Monthly dividend stocks go above and beyond the norm, in more ways than one.
If you ever think you have it rough as an income investor, just look across the pond to Europe, where stock dividends often come only twice (in uneven amounts), even once per year. By comparison, we Americans have it pretty good—most of our dividend stocks pay regular, reliable payouts, and at a more frequent quarterly clip.
Still, if you’ve ever wished to yourself, “It would sure be nice to collect these dividends even more often” … well, wish no longer. While they’re not terribly common, American exchanges boast dozens of monthly dividend stocks. And better still? As a group, monthly dividend stocks tend to pay us more than your average income-producing equity.
Today, I’m going to talk about the virtues of companies that distribute their cash monthly. Then after that, I’ll introduce you to some of the best monthly dividend stocks you can find in 2026.
Disclaimer: This article does not constitute individualized investment advice. Individual securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
The Importance of Dividends
A dividend is a cash payment that a company makes to its shareholders. It’s an excellent additional source of investment return that complements price gains—and it means different things for different investors.
For anyone who isn’t yet retired, cash from dividend stocks is just more fuel to reinvest so you can keep growing your portfolio. Here’s a look at the return someone could expect if they received just the price returns from an S&P 500 over the past 25 years:
Now look at how much better the return is when you factor in dividends had you had reinvested those dividends back into the S&P 500 (returns illustrated by an S&P 500-tracking ETF; note that expenses are included in performance):
The price return is more than 485%. The total return (price plus dividends) is right around 815%!
But dividends can mean something else entirely when you’ve reached retirement. Specifically, they can become a source of passive income.
When you retire, you no longer receive a regular paycheck from an employer. Instead, you have to rely on Social Security checks and whatever you’ve saved up for retirement. Investors typically withdraw money from their nest egg to pay the bills in retirement, but a steady stream of stock-dividend and bond-interest income can reduce how much of your investment accounts you have to draw down—keeping your nest egg better intact for longer.
Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.
Why Monthly Dividends?
Monthly dividends, from a pure payout-schedule perspective, benefit every kind of investor in some way, but they clearly have a certain appeal to retirees.
Think about what I said before: U.S.-based stocks are the most frequent dividend payers, and even then, they’re only paying dividends every quarter. Also, they’re not paying during the same quarters—different stocks have different schedules, with some paying in Jan/Apr/Jul/Oct, some in Feb/May/Aug/Nov, and some in Mar/Jun/Sep/Dec. Well, depending on how much you have invested in stocks with different schedules, you could be receiving your checks in uneven clumps, which makes them difficult to budget around.
Monthly dividend stocks? If all goes well, you’re getting the same exact payout every month (with the occasional annual payout hike, to boot). That’s outstanding news to retirees. After all, they’re not working anymore—but they still have bills to pay, and bills still come monthly.
There’s also a tangible (albeit slight) benefit to investors of any age: quicker compounding.
When a company pays a dividend, you can choose to have it go straight to your account for use as you’d like … or you can immediately reinvest those dividends, which many people do when they’re not already retired.
Let’s say you buy $10,000 worth of shares in a stock with a 5% yield and hold it for 30 years. It never gains a dime, but you collect the same level of dividends the entire time.
- If that stock paid you quarterly, you’d end up with a balance of $44,402.13.
- If that stock paid you monthly, you’d end up with a balance of $44,677.44.
Sure, $275 isn’t world-changing, but more is still more. If nothing else, it’s a case for including a few of these income investments as part of a diversified portfolio.
Which Stocks Pay Monthly?
One last thing to know before I introduce my list of monthly dividend payers: They’re largely not what you’d consider “normal” stocks.
A “normal” stock is, say, an Apple (AAPL) or a Coca-Cola (KO)—virtually always a plain-vanilla C corporation with no unusual rules or designations.
