hunter subscribers. Reaves shares currently yield 6.7%.