When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
Which ETFs have monthly dividends?
Some exchange-traded funds focus on growth and don’t pay regular dividends. Income-conscious investors may want to look at other options, including ETFs with monthly dividends.
QUOTE
“When you look at dividend returns on equities versus bond yields, to me, it's a pretty easy decision to be heavily in equities.”
Big ideas
- Instead of trying to grow your capital in the stock market, you can choose to let it provide you with a monthly income.
- Dividend-orientated exchange-traded funds are convenient and offered by large reputable fund managers.
- Dividend ETFs have both advantages and drawbacks. Any decision to invest in one should always take your overall financial position and goals into account.
What is a monthly dividend?
A monthly dividend means you receive a dividend payout every month on top of any growth the investment achieves.
There’s a little bit more to investing than just growing your money. In particular, when exactly this growth is translated from a paper gain to cash in your pocket can matter a great deal!
In some cases, you have to liquidate (i.e. sell) an investment to realise a profit. In others, like with ETFs that make monthly dividend payments, you can take some money out without giving up your equity position.
There’s a little bit more to investing than just growing your money. In particular, when exactly this growth is translated from a paper gain to cash in your pocket can matter a great deal!
In some cases, you have to liquidate (i.e. sell) an investment to realise a profit. In others, like with ETFs that make monthly dividend payments, you can take some money out without giving up your equity position.
How do monthly dividend stocks work?
Let’s first make a distinction. There are 2 possibilities we will discuss for getting a monthly dividend:
- Monthly dividend-paying stocks
These are quite rare and usually confined to REITs (real estate investment trusts) or other types of publicly-listed investment funds. Public companies usually pay dividends every quarter and sometimes semi-annually or annually. - Monthly dividend-paying ETFs
This is much more common. The ETFs own a basket of stocks with deliberately staggered quarterly dividend schedules: some pay their investors in January and every three months thereafter, others start in February, and so on. This enables the fund to reward investors twelve times a year. In other words, they offer you a simple way to build your monthly dividend portfolio without having to research individual stocks.
Why are there monthly dividend stocks?
Since your monthly expenses are likely to remain quite consistent, it makes sense to try to level out your income (dividend payments) across the months, rather than being heavily concentrated at the end of each quarter.
Policy and precedent partly determine which stocks pay monthly dividends and how generous these tend to be. Apple (AAPL), for instance, prefers to pay moderate dividends on a quarterly basis. Few individual stocks, in fact, distribute cash to investors every month.
Examples of monthly dividend-paying stocks
- Realty Income Corporation (O) - A real estate investment trust (REIT) known as "The Monthly Dividend Company," specializing in commercial properties.
- STAG Industrial, Inc. (STAG) - A REIT focused on single-tenant industrial properties, providing monthly dividends to investors.
- Shaw Communications, Inc. (SJR) - A Canadian telecommunications company that offers monthly dividends to its shareholders.
- Pembina Pipeline Corporation (PBA) - A leading energy infrastructure company in Canada that distributes monthly dividends.
- EPR Properties (EPR) - A real estate investment trust that invests in entertainment, recreation, and education properties, providing monthly dividend payments.
Are monthly dividend ETFs a good investment?
For any investor, the two most important financial variables are really value and time. Once you add risk to the equation, you pretty much have the beginnings of a coherent investment strategy.
What’s needed to tie these parameters together is a defined goal. For starters, you have to decide what you’re after: income or growth.
What’s needed to tie these parameters together is a defined goal. For starters, you have to decide what you’re after: income or growth.
DEFINITION
Growth investing means buying assets in the hope that they will increase in value over time.
Income investing focuses on assets that yield income on a predictable schedule.
Income investing focuses on assets that yield income on a predictable schedule.
These strategies aren’t mutually exclusive. You may well choose to own some long-term growth assets mixed with monthly dividend stocks and ETFs. You can even reinvest your payouts, as many monthly dividend funds allow you to do automatically. This effectively means pursuing a growth investment strategy that can be painlessly converted to an income-focused approach at any time.
NOTE: Even stocks known for paying handsome dividends may reduce these at any time based on business conditions. In other words, monthly dividend ETFs can offer more stability (owing to the diversification of ETFs) if a consistent income is important to you. Using these funds to spread your investments around can reduce the volatility of payments considerably.