But for whatever reason, most monthly dividend stocks tend to involve companies with specialized structures, such as real estate investment trusts (REITs), master limited partnerships (MLPs), business development companies (BDCs), and royalty trusts. These businesses all have one thing in common: They’re mandated to pay out large percentages of their taxable income or cash flow back to shareholders—which come in the form of dividends (or dividend-esque “distributions”).
In general, all these special classes tend to deliver much higher yields than your average stock. That’s great for income hunters, but remember: Higher yields can often involve higher risk, or at least a bigger emphasis on income at the cost of lower price returns.
So today, I’m going to point you in the direction of monthly dividend-paying stocks that largely garner positive opinions from the Wall Street analyst set. Take a look and see which ones you’ll want to target for a closer look of your own.
Stocks are listed in order of dividend yield, from smallest to largest.
Related: 7 High-Quality, High-Yield Dividend Stocks
Best Monthly Dividend Stock #10: Phillips Edison
- Industry: Commercial real estate
- Market capitalization: $4.8 billion
- Dividend yield: 3.4%
I’ll start with Phillips Edison (PECO): a commercial real estate investment trust that specializes in grocery-anchored neighborhood shopping centers. What are those? Well, close your eyes and think about your local strip mall that has a grocery store attached. There you go. You’ve got it.
PECO’s portfolio currently sits at nearly 325 properties, representing about 34 million square feet, across 31 states. But here are the two features I think matter the most:
- Roughly 50% of its annualized base rent (ABR) come from Sun Belt states, which from a migration perspective absolutely benefits this REIT.
- About 70% of ABR comes from “necessity-based” goods and services. Each property typically revolves around a large grocer, such as Publix or Kroger (KR). The rest is leased out to restaurants, personal services, medical operators, and other businesses.
Grocery-anchored real estate has been a winning formula for the past few years, at least based on Phillips Edison’s performance since going public in mid-2021. PECO shares have generated a total return (price plus dividends) of more than 60% since then, versus just high single digits for the real estate sector. That’s an impressive stint of outperformance, and one that has been delivered pretty consistently across that time.
PECO doesn’t have a long track record as a publicly traded company, but this monthly dividend stock has raised its payout every year since coming public. That includes a 5.7% improvement announced in September 2025, to 10.83¢ per share.
Related: The 16 Best ETFs to Buy for a Prosperous 2026
Best Monthly Dividend Stock #9: Agree Realty
- Industry: Commercial real estate
- Market capitalization: $9.4 billion
- Dividend yield: 4.0%
Agree Realty (ADC) is another commercial real estate operator that deals in a wider array of retail tenants than PECO. Grocery stores are still the largest part of the annualized base rent mix, but at only about 10%. This diversified portfolio is much more spread out across other retail categories, such as home improvement stores, convenience stores, tire and auto centers, pharmacies, even farm and rural supply stores.
Agree currently boasts more than 2,670 properties, representing 55 million square feet, across all 50 states. And it leases those properties out on a “net lease” basis. This means ADC’s leases are “net” of insurance, maintenance, and taxes. So whereas “normal” REITs would be responsible for all three items, in a net-lease situation, tenants such as Walmart (WMT), Tractor Supply (TSCO), Dollar General (DG), and Best Buy (BBY) take care of those costs separately. Agree Realty simply collects a rent check.
This system results in much more stable, more predictable income for REITs—exactly what you want when you’re relying on a stock for income.
Sure, real estate broadly has been a minefield over the past decade, given the pain that e-commerce has caused traditional brick-and-mortar retailers. But not all retailers are built equally—many discretionary retailers operating malls might have been pelted, but many of the staples-goods retailers on Agree’s tenant list are doing just fine and paying steadily climbing rents. And those are the types of tenants Agree has built its business around.
“We believe that ADC is firing on all cylinders,” Stifel analysts say. “Across our meetings, the team noted that the portfolio is holding up very well with nearly 70% of rents derived from investment-grade tenants. ADC is in a unique position to generate growth through outright acquisitions, development funding projects, or its growing ground lease portfolio.”
