You’re probably like me – working a 9 to 5 job (which I do enjoy just in case my employer sees this) and earning a monthly pay check. However, you’ve got dreams of retiring early and living off of your investments. The problem is, not all investments provide income monthly so how are you supposed to pay your monthly bills like rent or utilities?
Depending on budget, property is the best investment for monthly income through rent. However, if you’re not flush with cash, dividend stocks are a great option. Dividends can be paid annually, bi-annually or quarterly. Of course, quarterly is not the same as monthly but if you’re invested in 3 different stocks that pay out in different months, you’ll still be earning monthly.
To fully understand your options and why these are the best places to invest your money for a monthly income – let’s take a look at a few considerations and how they contribute to our solution.
[Disclaimer: this article includes opinions on shares. Please do not take this as financial advice – you will need to ensure you have researched and understood the companies’ finances and are happy with investing in them].
Stocks & Shares
Dividends -v- Growth
When we talk about investing in the stock market, generally stocks fall into 2 categories – dividends and growth.
Growth stocks are those that you deem to have an extremely large upside potential for growth and you buy in and hold the stock so you benefit from the rise in the share price. Unfortunately for those of us who are looking for a regular income, this is not ideal.
Yes, growth stocks do pay dividends but they’re usually not too great as they want to utilise their profits to reinvest into the business to promote further growth.
If you want to read more about growth stocks and how to pick them, I’ve written a post called ‘Buying stock When It’s Low – Should You Really Do It?’ – if you scroll about ⅔ down the page, you’ll see a headline called ‘How to tell if a stock is undervalued’. This is what you’ll need.
Dividend stocks are usually big established companies who don’t experience massive volatility in terms of share prices. They’re big players in their industry and are comfortable with paying more of their profits out as dividends as growth is not the priority.
How often do dividend stocks pay out?
This will be quick as this has already been touched upon. The pay out period of stocks vary depending on company size, industry and management preference but generally they are paid out either annually or bi-annually.
I also wrote about dividend stocks in another one of my articles ‘When Do Investments Pay Dividends: Your Complete Guide’ so if you want a bit more information on this, definitely go and check that out.
My Research
Being the gent that I am, I’ve trawled through 100 companies of the FTSE100 (UK stocks) and analysed out the typical payout periods of each company and the respective dividend yield during the year (2020 figures). I’ve highlighted a few stocks in Green – these are:
- BP – paid quarterly – 6.02% yield;
- British American Tobacco – paid quarterly – 7.46% yield;
- GlaxoSmithKline – paid quarterly – 5.61% yield;
- Imperial Brands Group – paid quarterly – 8.6% yield;
- Legal & General – paid bi-annually – 6.28% yield;
- Royal Dutch Shell (B Shares) – paid quarterly – 3.45% yield; and
- Vodafone – paid bi-annuallly – 5.96% yield.
These are the highest yield dividend stocks on the FTSE 100 currently (and most likely for years to come). Holding these are a good way of receiving regular dividends (although you may find a couple pay out in the same months).
You’ll notice I included Legal & General and Vodafone – as these only pay out twice per year, why would they be good to have? Well, they both have very strong dividend yields and are very well established companies. Do bear in mind that share values fluctuate; there is always a risk there.
