For income investors, reliable dividends are great, regardless of how frequently they come. Having said that, while the majority of dividend stocks and exchange-traded funds (ETFs) pay quarterly dividends, there is certainly a convenience advantage that comes with monthly distributions. Plus, the more frequent compounding of monthly dividend payments can be a major asset to long-term investors who don't yet rely on their stocks for current income.
With that in mind, here are three excellent ETFs for investors who want their dividend payments to come a little more frequently than every three months.
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Type of ETF
Recent Stock Price
Vanguard Total Bond Market ETF (NASDAQ: BND)
SPDR Wells Fargo Preferred Stock ETF (NYSEMKT: PSK)
WisdomTree U.S. High Dividend Fund (NYSEMKT: DHS)
Data sources: CNBC and each fund's prospectus.
Forget about buying individual bonds
Fixed-income (bond) investments are an essential part of any properly allocated investment portfolio. As a rule of thumb, I often suggest investors subtract their age from 110 (or 100 if you're a little more conservative) to determine their ideal stock allocation as a percentage of their portfolio, with the rest in bonds. So, if you're 40, this means that you should have roughly 70% of your portfolio in stocks and the other 30% in bonds.
However, buying individual bonds can be downright confusing, and isn't practical or necessary for most investors. Rather, mutual funds or ETFs are the best way to go in the majority of situations. As the name implies, the Vanguard Total Bond Market ETF is a great one-stop bond investment, with a variety of bond types and maturity lengths in its portfolio, and with a dirt cheap 0.05% annual expense ratio, it's one of the most cost-effective ways to add bonds to your portfolio.
It's also worth mentioning that several other Vanguard bond ETFs make monthly distributions as well. So if you want to maximize yield, the Vanguard Long-Term Bond Index Fund ETF (NYSEMKT: BLV) with its 4.3% yield could be best for you, and if you want to minimize volatility, the Vanguard Short-Term Bond Index Fund ETF (NYSEMKT: BSV) could be worth a look.
Preferred stock can be a great way to get safe and generous income
Preferred stocks are similar to bonds in many important ways. Like bonds, they make fixed income payments to shareholders, and their yield is generally based on the credit quality of the issuing institution. Unlike bonds, preferred stocks trade on major stock exchanges. And because they are technically subordinate to bonds in the event of a bankruptcy or default, preferred stocks tend to have relatively high yields.
The SPDR Wells Fargo Preferred Stock ETF and its 6.2% dividend yield and monthly income payments can help you get exposure to this type of income investment without the research involved with choosing individual preferred stocks. Issuers of the fund's top holdings include rock-solid companies like PNC Financial, AT&T, US Bancorp, and Bank of America, just to name a few.
If you don't want to buy just a few high-dividend stocks
As I mentioned above, properly allocated portfolios have exposure to both stocks and bonds, but choosing individual stocks is not for everyone. So if you need more exposure to stock-based investments in your portfolio but want monthly income, the WisdomTree U.S. High Dividend Fund could be worth a look.
The fund maintains a portfolio of stocks with above-average dividend yields, and the majority of the fund's holdings are large-cap companies you would probably consider household names. As of the most recent data, the fund's largest holdings include high-yielding stocks like AT&T, ExxonMobil, Verizon, Wells Fargo, and Pfizer.
In short, this ETF is like buying a portfolio of rock-solid companies with great dividends all in one investment.
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