Imagine receiving a paycheck every month just for holding on to your investments. Sounds like a dream, right? For income-focused investors, monthly dividend stocks can make this dream a reality.
Unlike quarterly dividend stocks that pay out just four times a year, monthly dividend stocks reward you 12 times annually, offering a consistent and reliable income stream.
The Power of Compounding with Monthly Dividends
What makes monthly dividend stocks even more enticing is the potential for faster compounding growth.
When you receive dividends every month, you have the opportunity to reinvest those earnings immediately. By using your dividends to buy more shares, you can potentially accelerate your investment returns compared to stocks that pay out quarterly.
This is like adding fuel to the fire of your investment strategy, helping you reach your financial goals sooner.
Why Consider Monthly Dividend ETFs?
If you’re looking for a way to enjoy the benefits of monthly dividends without putting all your eggs in one basket, a monthly dividend exchange-traded fund (ETF) could be an excellent option.
ETFs are investment funds that hold a diverse portfolio of stocks, and they offer a convenient way to invest in multiple dividend-paying companies at once.
This diversification can help spread out your risk, ensuring that even if one stock underperforms, the others can help balance out your returns.
A monthly dividend ETF can provide consistent cash flow, which is particularly appealing if you rely on your investments for regular income or if you’re planning to reinvest your dividends to boost growth. When choosing a monthly dividend ETF, there are a few key factors to consider:
- Yield: This tells you how much income you can expect relative to your investment. A higher yield means more income, but be sure to balance it with the risk level of the underlying assets.
- Expense Ratio: A lower expense ratio means that more of your money goes into your pocket rather than covering fees. This can significantly impact your long-term returns.
- Holdings: Look at what the ETF invests in. Ensure that the portfolio aligns with your investment goals, whether you’re seeking stability, growth, or a mix of both.
With the right selection, a monthly dividend ETF can be a stress-free addition to your portfolio, providing both income and growth potential.
Spotlight on iShares Canadian Financial Monthly Income ETF (TSX:FIE)
One strong candidate for your monthly dividend portfolio is the iShares Canadian Financial Monthly Income ETF Common Class (TSX:FIE).
This ETF is designed to deliver consistent payouts with a solid yield of 6.49% as of the latest figures.
It’s particularly appealing for those seeking steady cash flow, thanks to its focus on financial services, including top Canadian banks—some of the most stable and reputable companies in the country.
But FIE isn’t just about stability. It also offers diversification across bonds and real estate, adding an extra layer of security to your investment.
With a low expense ratio and a strong year-to-date return of 12.49%, FIE stands out as a cost-effective option for those looking to maximize their returns while minimizing risk.
How Much Can You Earn with Monthly Dividends?
Let’s get to the exciting part—how much can you actually earn with a monthly dividend investment? Let’s break it down using the FIE ETF as an example.
Suppose you invest $10,000 in FIE. With a 12.5% annual return and a 6.5% dividend yield, your portfolio could look like this after one year:
| Investment | Recent Price | Number of Shares | Dividend per Share | Annual Dividend Income | Portfolio Value (with 12.5% growth) |
|---|---|---|---|---|---|
| FIE – Initial | $7.43 | 1,346 | $0.48 | $646.08 | $10,000 |
| FIE – After 1 Year | $8.36 | 1,346 | $0.48 | $646.08 | $11,252.56 |
In just one year, you could bring in returns of $1,252.56 from growth, plus $646.08 in dividend income, totaling $1,898.64 annually. This works out to a monthly passive income of approximately $158.22.
But what if you decide to invest a larger sum? Here’s a breakdown of how much you could earn with different investment amounts:
$20,000 Investment
- Annual Growth: $2,505.12
- Annual Dividend Income: $1,292.16
- Total Annual Income: $3,797.28
- Monthly Passive Income: $316.44
$50,000 Investment
- Annual Growth: $6,262.80
- Annual Dividend Income: $3,230.40
- Total Annual Income: $9,493.20
- Monthly Passive Income: $791.10
$100,000 Investment
- Annual Growth: $12,525.60
- Annual Dividend Income: $6,460.80
- Total Annual Income: $18,986.40
- Monthly Passive Income: $1,582.20
As you can see, the more you invest, the more you can earn in both growth and dividend income. A larger investment allows you to maximize your passive income, potentially leading to significant financial freedom over time.
Bottom Line
Monthly dividend stocks and ETFs can be an excellent addition to your portfolio, providing consistent income and the potential for faster growth through reinvestment.
Whether you’re investing $10,000, $50,000, or even $100,000, these investments can offer a steady and reliable income stream that acts like a monthly paycheck.
With careful selection and a long-term strategy, monthly dividends could be your key to achieving your financial goals.