“We continue to believe ADC has room to increase investment volume at relatively more attractive investment spreads than peers, fueling healthy earnings growth and continued dividend increases,” Truist Managing Director Michael Lewis (Buy) adds.
Agree Realty’s dividend program isn’t new, but it is a relative newbie among monthly dividend stocks—ADC started making more frequent payouts in 2021. Also, Agree has been improving the dividend on a semiannual basis since 2016.
Make Young and the Invested your preferred news source on Google
Simply click here and select the ✓ box for Young and the Invested. Once you’ve made this update, you’ll see Young and the Invested show up more often in Google’s “Top Stories” feed, as well as in a dedicated “From Your Sources” section on Google’s search results page.
Best Monthly Dividend Stock #8: SmartStop Self Storage REIT
- Industry: Self-storage real estate
- Market capitalization: $1.8 billion
- Dividend yield: 4.9%
SmartStop Self Storage REIT (SMA) is a self-storage REIT that owns and/or manages 460 properties representing 35 million square feet across the U.S. and Canada.
What’s attractive about self-storage? Well, it’s a business that can thrive in both up and down economies. When people have money to spend, they often spend it—sometimes to the point where they accumulate so much stuff, it no longer fits where they live, so they decide to stash it elsewhere. However, when times are tighter, people who are forced to downsize their living situation will often store many of their possessions in hopes that they’ll eventually be able to return to a larger place in time.
That doesn’t mean self-storage can’t go through its own hiccups—it can and is, in fact. But SmartStop currently looks like one of the most resilient players in the space.
“Fourth quarter normalized FFO of $0.55ps was a penny per share above our estimate and the consensus,” says Truist Managing Director Michael Lewis (Buy). “Management introduced 2026 guidance of $1.93-$2.05 per share, which implies a $1.99 per share that is -2.9% below the $2.05 per share consensus. However, the guidance midpoint also implies healthy 6.4% year-over-year growth and does not assume any speculative acquisitions and/or JV investments, which can have a meaningful earnings impact.”
SmartStop is one of the growthiest such businesses in North America, recently entering the top 10 largest operators in the U.S. And it’s also one of the newest REIT listings—its initial public offering (IPO) was in April 2025, so it has been on the public markets for barely a year.
But so far, it has paid a monthly dividend … albeit in the oddest of fashions. As I write this, SMA now has 12 paid or pending dividends—four of them at 13.15¢ per share, seven at 13.59¢, and one at 12.27¢. This hasn’t come in some uniform order, either. But it does add up to an annualized yield of nearly 5%.
Make sure you sign up for The Weekend Tea, Young and the Invested’s free weekly newsletter that over 10k monthly readers use to level up their money know-how.
Best Monthly Dividend Stock #7: Realty Income
- Industry: Commercial real estate
- Market capitalization: $59.2 billion
- Dividend yield: 5.2%
Any roundup of the best monthly dividend stocks should include Realty Income (O), which literally bills itself as the “Monthly Dividend Company.”
No, really. They even registered the nickname.
Realty Income is a real estate investment trust focused on single-tenant commercial properties. It owns more than 15,500 properties in the U.S., U.K., and six other countries that are under long-term net-lease agreements. It currently boasts more than 1,700 different tenants—including 7-Eleven, Dollar General (DG), Walgreens (WBA), Wynn Resorts (WYNN), and Life Time Fitness (LTH)—across 92 widely varying industries.
It’s a behemoth in the space, and it keeps getting bigger, both naturally and by acquisition. For instance, in 2021, it bought fellow net-lease REIT VEREIT. Then in 2024, it bought out another net-lease play, Spirit Realty Capital.
“O has been very active, acquiring both investment- and non-investment-grade assets,” say Stifel analysts, who call the stock a Buy. “The company has one of the sector’s strongest balance sheets, in our view, the lowest costs of capital, and pays a consistent and growing monthly dividend.”