| Stock Name | Pay-out Period | Dividend Yield (%) |
|---|---|---|
| FTSE – 3i Group (III) | Bi-Annual | 3.07 |
| FTSE – Admiral Group (ADM) | 3x Per Annum | 3.74 |
| FTSE – Anglo American (AAL) | Bi-Annual | 2.5 |
| FTSE – Antofagasta (ANTO) | Bi-Annual | 2.73 |
| FTSE – Ashtead Group (AHT) | Bi-Annual | 0.79 |
| FTSE – Associated British Foods (ABF) | Bi-Annual | N/A (Nothing paid in 2020) |
| FTSE – Astrazeneca (AZN) | Bi-Annual | 2.48 |
| FTSE – Auto Trader Group (AUTO) | Bi-Annual | 0.8 |
| FTSE – Avast (AVST) | Bi-Annual | 2.4 |
| FTSE – Aveva Group (AVV) | Bi-Annual | 1.09 |
| FTSE – Aviva (AV.) | 2-3x Per Annum | 6.37 |
| FTSE – B&M European Value Retail (BME) | 2-4x Per Annum | 3.11 |
| FTSE – BAE Systems (BA.) | 2-3x Per Annum | 4.41 |
| FTSE – Barclays (BARC) | 1-2x Per Annum | 0.56 |
| FTSE – Barratt Developments (BDEV) | N/A | N/A |
| FTSE – Berkeley Group Holdings (BKG) | Bi-Annual | 2.51 |
| FTSE – BHP Group (BHP) | Bi-Annual | 4.36 |
| FTSE – BP (BP.) | Quarterly | 6.02 |
| FTSE – British American Tobacco (BATS) | Quarterly | 7.46 |
| FTSE – British Land Co (BLND) | Quarterly | 3.01 |
| FTSE – BT Group (BT.A) | 1-2 x Per Annum | 2.32 |
| FTSE – Bunzl (BNZL) | 2-3x Per Annum | 2.31 |
| FTSE – Burberry Group (BRBY) | 1-2x Per Annum | 1.89 |
| FTSE – Coca-Cola HBC AG (CCH) | Annual | 2.13 |
| FTSE – Compass Group (CPG) | Bi-Annual | N/A |
| FTSE – CRH (CRH) | Bi-Annual | 2.31 |
| FTSE – Croda International (CRDA) | Bi-Annual | 1.26 |
| FTSE – DCC (DCC) | Bi-Annual | 2.61 |
| FTSE – Diageo (DGE) | Bi-Annual | 2 |
| FTSE – Entain (ENT) | 1-2x Per Annum | 0.97 |
| FTSE – Evraz (EVR) | Bi-Annual | 5.91 |
| FTSE – Experian (EXPN) | Bi-Annual | 1.22 |
| FTSE – Ferguson (FERG) | Bi-Annual | 1.56 |
| FTSE – Flutter Entertainment (FLTR) | 0-2x Per Annum | 0.49 |
| FTSE – Fresnillo (FRES) | Bi-Annual | 2.21 |
| FTSE – GlaxoSmithKline (GSK) | Quarterly | 5.61 |
| FTSE – GlenCore (GLEN) | Bi-Annual | 1.37 |
| FTSE – Halma (HLMA) | Bi-Annual | 0.62 |
| FTSE – Hargreaves Lansdown (HL.) | 1-3x Per Annum | 2.28 |
| FTSE – Hikma Parmaceuticals (HIK) | Bi-Annual | 1.46 |
| FTSE – HSBC (HSBA) | Quarterly | 2.47 |
| FTSE – Imperial Brands Group (IMB) | Quarterly | 8.6 |
| FTSE – Informa (INF) | 1-2x Per Annum | 1.4 |
| FTSE – Intercontinental Hotels Group (IHG) | 1-3x Per Annum | 0.63 |
| FTSE – Intermediate Capital Group (ICP) | Bi-Annual | 2.49 |
| FTSE – International Consolidated Airlines Group (IAG) | 1-3x Per Annum | 6.35 |
| FTSE – Intertek Group (ITRK) | Bi-Annual | 1.93 |
| FTSE – JD Sports Fashion (JD.) | 1-2x Per Annum | 0.16 |
| FTSE – Johnson Matthey (JMAT) | Bi-Annual | 2.21 |
| FTSE – Just Eat Takeaway.com (JET) | N/A | N/A |
| FTSE – Kingfisher (KGF) | Bi-Annual | 0.95 |
| FTSE – Land Securities Group (LAND) | Quarterly | 3.87 |
