Investing for monthly income

Looking for monthly income from shares? You’re not alone. It’s clear many people, especially income investors, are in the same boat. I think it’s entirely possible to create a passive income or a stream of dividends which can be reinvested into more shares, to benefit from compounding, without too much difficulty.

One of the main shortcuts to achieving this – and also to hopefully having sustainable dividend growth – is to invest in investment trusts. A number of these like Merchants Trust have a high yield and also pay a quarterly dividend. Another benefit they have is the ability to hold reserves (unlike OEICs, otherwise known as investment funds), so they have greater ability to keep paying a dividend in a difficult market like the one we’re in at the moment.

There are also a smaller number of companies like GlaxoSmithKline which pay a quarterly dividend as well. I think a combination of trusts and direct holdings in shares can help provide consistent income as well as create a diversified portfolio.

Here’s an example of a portfolio that would produce monthly income:

Month of dividend payment Companies Tickers
January GlaxoSmithKline GSK
February Bankers BNKR
March Merchants Trust, Shell MRCH, RDSB
April GlaxoSmithKline, HSBC GSK, HSBA
May Merchants Trust, Bankers MRCH, BNKR
June Shell RDSB
July GlaxoSmithKline, HSBC GSK, HSBA
August Merchants Trust, Bankers MRCH, BNKR
September HSBC, Shell HSBA, RDSB
October GlaxoSmithKline GSK
November Merchants Trust, HSBC, Bankers MRCH, HSBA, BNKR
December Shell RDSB

So with five investments, it’s possible to create dividends all year round and it’s possible you could be even more efficient. However, the objective I don’t think should ever just be to create income each month. It’s best to pick share prices you think will grow and are good value, these considerations to me seem more important.

Shell, for example, has had to cut its dividend while HSBC faces challenges in China and with the wider economy. This has had a negative impact on its share price in recent years. These shares could easily be replaced, especially by another share or shares that pay a dividend(s) in June and December. One example for a June dividend would be the insurer Admiral with its interim dividend paid in October. An alternative for December could be shipping group Clarkson.

What I hope this does prove is that you don’t need to hold a lot of shares to create a stream of monthly income from your investments. If you add investment trusts it’s easily done.

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