“Realty Income’s 4Q’25 results & 2026 outlook suggest continued steady growth,” adds UBS analyst Michael Goldsmith (Buy). “Notably, O expects 2026 investment volume of $8.0 billion, pointing to accelerating acquisition volumes. Plus, its fund business continues to ramp with $1.1 billion deployed, which is expected to reach $1.7 billion by the end of March 2026.”
Another reason Realty Income is a king among monthly dividend stocks? The dividends, of course. Realty Income doesn’t just offer a high yield above 5%—it has paid 669 consecutive monthly dividends and increased the payout for 114 consecutive quarters.
Related: 15 Best Long-Term Stocks to Buy and Hold Forever
Best Monthly Dividend Stock #6: Healthpeak Properties
- Industry: Health care/retirement real estate
- Market capitalization: $11.6 billion
- Dividend yield: 7.3%
Healthpeak Properties (DOC) is one of several REITs that’s uniquely positioned to benefit from America’s aging population.
DOC is a real estate owner, operator, and developer that sits at the intersection of health care and retirement, with a 702-property portfolio leased out to biopharmaceutical companies, physician group practices, health systems, medical device companies, retirement companies, and more. Roughly 50% of its portfolio income comes from outpatient medical facilities, another 35% is derived from labs, and the rest comes from senior housing.
That last business arm is why, although DOC has been well-regarded for some time, the stock could see at least some short-term volatility.
“Healthpeak recently announced plans to spin off its senior housing portfolio and to leverage the sale of stabilized medical buildings to invest in cost-effective lab buildings,” says Argus Research analyst Marie Ferguson, who recently downgraded the stock from Buy to Hold. “The REIT’s relatively small Continuing Care Retirement Communities (CCRC) segment depressed earnings postpandemic but has been strengthening. While we see that the strategy could eventually provide long-term fundamental growth, we expect 2026 and 2027 to be periods of readjustment. With potential negative year-over-year comparisons, the shares could also respond less than some larger peers to periods positive of sector rotation.”
At least for now, however, Wall Street remains generally bullish on the stock, with 10 Buys and eight Holds against no Sell calls.
As for the dividend? Healthpeak has paid distributions for years, but the monthly schedule is a newer development. In February 2025, the company approved its first dividend increase since 2016, and also announced it would be transitioning to a monthly distribution starting with the April 2025 payout. At current levels, DOC yields more than 7%.
Related: The 10 Best Dividend ETFs [Get Income + Diversify]
Best Monthly Dividend Stock #5: Gladstone Investment Corp.
- Industry: BDC
- Market capitalization: $583.0 million
- Dividend yield: 10.3%*
Business development companies (BDCs) are specialized firms that provide capital for small- and midsized businesses. It’s a small niche in the public markets—only a few dozen trade on U.S. exchanges—but it’s also one of the highest-yield corners of Wall Street. That’s because, like REITs, they must distribute at least 90% of their income in the form of dividends in exchange for exemption from corporate income tax.
Gladstone Investment Corp. (GAIN) is a BDC that specializes in acquiring mature, lower-middle-market companies. It’s a bit narrow for a BDC, at just 28 companies, though those companies are spread across 20 states and Canada, and they represent 16 different industries. Its target companies generate between $4 million and $15 million in annual EBITDA (earnings before interest, taxes, depreciation, and amortization), and boast strong management teams as well as attractive financial and operational fundamentals.
Gladstone provides most if not all the equity and debt capital required to close transactions—a higher-risk but higher-return strategy than many other BDCs.
“GAIN’s equity participation in most of its portfolio companies allows it to participate in the upside if a company performs above expectations,” say Oppenheimer analysts Mitchel Penn and Andrew Denkler, who rate shares at Outperform. “This has contributed to GAIN’s relatively high [return on equity].” But the pair add that the equity would also expose Gladstone to the first loss in a downturn.
