Posted by Several types of investment will produce a monthly income. There are exceptions, but most money market and bond funds pay a monthly dividend. Real estate investment trusts also commonly payout monthly. You can have the monthly dividends reinvested if you don’t need the income right now. With these types of investments you can expect to get between 2% and 6% annual return. The higher the percentage, the more risk there is for the underlying security to lose value in a down market. You can also find ETFs (Exchange Traded Funds), which offer a monthly dividend. With ETFs, you can buy and sell them during market hours like a stock. With mutual funds, you have to wait until the next day for the buy or sell transaction to complete. Monthly dividends make it easier to manage your cash flow when you are on a fixed income.
I originally wrote this back in 2019 before investment income was my only income. Four years later, I found this early blog post and decided to add an update. When I was working my paycheck was bi-weekly. Now I have to wait until the end of the month to get my investment paycheck, which is in the form of interest and dividends. The one type of investment that I didn’t mention was closed-end funds or CEF’s. This type of investment is different than an ETF in that a closed-end fund issues a fixed number of shares through a single initial public offering (IPO) to raise capital for its initial investments. Its shares can then be bought and sold on a stock exchange, but no new shares will be created, and no new money will flow into the fund. They are usually actively managed and concentrate on a single market sector, but you can also find CEF’s that are made up of other CEF’s.
Closed-end funds do not repurchase their shares from investors. That means they don’t have to maintain a large cash reserve level, leaving them with more money to invest. They can also make heavy use of leverage (borrowed money) to boost their returns. As a result, closed-end funds may be able to offer higher overall returns than their open-fund mutual fund counterparts. They often pay a high monthly dividend (as high as 12%), which is what I was looking for. But the high monthly cashflow can come at a price. When interest rates went up, any CEF that held bonds saw a steep decline in share price, but the monthly dividend remained the same. On some CEF investments that held bonds I saw a 20% decline in value between 2022 and 2023. As interest rates go back down, investments that hold bonds will start to recover. Meanwhile, monthly dividends from the closed-end funds in my portfolio remain consistent and predictable. Funds that pay quarterly dividends are useful too, especially if you have a job and don’t need monthly income.