Your monthly dividend income

Working people are used to a regular monthly income. Investment vehicles that can provide income on a steady, low-maintenance basis include dividend stocks and bonds. Focusing on on increasing dividends, investors can not only generate a steady stream of income, but also hedge their positions effectively against inflation. Most dividend stocks like Coca-Cola (NYSE:KO) pay quarterly distributions. Some stocks, such as Diageo (NYSE:DEO), pay distributions semi-annually, while others pay distributions annually. like Nestlé (VTX:NESN) pay distributions once a year. 

This quarterly, half-yearly or annual rhythm makes it difficult for the income-oriented investor to budget. As a result, some people try to include monthly dividend securities in their portfolios. 

Here are two that pay dividends on a monthly basis:

• Realty Income (NYSE:O) calls itself "The Monthly Dividend Company". The company has been paying a monthly dividend for 42 years and has increased it for 14 consecutive years. Its current yield is 4.70% (but with a payout ratio of 176%).
• PowerShares Emerging Markets Sovereign Debt Portfolio (PCY) is an ETF based on the DB Emerging Market USD Liquid Balanced index. The index tracks the performance of a portfolio of dollar-denominated emerging government bonds issued by around 22 emerging countries. Yield 5.30%

The universe of monthly dividends that pay stable or rising distributions (like Realty Income) is tiny. Most monthly dividend stocks tend to pay a fluctuating dividend (like PCY), making it impossible to budget for recurring expenses. 

An alternative is to find quality stocks that pay dividends in different months. So, for income averaging at different dates, it is possible to create a portfolio that pays a uniform monthly distribution, without being limited to monthly dividend stocks.

For example, the following three companies pay dividends in January, April, July and October :

• Kimberly-Clark (KMB) is engaged in the manufacture and marketing of healthcare products worldwide. Yield: 3.90%
• Automatic Data Processing (ADP) provides outsourced business solutions. Yield: 2.70%
• Sysco (SYY) engages in the marketing and distribution of a range of food and related products. Yield: 3.50%

The following three companies pay distributions in February, May, August and November :

• Abbott Labs (ABT) is engaged in the research, development, manufacture and sale of healthcare products worldwide. Yield: 3.50%
• Clorox (CLX) manufactures and markets consumer products worldwide. Yield: 3.50%
• Procter & Gamble (PG) supplies consumer packaged goods in the United States and abroad. Yield: 3,30%

The three companies below pay dividends in March, June, September and December :

• Johnson & Johnson (JNJ) engages in the research and development, manufacture and sale of a variety of healthcare products worldwide. Yield: 3,50%
• McDonald (MCD) operates McDonald's restaurant franchises offering a variety of food products, soft drinks, coffee, desserts, snacks and other beverages, as well as breakfast. Yield: 2,80%
• Chevron (CVX) engages in oil, chemicals and mining worldwide. Yield: 3.10% 

Investors can invest the same amount in each of the nine companies. They can also allocate their funds according to yield at the time of purchase, in order to generate a similar income stream for each month, at least during the first year.

The purpose of the above list is to illustrate how staggering different dividend payment dates can create a monthly income stream. Investors still need to focus on quality, diversification and valuation when constructing their portfolios.