I should note that David Gladstone recently announced his retirement as CEO from GAIN and two other Gladstone funds, though he’ll remain chairman, as well as chairman, CEO, and president of Gladstone Management Corporation, which externally advises the funds. But this is largely being seen as a nonevent.
“We view this as an expected, orderly transition built around promoted executives with deep institutional tenure, not a disruption event. B. Riley Securities analyst Sean-Paul Adams, who rates the stock at Neutral. “We do not anticipate any impact on near-term investment activity, distributions, or [net asset value] trajectory.”
Gladstone boasts an impressive dividend history, paying out 248 consecutive monthly distributions to its shareholders. Dividend growth isn’t grand, but it’s decent enough—the payout has doubled between 2011 and 2026. But with a total yield* of more than 10%, investors haven’t had much to complain about on the income front.
* Gladstone Investment’s yield, based solely on its 8¢-per-month regular dividend, is 6.6%. However, it also pays the occasional special dividend as cash allows. A 54¢ special dividend paid in June brings its total yield up to 10.3%.
Related: 7 Best High-Yield Dividend ETFs for Income-Hungry Investors
Best Monthly Dividend Stock #4: Ellington Financial
- Industry: Mortgage real estate
- Market capitalization: $1.6 billion
- Dividend yield: 12.4%
Ellington Financial (EFC) is a mortgage real estate investment trust (mortgage REIT or mREIT, for short). It invests in residential and commercial mortgage loans, residential and commercial mortgage-backed securities (MBSes), consumer loans, asset-backed securities backed by consumer loans, and a number of other mortgage- and loan-related investments.
Whereas your typical equity REIT owns and possibly operates physical real estate, an mREIT deals in “paper” real estate like the instruments I just mentioned. An mREIT will take out debt to purchase mortgages and related products, and their profit is the spread between what they’re paying on debt and what they’re earning in interest income from their mortgages—known as net interest margin.
It’s a difficult business—one that can be rocked by any number of things, including high and/or rising interest rates. Thus, Wall Street is bullish on just a handful of mREITs, Ellington among them.
“We continue to believe a premium to book is warranted given the stable book value, growing mortgage banking businesses (Longbridge and Non-QM), and recent returns that have comfortably covered the dividend,” says Keefe, Bruyette & Woods Analyst Bose George, who rates EFC at Outperform. “We also note potential growth in its mortgage banking businesses if interest rates trend down.”
Of note: In 2024, Ellington Financial reduced its monthly dividend from 15¢ per share to 13¢ as it absorbed the recent acquisition of another mREIT, Arlington Asset Investment Corp., and as a 2022 acquisition, Longbridge Financial, works on returning to profitability. Good news on the latter front: Longbridge, a reverse mortgage business, has indeed returned to the black and actually looks attractive as some Baby Boomers choose to remain in their existing homes during retirement.
Wall Street’s analyst community remains bullish on shares, with George, among others, reiterating Buy calls despite the bad news. The dividend has since stabilized, and EFC still boasts one of the largest yields among the best monthly dividend stocks covered here today.
Related: 9 Best Fidelity Index Funds to Buy for 2026
Best Monthly Dividend Stock #3: Trinity Capital
- Industry: BDC
- Market capitalization: $1.3 billion
- Dividend yield: 13.4%
Trinity Capital (TRIN) is another BDC, this one focused on high-growth companies. It provides senior secured term loans to institutionally backed tech companies and commercial-stage life science companies; secured term loans to PE-backed software companies; equipment finance; and asset-based lending to special purpose vehicles (SPVs).
Its portfolio of roughly a couple hundred firms includes wearable designer Whoop, launch service and spacecraft component provider RocketLab, non-alcoholic craft brewer Athletic Brewing, and arthroplasty-focused medical device firm Shoulder Innovations.