| FTSE – Legal & General Group (LGEN) | Bi-Annual | 6.28 |
| FTSE – Lloyds Banking Group (LLOY) | 1-2x Per Annum | 1.19 |
| FTSE – London Stock Exchange Group (LSEG) | Bi-Annual | 0.96 |
| FTSE – M&G (MNG) | Bi-Annual | 7.46 |
| FTSE – Melrose Industries (MRO) | 1-2x Per Annum | 0.45 |
| FTSE – Mondi (MNDI) | Bi-Annual | 4.13 |
| FTSE – National Grid (NG.) | Bi-Annual | 5.29 |
| FTSE – NatWest Group (NWG) | 1-3x Per Annum | 1.44 |
| FTSE – Next (NXT) | 1-3x Per Annum | 0.72 |
| FTSE – Ocado Group (OCDO) | N/A | N/A |
| FTSE – Pearson (PSON) | Bi-Annual | 2.25 |
| FTSE – Pershing Square Holdings (PSH) | Quarterly | 1.26 |
| FTSE – Persimmon (PSN) | 2-3x Per Annum | 3.59 |
| FTSE – Phoenix Group Holdings (PHNX) | Bi-Annual | 6.58 |
| FTSE – Polymetal International (POLY) | Bi-Annual | 5.76 |
| FTSE – Prudential (PRU) | Bi-Annual | 0.79 |
| FTSE – Reckitt Benckiser Group (RKT) | Bi-Annual | 2.61 |
| FTSE – Relx (REL) | Bi-Annual | 2.43 |
| FTSE – Renishaw (RSW) | 1-2x Per Annum | 0.85 |
| FTSE – Rentokil Initial (RTO) | 1-2x Per Annum | 1.09 |
| FTSE – Rightmove (RMV) | 1-2x Per Annum | 0.69 |
| FTSE – Rio Tinto (RIO) | 3x Per Annum | 5.7 |
| FTSE – Rolls Royce Holdings | 1-2x Per Annum | 1.45 |
| FTSE – Royal Dutch Shell PLC A Shares (RDSA) | Quarterly | 3.32 |
| FTSE – Royal Dutch Shell PLC B Shares (RDSB) | Quarterly | 3.45 |
| FTSE – Royal Mail (RMG) | Bi-Annual | 1.7 |
| FTSE – Sage Group (SGE) | Bi-Annual | 2.53 |
| FTSE – Sainsburys (SBRY) | Bi-Annual | 4.13 |
| FTSE – Schroders (SDR) | Bi-Annual | 3.16 |
| FTSE – Scottish Mortgage Investment Trust (SMT) | Bi-Annual | 0.28 |
| FTSE – Segro (SGRO) | Bi-Annual | 2.02 |
| FTSE – Severn Trent (SVT) | Bi-Annual | 4.01 |
| FTSE – Smith & Nephew (SN.) | Bi-Annual | 1.79 |
| FTSE – Smith (DS) (SMDS) | 1-2x Per Annum | 0.91 |
| FTSE – Smiths Group (SMIN) | Bi-Annual | 2.14 |
| FTSE – Smurfit Kappa Group (SKG) | Bi-Annual | 2.61 |
| FTSE – Spirax-Sarco Engineering (SPX) | Bi-Annual | 0.87 |
| FTSE – SSE (SSE) | Bi-Annual | 5.13 |
| FTSE – St James’s Place (STJ) | Bi-Annual | 2.64 |
| FTSE – Standard Chartered (STAN) | 1-2x Per Annum | 1.31 |
| FTSE – Standard Life Aberdeen (SLA) | Bi-Annual | 5.14 |
| FTSE – Taylor Wimpey (TW.) | 1-2x Per Annum | 2.48 |
| FTSE – Tesco (TSCO) | Bi-Annual | 4.34 |
| FTSE – Unilever (ULVR) | Quarterly | 3.4 |
| FTSE – United Utilities Group (UU.) | Bi-Annual | 4.17 |
| FTSE – Vodafone Group (VOD) | Bi-Annual | 5.96 |
| FTSE – Weir Group (WEIR) | N/A | 0.87 |
| FTSE – Whitbread (WTB) | 1-2x Per Annum | 0.86 |
| FTSE – WPP (WPP) | Bi-Annual | 2.37 |
Property Investments
Now this is going to be those that are brave and are willing to take risks – these investments lock in your capital for the longer term and have the potential to do extremely well or not very well at all.
