3 Monthly Dividend Stocks to Buy Now and 2 to Avoid

Brett Owens, Chief Investment Strategist
Updated: May 12, 2016

Whether you’re relying on your portfolio for income or reinvesting your payouts, buying monthly dividend stocks makes a lot of sense.

After all, your bills roll in every 30 days or so, so why not your dividend income, too? And while a well-built portfolio will drop dividends into your account at all times of the year, you’re still left with an income stream that’s “lumpy”—soaring one month and dipping the next.

But throw in a handful of monthly payers, and you’ll bring some order to the cash-flow chaos.

Of course, convenience isn’t the only reason I love monthly dividend payers. They also let you reinvest your payouts quickly, amping up the power of compounding—and putting thousands of extra dollars in your pocket over the long haul.

The Monthly Dividend Stocks Most Investors Overlook

The downside? There aren’t many monthly payers out there; they’re mainly limited to business development companies and some real estate investment trusts (REITs).

But you will find boatloads of monthly payers in the closed-end fund space. What’s more, many of these oft-ignored investments throw off 6%+ yields, to boot.

I also like closed-end funds because many are cheap today, trading at 10%+ discounts to net asset value (NAV). That means you’re getting $1 of assets for $0.90 or less—and you’re positioning yourself for a nice gain as that gap narrows.

Some of the best closed-end funds are also making smart use of covered call writing (more on that in a moment) and leverage—borrowing modestly at today’s low rates and reinvesting the cash in their portfolios—to juice their profits and fuel those hefty 6%+ yields.

From Worst to First: Ranking 5 Popular Closed-End Funds

Here’s my take on five leading CEFs, starting with the two priciest and ending with three trading at deep discounts now. A little further on, I’ll give you three more picks I see as the very best in the space.

At first glance, the DNP Select Income Fund (DNP) looks like an investment that’s about as safe as they come. The fund holds 75% of its portfolio in power, water and gas utilities, as well as telecoms. It also has 9% in master limited partnerships (MLPs), a high-yielding asset class I think should be on your radar now.

DNP’s top holdings include NextEra Energy (NEE), Alliant Energy (LNT) and Verizon Communications (VZ). The fund combines those high yields with leverage to throw off a 7.6% dividend yield.

The problem? Other investors see DNP as a safe haven, too, which is why it trades at a 9.8% premium to NAV. So instead of buying $1.00 for just $0.90, you’re paying $1.10. And personally, I prefer not to be down 10% out of the gate.

Eaton Vance Tax-Managed Buy-Write Opportunities Fund (ETV) juices its 8.9% yield by writing covered-call options on 98% of its holdings. That means it instantly collects a premium when it sells the call. The tradeoff? Call options limit its gains, as buyers exercise their right to buy its best stocks as they rise.

My main concern with ETV is its heavy reliance on tech stocks, at 35% of the portfolio, with Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOGL) and Facebook (FB) all featuring in its top 10 holdings. Those last three trade at nosebleed valuations and could (make that regularly do) plunge on any bad news. And like DNP, ETV trades at a premium to NAV that’s widened in the last year, to around 9.0% today.


Source: Morningstar

However, there’s another Eaton Vance fund that’s worth keeping an eye on and is still (barely) trading at a discount to NAV: the similarly named Eaton Vance Tax-Advantaged Dividend Income Fund (EVT).

This fund yields 8.7% and is better diversified than its tech-heavy cousin, with 64% of the portfolio in dividend-paying stalwarts like General Electric (GE), Johnson & Johnson (JNJ) and Wells Fargo & Co. (WFC). The rest is in bonds, foreign stocks, preferred stocks, ETFs and REITs.

The fund also employs leverage to juice its returns, but at just 22.6% of the portfolio.

Investors who bought in a year ago have pocketed a tidy 7.0% total return, compared to a loss of 0.2% for the SPDR S&P 500 ETF (SPY). That’s narrowed the fund’s discount to NAV, but there’s still time to buy on the cheap: the markdown currently stands at around 3%.


The Calamos Strategic Total Return Fund (CSQ) invests in common stocks, corporate bonds and convertible bonds and does so in a balanced way, with no sector of its stock portfolio representing more than 18% of the total.

CSQ also holds 39% of its investments in bonds, preferred stocks, warrants and cash. As with our other examples, CSQ uses leverage (representing 29% of the portfolio) to support its 10.2% dividend yield. The fund trades at a 10.7% discount to NAV and should outperform the S&P 500 as that discount narrows.

This fund would be my top pick among these five, if it weren’t for another that’s an even better bargain right now…

BlackRock Enhanced Equity Dividend Trust (BDJ): If you’re looking for a way to China-proof your portfolio, this fund is it. It holds 94.3% of its assets in the U.S. Total China exposure? 0.4%.

The fund yields a tidy 7.4% and should have no trouble maintaining its high payout, based on its top-quality holdings, including reliable dividend growers like JPMorgan Chase & Co. (JPM), Intel Corp (INTC) and Microsoft (MSFT). It also generates extra income by selling covered-call options on 50% of its portfolio.

The topper? You can pick up BDJ at a bargain-basement 12.1% discount to net asset value today.

These 3 Closed-Ends Won’t Be on Sale Much Longer

I’m not the only one pounding the table on closed-end funds these days. So is Jeffrey Gundlach, one of the top fund managers on the planet.

He’s been dubbed the “Bond God” for his 20-year track record and the extraordinary performance of DoubleLine, the $85-billion asset-management firm he co-founded in 2009.

Right now, Gundlach’s calling these overlooked investments a “slam dunk” and a “no-brainer”—and I agree 100%.

My three favorite closed-ends pay up to 11% dividends and they’re trading at discounts of up to 15%—setting you up for even bigger gains than the five funds I gave you above.

But the time to act is now. These three closed-ends are never this cheap, and it won’t be long before mainstream investors pile in and turn that discount into a premium. By then the biggest profits will have been made.

Don’t miss out. Click here to get the names of these three bargain-priced income plays now.