“TRIN’s strong yield preservation, originations momentum, and platform expansion provide meaningful near-term upside potential, in our view, with trends in Sponsor Finance volumes having a minimal impact on net origination growth,” says B. Riley Securities analyst Sean-Paul Adams, who rates the stock at Buy.
Related: The 10 Best Index Funds You Can Buy for 2026
Most recently, in early February, Trinity Capital recently released preliminary results for its fourth quarter that exceeded analyst expectations.
“TRIN has the lowest asset sensitivities to rate cuts out of the group (due to rate floors),” says Jefferies analyst John Hecht, who rates the stock at Buy. “We see strong growth potential as TRIN focuses on niche sectors that are in high-demand and require scale, evidenced by pre-announced investments funded of $435M, above our 4Q estimate.”
Trinity is the newest addition to our monthly dividend stocks. It has long demonstrated the necessary quality, but it only recently became a monthly dividend payer. In December 2025, the company announced the shift, which took effect in January with a 17¢-per-share monthly distribution. (Editor’s note: Trinity replaces Whitestone REIT, which went from a monthly to quarterly schedule effective January 2026.)
Related: 7 Best Vanguard Dividend Funds [Low-Cost Income]
Best Monthly Dividend Stock #2: AGNC Investment Corp.
- Industry: Mortgage real estate
- Market capitalization: $11.8 billion
- Dividend yield: 13.7%
AGNC Investment Corp. (AGNC) is an “agency” mREIT, which means it deals in mortgages and MBSes from government agencies such as Freddie Mac and Fannie Mae. Nearly 100% of the company’s capital is allocated to agency MBSes.
It’s also an outlier in its sheer size; it’s almost in large-cap territory, which is a rarity for this business, and a trait that has kept AGNC shares trading at a premium compared to peers.
Mortgage REITs generally benefit from wide spreads (the difference between the interest rate they earn on their mortgage assets and the cost of borrowing). While spreads tightened during the back half of 2025, the Trump administration’s call for Fannie Mae and Freddie Mac to buy $200 billion in mortgage bonds helped provide at least a little stability.
One of the most important things to note when evaluating AGNC is its long-term history, which involves a number of dividend cuts. That’s not terribly unusual in the mREIT space, but it merits acknowledging. AGNC’s last dividend cut came in 2020. The payout hasn’t rebounded since, and it might not for a while, but for, it at least appears stable.
“We believe AGNC shares offer an attractive dividend yield,” says JPMorgan analyst Richard Shane (Overweight), “and the dividend is secure at current spread levels.”
On the bright side, AGNC is still a mammoth yielder at nearly 14%. But if you own it, you’ll also need to devote a higher level of attention to monitoring its dividend stability.
Related: 10 Dividend-Growth Stocks That Wall Street Loves Now
Best Monthly Dividend Stock #1: Dynex Capital
- Industry: Mortgage real estate
- Market capitalization: $2.7 billion
- Dividend yield: 15.4%
Dynex Capital (DX) is the longest-tenured mREIT, founded in 1987. Its portfolio is 97% agency residential MBSes (RMBSes), and the lion’s share of the remainder is agency commercial MBSes (CMBSes).
Few analysts cover Dynex, which is typical for the mREIT industry. Still, among these few pros, the bulls are the majority—DX has four Buy-equivalent calls (including from KBW) versus two Holds and no Sells.
Bruyette & Woods is among those who are favorable on DX. “We expect valuation to trend up as market cap increases, which should continue as the company issues equity accretively and returns remain strong,” say KBW analysts, who rate the stock at Outperform and add that they “believe the dividend is reasonably well covered.”
Dynex pays the most generous monthly dividend on this list, at more than 15% as I write this. Like AGNC, Dynex has hacked away its payout in the past—indeed, the dividend shrunk by 85% between 2012 and 2020, to 13¢ per share monthly. It remained there until mid-2024, when Dynex announced its first dividend raise in more than a decade—to 15¢ per share. It followed that up with another hike in 2025, to 17¢, as of its April payout.