NOTE: Even stocks known for paying handsome dividends may reduce these at any time based on business conditions. In other words, monthly dividend ETFs can offer more stability (owing to the diversification of ETFs) if a consistent income is important to you. Using these funds to spread your investments around can reduce the volatility of payments considerably.
As always, any investment decision needs to consider your own personal circumstances and investment objectives.
If you’re in your twenties, with few fixed expenses compared to your income, probably won’t look too closely at income investments, including monthly dividend stocks and ETFs. A company’s dividend track record matters, of course, but its share price’s growth potential over the long term will be what really counts for somebody in your position.
Other scenarios can make monthly dividend-paying ETFs much more attractive. Perhaps you’ve had a cash windfall, like the sale of a property or an inheritance, that you wish to convert into regular income without depleting the principal (the lump sum invested).
Another factor to consider is your age. If you (touch wood) have several productive decades ahead of you, the range of choices with the number of trading instruments and risks you can choose between in your Trading 212 account are much wider. That’s because you have time to recover from any unexpected setbacks. Once you pass 50 or so, it’s usually time to start applying the brakes and seek out safer investments.
Monthly dividend ETFs, as diversified baskets of stocks and other instruments that are themselves stable, certainly qualify. There is a caveat to this, though. You can’t simply ask: “Which ETF has the highest dividend yield?”. Different funds have different approaches and, therefore, risk profiles, emphasising small-cap versus large-cap companies, perhaps, or specialising in a certain geographical region or economic sector. What was true last year may not apply the next, so you could choose to spread your monthly dividend portfolio among several ETFs.
In short, investing rarely comes down to a simple yes/no decision. Depending on your individual circumstances, there are a few other important points to consider before deciding whether or not dividend ETFs are for you. Additional wrinkles not explored in detail here may also be important for someone in your particular situation; getting professional advice before putting half your net worth into this kind of investment isn’t the worst idea in the world.
If you’re in your twenties, with few fixed expenses compared to your income, probably won’t look too closely at income investments, including monthly dividend stocks and ETFs. A company’s dividend track record matters, of course, but its share price’s growth potential over the long term will be what really counts for somebody in your position.
Other scenarios can make monthly dividend-paying ETFs much more attractive. Perhaps you’ve had a cash windfall, like the sale of a property or an inheritance, that you wish to convert into regular income without depleting the principal (the lump sum invested).
Another factor to consider is your age. If you (touch wood) have several productive decades ahead of you, the range of choices with the number of trading instruments and risks you can choose between in your Trading 212 account are much wider. That’s because you have time to recover from any unexpected setbacks. Once you pass 50 or so, it’s usually time to start applying the brakes and seek out safer investments.
Monthly dividend ETFs, as diversified baskets of stocks and other instruments that are themselves stable, certainly qualify. There is a caveat to this, though. You can’t simply ask: “Which ETF has the highest dividend yield?”. Different funds have different approaches and, therefore, risk profiles, emphasising small-cap versus large-cap companies, perhaps, or specialising in a certain geographical region or economic sector. What was true last year may not apply the next, so you could choose to spread your monthly dividend portfolio among several ETFs.
In short, investing rarely comes down to a simple yes/no decision. Depending on your individual circumstances, there are a few other important points to consider before deciding whether or not dividend ETFs are for you. Additional wrinkles not explored in detail here may also be important for someone in your particular situation; getting professional advice before putting half your net worth into this kind of investment isn’t the worst idea in the world.
How to calculate monthly dividend payouts?
Unlike annuities or bonds that make regular interest payments, monthly ETF dividends are not guaranteed. This potential fluctuation becomes highly germane if, for instance, you rely on these as part of your retirement income.
If you need to know how much, on average, you can expect to get out each month, you’ll generally start with the ETF’s monthly dividend yield. Historical figures for this number can be found in each fund’s prospectus or online and are a fair (but not infallible) indication of what could happen in the future.
In case you want to do the math, here’s how to calculate monthly dividend yield yourself:
If you need to know how much, on average, you can expect to get out each month, you’ll generally start with the ETF’s monthly dividend yield. Historical figures for this number can be found in each fund’s prospectus or online and are a fair (but not infallible) indication of what could happen in the future.
In case you want to do the math, here’s how to calculate monthly dividend yield yourself:
FORMULA
Dividend Yield = Dividend per share / Share value
Dividend yield is usually given as an annual figure. To determine a rough monthly income figure, divide the yield by 12 and multiply by the current value of your investment in the ETF. Or there are online tools to convert an annual return into a monthly one, to be more precise.
