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Dividends as Income – Get Paid Just By Owning Stocks

Updated on January 5, 2014
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Dividend Income Stocks

One of the best ways to get a passive income each month is by owning incoming producing dividend stocks, which will pay you just for owning them. While it requires some money to do this, it doesn't have to be thousands of dollars. You can create an online brokerage account with little to no money to start, and it takes just minutes to begin.

What is a Dividend?

Dividends are what a company pays out to their shareholders (people that own stock). They are usually paid out quarterly, but some companies decide to pay them out monthly or annually. They are paid out from the profits of the company. In general, the more profitable a company is, the bigger their potential to pay a dividend and increase the payout amount each year.

Why Does a Company Pay a Dividend?

This is a way companies can reward their shareholders and increase value. If a company shows the public that they care about their shareholders and creating value, they will pay a good sized dividend. This could result in the stock getting a higher valuation, as the market starts to realize the true value of the stock.

What are the Advantages of Owning a Dividend Paying Stock?

The advantages are numerous! First, you are receiving a nice passive income each month that requires little to no effort from you to maintain it.

What is a DRIP?

Next, you can choose to automatically re-invest the dividends to buy more shares, creating more passive income each month. This is called a DRIP - Dividend reinvestment program.The advantage of this program is that the re-investment in your shares is FREE. Normally, if you bought more shares of a company, you would have to pay a trade fee ($8-10). A DRIP simplifies this process and is cost-effective.


Monthly Dividend Stocks - Why I Like Them Better

The truth is that most companies pay out their dividends quarterly, for a couple of reasons. Mainly, I think that companies like to manage their cash flow quarterly instead of monthly.

However, there are several reasons why investors would want stocks that pay dividends monthly. First, this is the most common way people manage their budget and income. When you sit down and do your budget, you take into account your income and expenses for each month, not for each quarter. So it makes this process much easier.

Next, you get income more often when you need it. Who wants to wait 3-4 months to get a dividend when you can get it each month?

Best Monthly Dividend Stocks


Here are three dividend-paying stocks that I like which pay a monthly dividend:

1) Prospect Capital (PSEC): This is a financial services company that primarily lends to and invests in middle market privately-held companies. To put it in simple terms, they lend money to small and medium sized businesses and make money from the interest on the loans.

Prospect pays a monthly dividend of about $.11 cents a share or $1.21 annually. With a share price of $11.21, they have a current yield of 11.65, which is quite high. The company is very profitable - just recently they reported quarterly earnings of $.38 per share, which beat expectations. They are also undervalued with a P/E ratio of 10.40.

2) Vanguard Natural Resources (VNR): Vanguard Natural Resources, LLC, through its subsidiaries, engages in the acquisition and development of oil and natural gas properties in the United States.

Vanguard pays a solid monthly dividend of $.207 per share, or $2.49 per share each year. The company is currently trading at $27.42 a share, giving the stock a yield of 9.10.

Vanguard also recently announces a boost in their dividend: the new payout is up 3.7% from last year's annual payout of $2.40.

3) Pacific Coast Oil Trust (ROYT): Pacific Coast Oil Trust owns net profits interests in the sale of oil and natural gas production.

ROYT pays a monthly dividend of $.1699, which was actually just increased from $.1546, payable Sept. 16 to shareholders of record as of Sept. 6.

The $5,000 Example of How to Make Passive Income from These Stocks (estimates)

PSEC: 446 shares. At $.11 cents a month, you would get $49 a month in passive income from dividends.

VNR: 182 shares. At $.207 cents a month in dividends, you would net $37.674 in passive income.

ROYT: 275 shares.At $.1699 cents a month in payouts, you would get about $46.7225 in passive income.

*DISCLOSURE: I own shares of PSEC, VNR and ROYT. This is not an investment recommendation and I am not an investment advisor. Please do your own due diligence when investing.

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This is a dividend chart of a company called Realty Income, which shows an increase in dividends every year from 1994 to 2007. This is why the company calls themselves "the monthly dividend company."
This is a dividend chart of a company called Realty Income, which shows an increase in dividends every year from 1994 to 2007. This is why the company calls themselves "the monthly dividend company." | Source

Top Paying Dividend Stocks

Stock
Dividend Amount Paid (Annual)
Yield (percent)
Western Asset Mortgage Capital
$3.60
22.76
Whiting USA Trust II
$2.78
21.58
Chesapeake Granite Wash Trust
$2.76
20.29

Non-Stop Passive Income

Why Do Dividends Outperform?

Why do dividend paying stocks tend to outperform other non-dividend stocks? The reason is simple: yield support.

When the market goes down or crashes, the stocks you own that pay dividends do better because you can re-invest the dividends to dollar cost average your positions. So if you own a stock that is down 20 percent, a re-invested dividend which really help the bleeding.

So even if you don't have the spare cash to average down your losing positions... your dividends will help you out and do it for you!

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    • Ahdilarum profile image

      Ahdilarum 3 years ago

      In my opinion, dividends should not be a major thing to be considered, if you want capital appreciation. Better focus on the performance of the company.

    • Hypersapien profile image

      Hypersapien 3 years ago

      I love dividends and dividend investing. I started out a long time ago with DRiPs and it's a nice way to build up a portfolio of investments.

    • promisem profile image

      Scott Bateman 3 years ago

      It's a good idea to look at the annaul growth rate of dividends for a stock even if the company is increasing the dividend every year. If the growth rate has averaged 10% a year for five years and suddenly the dividend is hiked just a penny or two, it might be a signal that the company is hoarding cash for some reason.

    • Availiasvision profile image

      Jennifer Arnett 3 years ago from California

      I'm personally trying to create a passive income through dividend investing and very thankful I started young. I wish every parent would force their 18 year children to open a brokerage account and begin investing. the power of compounding interest is amazing and makes life much easier in the long run. I'll be watching the VNR stock to see where it goes. I'm always out hunting for new investing ideas.