Still, that history reminds us that double-digit yields are hardly risk-free.
Related: 7 Best Closed-End Funds (CEFs) Yielding Up to 14.9%
FAQs: Monthly Dividend Stocks
What is dividend yield?
Dividend yield is a simple financial ratio that tells you the percentage of a company’s share price that is paid out across a year’s worth of dividend distributions. Expressed as a mathematical equation, it’s simply:
Dividend yield = annual dividend / price x 100
Yield helps dividend investors normalize dividend payments regardless of stock price, different quarterly payments, even different payment frequencies (like monthly or annually). For instance, each of the following fictional stocks all have a dividend yield of 2.5%:
- Alpha Corp. currently trades for $40 a share. It pays a 25¢ quarterly dividend, for $1.00 per year in full. ($1 / $40 x 100 = 2.5%)
- Beta Inc. pays $1 in the first quarter, $2 in Q2, $3 in Q3 and $4 in Q4. That’s $10 in dividends for the full year. It trades for $400 a share. ($10 / $400 x 100 = 2.5%)
- Gamma Ltd. pays $2.50 just once per year. It trades for $100 a share. ($2.50 / $100 x 100 = 2.5%)
The idea is to focus on the percent of your initial investment you get back, and help you compare apples to apples.
Taking this math a step further, you learn that a company can suddenly feature a very high dividend yield through one of two very different ways: the share price falling very quickly, or the dividend growing very rapidly.
Alpha Corp., which trades for $40 per share, pays a 25¢ quarterly dividend that yields 2.5%. In a month, it yields 5.0%. Here are two ways that could have happened.
- Alpha Corp. doubled its dividend to 50¢ per share, for a full $2 per share across the year. The share price stays the same. ($2 / $40 x 100 = 5.0%)
- Alpha Corp. kept its dividend the same, but its share price plunged in half to $20 per share. ($1 / $20 x 100 = 5.0%)
Clearly, that 5% yield appears to be much safer and reliable in one scenario than the other.
Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.
What is a payout ratio?
As with dividend yield, it’s important to normalize the dividend payout ratio for a stock. This is simply the percentage of a company’s earnings per share that is being distributed via dividends. It’s calculated as:
Payout ratio = dividends per share / earnings per share x 100
As an example, a stock that makes $100 million in profits and has 10 million shares of public stock has $10 in earnings per share. And if that company pays $5 annually in dividends, it has a payout ratio of 50% ($5 / $10 x 100 = 50%).
There’s a lot of “gray” when it comes to payout ratios. In general, though, the lower the payout ratio, the more sustainable the dividend, and the more room for future hikes.
Note: Payout ratio is calculated using different metrics depending on the type of business you’re looking at. For typical companies, you look at earnings. But, for example, when working with REITs, you typically calculate payout ratio using funds from operations (FFO), which is an important measure of REIT profitability.
What is ‘yield on cost’?
When you look up a stock’s information, the dividend yield listed is based on the most recent dividend and the current stock price.
That yield is often actually different than the one current shareholders enjoy. That yield is called “yield on cost,” which is the payout based on what you paid, at the moment you invested.
Let’s say you buy a stock at $100, and it pays $1 per share. It yields 1.0% when you buy it ($1 / $100 x 100 = 1.0%).
In a year, that stock has doubled to $200 per share, and it also doubled its dividend to $2 per share. If you look up its information, its dividend is still 1.0% ($2 / $200 x 100 = 1.0%).
That’s not your yield on cost, however. You’re still receiving that higher dividend of $2 per share. But your cost basis is still the original $100 you bought the share at. So now, your yield on cost has doubled, to 2.0% ($2 / $100 * 100 = 2.0%)!
Related: IRA Contribution Limits for 2025 + 2026
Want to talk more about your financial goals or concerns? Our services include comprehensive financial planning, investment management, estate planning, taxes, and more! Schedule a call with Riley to discuss what you need, and what we can do for you.