Are monthly dividends better than quarterly?
Most companies and ETFs follow a quarterly dividend schedule. This strikes a good balance between investors’ desire for a consistent income and management’s planning needs.
When monthly dividends are paid, the investor obtains two advantages:
The first applies when investment income is used to cover living expenses. Since rent, utilities, and other bills tend to follow a monthly cycle, this just makes household budgeting simpler.
The second comes into play when dividends are reinvested. This effectively means that gains on your nest egg are compounded twelve times a year instead of four.
Let’s see what this means, using an initial investment of £10,000 and a return of 5%:
When monthly dividends are paid, the investor obtains two advantages:
The first applies when investment income is used to cover living expenses. Since rent, utilities, and other bills tend to follow a monthly cycle, this just makes household budgeting simpler.
The second comes into play when dividends are reinvested. This effectively means that gains on your nest egg are compounded twelve times a year instead of four.
Let’s see what this means, using an initial investment of £10,000 and a return of 5%:
Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
Monthly | £10,512 | £11,049 | £11,615 | £12,209 | £12,843 | £13,490 | £14,180 | £14,906 | £15,668 | £16,470 |
Quarterly | £10,509 | £11,045 | £11,608 | £12,199 | £12,820 | £13,474 | £14,160 | £14,881 | £15,639 | £16,436 |
It’s worthwhile plugging your own numbers into a monthly dividend reinvestment calculator yourself. Anecdotal, made-up examples like these are meant to illustrate the concept, but your monthly dividend income and yield may be completely different.
These benefits aren’t completely trivial, but nor are they momentous. When deciding between quarterly and monthly dividend stocks and ETFs, watching total anticipated returns makes more sense than getting married to the idea of a more frequent payout schedule.
These benefits aren’t completely trivial, but nor are they momentous. When deciding between quarterly and monthly dividend stocks and ETFs, watching total anticipated returns makes more sense than getting married to the idea of a more frequent payout schedule.
How are ETF dividends taxed?
Tax treatment depends on individual circumstances and may be subject to change in future.
Investors need to watch out for three kinds of taxes from HMRC: income, capital gains, and dividend tax. (Investing in dividend ETFs in countries such as the United States can mean being subject to an additional withholding tax of 30%).
Since you will typically not be realising any gains as you hold onto the funds for the long term, capital gains are not a big consideration for income-orientated ETFs.
The bad news is that monthly ETF dividends are taxed like any other dividend received. The dividend tax on earnings over (until 2024) is £1,000.
There are a few exemptions and events that may come into play, though, including placing your ETF shares in an ISA.
Investors need to watch out for three kinds of taxes from HMRC: income, capital gains, and dividend tax. (Investing in dividend ETFs in countries such as the United States can mean being subject to an additional withholding tax of 30%).
Since you will typically not be realising any gains as you hold onto the funds for the long term, capital gains are not a big consideration for income-orientated ETFs.
The bad news is that monthly ETF dividends are taxed like any other dividend received. The dividend tax on earnings over (until 2024) is £1,000.
There are a few exemptions and events that may come into play, though, including placing your ETF shares in an ISA.
What are some high-yielding dividend ETFs?
In theory, and with all things being equal, ETFs that provide you with some money each month sound like a good idea. In practice, though, the differences between these and funds that distribute dividends quarterly are negligible.
And on a practical note, there is nothing stopping you from placing a third of your capital in a fund that pays out in January (and every three months thereafter), another third that declares dividends for February, and so on.
Keep in mind, as you work through this selection of dividend ETFs, that what matters at the end of the day are volatility and total returns (including capital gains or losses). Monthly dividends are an appealing idea but should probably not be the end goal of your investment plan.
And on a practical note, there is nothing stopping you from placing a third of your capital in a fund that pays out in January (and every three months thereafter), another third that declares dividends for February, and so on.
Keep in mind, as you work through this selection of dividend ETFs, that what matters at the end of the day are volatility and total returns (including capital gains or losses). Monthly dividends are an appealing idea but should probably not be the end goal of your investment plan.
