Family budgeting is never particularly easy, with fixed expenses like mortgages and rent mixing with the less predictable like food prices, and unexpected bills messing with the best-laid plans for spending stability and planning.
A good way to cope and even flourish through that unpredictability is investing in stocks that generate passive income. Passive income simply means earnings that take minimal effort or involvement on your part once you get them up and running.
Dividend-paying stocks for passive income
Dividend-paying stocks are a great option for passive income generation. Among the more than 4,000 of them on the U.S. markets, there are about 60 that pay monthly instead of quarterly.
Investing in a few of these can diversify your portfolio, thus reducing concentration risk. They can also add a predictable flow of cash that can help you plan and budget more effectively, covering such necessities as groceries, utilities, insurance, and housing costs without relying on just your regular paychecks.
Three dividend-paying investments to consider are Realty Income (O 1.32%), Stag Industrial (STAG 1.10%), and AGNC Investment (AGNC -0.86%). These are all real estate investment trusts (REITs), which are managed pools of income-producing assets that tax law mandates must pay at least 90% of their taxable income as dividends.
There are about 225 publicly traded REITs. I chose (and own) these three because they’re in very different businesses but have proven themselves to be reliable providers of monthly income. This chart shows their average dividend yield — equivalent in this context to the interest you’d get from a savings account — along with their total return, which combines reinvested dividends and share price movement.
One is not like the others. Here’s why.
You’ll notice here that AGNC’s yield is much higher and its total return is much lower than the other two. That’s because it’s a mortgage REIT (mREIT) and makes its living through buying, holding, and selling mortgages and mortgage-backed securities rather than physical properties. mREITs are particularly sensitive to movements in interest rates and compete more with bonds and savings instruments like CDs (certificates of deposit) for investor attention in many portfolios.
AGNC is one of the largest mREITs and is currently yielding nearly 16% at a share price of about $9 at a monthly dividend of $0.12. That dividend is unchanged since April 2020, when it was cut by 25%. Unlike government bonds and insured savings, the payouts can rise and fall quickly and their share prices can, and do, rise and fall.
(The Ascent shows the best high-yield savings accounts providing 3.9% to 4.6% right now as a result of rising interest rates. The principal is guaranteed to be secure, but it also will not grow.)
Stag and Realty Income, meanwhile, own and lease physical property. Realty Income is one of the best-known REITs and markets itself as “The Monthly Dividend Company,” something it’s done for 634 straight months. Over that time, it’s become the fourth-largest global REIT and now generates a growing stream of income from a portfolio of more than 12,200 properties across the United States, United Kingdom, Spain, and Italy.
Realty Income stock is currently selling for about $60 a share and yielding about 5% after raising its dividend to $0.2550 a share in March, a bump of $0.0005 a share that was good enough to mark 30 straight years of dividend increases.
This retail REIT boasts a lineup of about 1,240 tenants in 84 different industries that are anchored by such investment-grade stalwarts as Walmart, Dollar General, Walgreens, and Home Depot.
Stag Industrial, meanwhile, is an industrial REIT whose tenant list is anchored by major shippers and logistics companies such as Amazon and FedEx, as well as manufacturers in multiple industries. E-commerce and onshoring have made this a hot sector, and consistently high demand for such space is expected to continue to keep such properties full and profitable.
For its part, Stag has only been in business since 2010 but has already built a portfolio of 563 high-demand warehouses, distribution centers, and manufacturing facilities in 41 states. Stag stock, meanwhile, is selling for about $34 a share and yielding about 4.3% after five straight years of dividend increases pushed its monthly payout to $0.1225 a share.
Weave monthly passive income into the fabric of your family financial plan
Including monthly dividends from passive income stocks can help you actively create a more secure financial future for you and your family while meeting your immediate needs and plans. Well-managed and proven performers such as the three we reviewed above can add diversification, spreading the risk across sectors while adding growth potential that doesn’t exist in insured savings accounts.
That said, keep in mind they’re not without risk. Investment losses can and do occur with these kinds of stocks, as with any other, but their long-term records are hard to ignore or dismiss. They deserve consideration for a place in a well-rounded family spending, savings, and investment plan.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Marc Rapport has positions in AGNC Investment Corp., Amazon.com, Realty Income, and Stag Industrial. The Motley Fool has positions in and recommends Amazon.com, FedEx, Home Depot, Stag Industrial, and Walmart. The Motley Fool recommends Realty Income. The Motley Fool has a disclosure policy.