There are a few things you’ll need to consider before you jump into investing in property which we’ll cover below.
Cash Required
Property is super expensive (I’m writing this from London, I believe it’s much cheaper in the north of the UK) so meeting the mortgage requirements for a Buy-To-Let mortgage (you need this type of mortgage to enable you to rent out the property) is going to be tricky.
Typically, Buy-To-Let mortgages want a 25% deposit for them to even consider your application. This means if you wanted to buy a £300,000 property, you’d need to have saved up £75,000 just for the luxury! This is a huge barrier to entry which means that this may not be an option for everyone.
On-going costs
If you do manage to get yourself on the property ladder, you’ll need to consider the costs you’ll need to pay if you’re renting it out. You’ll need to pay for:
- Insurance;
- Replacements for wear & tear;
- Agency fees (if you want someone to manage the rental for you); and
- Time; and
- Mortgage (probably your biggest expense).
Insurance
The main insurance you’ll need when you’re renting out your property is Landlord Insurance. Based on an article by Simply Business, you can actually just take out a specific Landlord insurance that includes your buildings insurance, landlords’ contents insurance and property owners’ liability insurance – pretty good right!
These insurance policies aren’t free though unfortunately. I’ve been through a few quote sites that offer the All-In-One insurance that covers everything mentioned about and it looks like insurance can set you back between £400 and £500 per year – which isn’t too bad for what you get.
Replacements for wear & tear
I wouldn’t expect this to be a common expense. After all, how often do you buy a sofa? However, it’s something to keep on the radar as it is an expense none-the-less and is only attributable to this type of investment.
Agency Fees
If this property is your first investment property then you’ll probably want to get some additional help with the management of the property. For a 10% fee, you can have an agency look after the property and they’ll be able to advise on what you need to be doing as a landlord as well as arranging all of the paperwork for tenants and looking after menial repairs.
Of course, 10% is quite a lot so if you’re a full-time investor then you may have time to spare to do this yourself. After all, by doing it yourself, you’re increasing the return of the investment by 10% which is a great return in my books!
Time
Researching your property investment, house viewings, learning and other aspects of research all contribute to the time you will need to spend to make your property investment successful – this is already piles more time than you’d need to spend on stocks.
Additionally, property is not passive – you will be required to ‘play landlord’ and cater to your tenants and agency’s needs. Again, this is something you don’t need to worry about with stocks.
Mortgage
An obvious one but a crucial one as well – the mortgage repayments are going to eat away MASSIVELY against your rental income. The more deposit you put down, the lower these will be, however if you can only scrape together the bare minimum, it’s going to be a bumpy ride.
Say you earn £750 in rental income – that’s amazing right? But then you pay a £500 mortgage…. Then you pay a 10% agency fee (£75)… that £750 now is looking more like £175 – this is assuming there aren’t any other issues that need to be fixed! For a £75,000 cash down payment, to only be getting £175 a month is a bit of a kick in the face.
Summary
To round this article up, there are a couple of ways to invest to earn yourself a monthly income:
- Dividend stocks; and/or
- Property
Based on FTSE 100 research, it appears none of the most established companies pay monthly – they mainly pay twice per year (bi-annually). However, there are a few great stocks that pay quarterly and show promising returns. By buying into multiple quarterly-paying stocks, you can potentially receive payments each month – just not from the same stock.
Alternatively, property will give you the monthly income you’re looking for. However, you need to consider the time you have available to manage the investment, the on-going costs you will incur and have the upfront cash needed to get yourself started.
Ps – if you want to learn more about investing, I have a few recommended books which have taught me the majority of the investing knowledge I have (bar the professional accountancy exams)!