Fund Name | Ticker | Dividend Frequency | Total Expense Ratio | 1-Year Dividend Yield | 1-Year Return |
SDIV | Monthly | 0.45% p.a. | 11.52% | -9.48% | |
IEMB | Monthly | 0.45% p.a. | 5.53% | -2.65% | |
VEMT | Monthly | 0.25% p.a. | 5.34% | -3.04% | |
IUKD | Quarterly | 0.40% p.a. | 5.55% | -2.72% | |
PEMD | Quarterly | 0.25% p.a. | 5.37% | -2.84% | |
DEM | Semi-Annualy | 0.46% p.a. | 8.60% | 6.36% |
These are only a sample of the dozens of dividend-paying ETFs U.K. residents can easily invest in. Remember, too, that past performance doesn’t guarantee future results. Last year’s leader may well turn into next year’s laggard or vice versa.
Pros and cons of monthly dividend stocks
Funds that pay frequent dividends aren’t either good or bad in themselves; they’re just a tool. Whether this tool is appropriate for the job at hand depends on the context and what you aim to achieve. You may, for instance, choose to combine dividend ETFs with other instruments like bonds or individual stocks. Here’s why:
✔️ Simplicity - Knowing that an ETF pays you a fixed return every month is simple to deal with. They offer a straightforward option as long as regular income is important to you.
✔️ Reduced volatility - Almost all dividend ETFs are designed to track a given index. This may measure the performance of real estate, bonds, emerging market stocks, or whatever – there are monthly dividend ETFs based on almost everything. Indices, by their nature, are more diversified than single stocks, which tends to mean lower volatility.
✔️ Passively managed - Another feature of index-type ETFs is that they make relatively infrequent trades. The positions taken by these funds’ managers are weighed very carefully and held for a long time. This leads to stability and, more importantly, low fees and expense ratios.
✔️ Simplicity - Knowing that an ETF pays you a fixed return every month is simple to deal with. They offer a straightforward option as long as regular income is important to you.
✔️ Reduced volatility - Almost all dividend ETFs are designed to track a given index. This may measure the performance of real estate, bonds, emerging market stocks, or whatever – there are monthly dividend ETFs based on almost everything. Indices, by their nature, are more diversified than single stocks, which tends to mean lower volatility.
✔️ Passively managed - Another feature of index-type ETFs is that they make relatively infrequent trades. The positions taken by these funds’ managers are weighed very carefully and held for a long time. This leads to stability and, more importantly, low fees and expense ratios.
Disadvantages of dividend stocks & ETFs
❌ Unimpressive capital gains - Most (though not all) ETFs aim to produce steady but unspectacular returns. This goes double for index-based, monthly dividend funds. In many cases, preserving your capital while having it earn a little pocket money really is all that you want – just don’t get too jealous when you seem to be missing out on a temporary bull market.
❌ Possibility of Losses - Whether your chosen dividend ETF specialises in blue-chip companies, gold, energy, or bonds, there’s always the chance that your shares will lose value – perhaps even while the monthly dividends keep flowing. Future months or years will probably see a change in its fortunes, but if you really can’t afford any kind of financial setbacks, investments like CDs may be more appropriate for you.
❌ Not directly tied to company performance - The basic idea behind value investing, which most people believe to some extent, is that good companies make good investments. This may not be reflected in their dividend decisions, though. A company may well decide to forego dividends in favour of repurchasing shares, acquiring a competitor, or reinvesting in capacity. Any of these boost the share price but not dividend yields.
❌ Possibility of Losses - Whether your chosen dividend ETF specialises in blue-chip companies, gold, energy, or bonds, there’s always the chance that your shares will lose value – perhaps even while the monthly dividends keep flowing. Future months or years will probably see a change in its fortunes, but if you really can’t afford any kind of financial setbacks, investments like CDs may be more appropriate for you.
❌ Not directly tied to company performance - The basic idea behind value investing, which most people believe to some extent, is that good companies make good investments. This may not be reflected in their dividend decisions, though. A company may well decide to forego dividends in favour of repurchasing shares, acquiring a competitor, or reinvesting in capacity. Any of these boost the share price but not dividend yields.
The difference between accumulating and distributing ETFs
Accumulating and distributing are two different methods by which exchange-traded funds (ETFs) handle the income generated from their underlying assets, such as stocks or bonds. Here's a simple explanation of each:
1. Accumulating ETFs reinvest the income they receive from their holdings back into the fund itself. Instead of distributing the income to investors, it is automatically reinvested to increase the fund's net asset value (NAV). This means that investors don't receive regular cash payouts but benefit from potential growth through the reinvestment of income.
Examples of accumulating ETFs:
1. Accumulating ETFs reinvest the income they receive from their holdings back into the fund itself. Instead of distributing the income to investors, it is automatically reinvested to increase the fund's net asset value (NAV). This means that investors don't receive regular cash payouts but benefit from potential growth through the reinvestment of income.
Examples of accumulating ETFs:
2. Distributing ETFs, as the name implies, distribute the income generated by the underlying assets to investors in the form of periodic cash payments. These payments can be made monthly, quarterly, semi-annually, or annually, depending on the ETF's distribution schedule. Investors receive the income directly and can use it as desired.
Examples of distributing ETFs:
Examples of distributing ETFs:
Accumulating ETFs may be suitable for those seeking long-term growth and reinvestment, while distributing ETFs may be more suitable for investors looking for regular income streams.
The difference in long-term performance can be seen via the S&P 500 with and without dividends reinvested.
The difference in long-term performance can be seen via the S&P 500 with and without dividends reinvested.
Past performance doesn’t guarantee future results.
Investing in dividend ETFs: questions to ask
By now, you should have a pretty good idea of how monthly dividend ETFs work, along with their advantages and limitations. This kind of knowledge is important: nobody but you can make the final decision on your investment strategy. Even professional financial advisors can only advise.
With that in mind, here are a few points to ponder before you decide to use a dividend ETF:
With that in mind, here are a few points to ponder before you decide to use a dividend ETF:
- What is your real goal? Many people hope to “put their money to work”. In general, investing for growth is a better way of achieving this.
- Is there a better way to turn a lump sum into a regular income? If a stable monthly payment is what you’re after, an annuity, fixed-rate monthly income bonds, or even a rental property could serve your purposes better.
- How will monthly dividends impact your tax bill? If you’re already paying a pound of flesh in income tax, dividends will only add fuel to the fire. Consider growth investments instead, or look into an ISA.
- Do you have a plan for the extra cash? If you’ll use dividend payments to cover ordinary expenses, great; if you plan to reinvest them, even better. Don’t, however, think of these returns as pennies from heaven and develop irresponsible spending habits.
Recap
ETFs that pay monthly dividends can find a worthwhile place in many investment portfolios.
You could see them as a hedge against market volatility or even as a useful source of cash for months when you run short. You’re probably not going to put your whole nest egg into these kinds of instruments, though. They are a specialised form of ETF, best used for specific purposes.
You could see them as a hedge against market volatility or even as a useful source of cash for months when you run short. You’re probably not going to put your whole nest egg into these kinds of instruments, though. They are a specialised form of ETF, best used for specific purposes.
FAQ
Q: What is monthly dividend yield?
This number is an indication of how much income an investment, such as a stock or ETF, yields each month. Changes in the share price are not taken into account directly. Simply divide the dollar amount of dividends disbursed per share, over the course of a year, by the average stock price during that time. Divide by 12 to get a monthly figure.
Q: Are stock dividends paid monthly?
Very few publicly traded companies hand out cash to investors quite so frequently. A quarterly dividend schedule is far more common, while some shares pay dividends on an annual or ad hoc basis. Specialised monthly dividend ETFs do exist, providing investors with a regular income whether their underlying assets’ dividends are monthly or yearly.
Q: Are monthly dividends from mutual funds taxable?
As far as HMRC is concerned, there’s little difference between dividends from individual stocks, ETFs, or traditional mutual funds. In all cases, whether you end up paying tax will depend on your personal and dividend allowance. Please refer to the dividend allowance for the tax year in question. The major exception here is for investments held in an ISA, which is tax-free.
Q: Are there any monthly dividend stocks in the U.K.?
Though quarterly dividend payments are more popular, some U.K. stocks do pay out on a monthly basis. These companies tend to have consistent profits and high liquidity. Monthly dividend ETFs tend to offer a wider range of choices and risk profiles than individual stocks, though.
Q: How to get monthly dividend income?
Unless you already have a large sum to invest, building your monthly dividend portfolio will take time. It may well be that using a buy-and-hold strategy and opting for value stocks that don’t generate much in the way of dividends will help you achieve your goals more quickly. If you really like the idea of monthly dividends, you may explore opportunities to optimize the use of these payments, such as reinvesting them
