Stocks that pay a monthly dividend offer the best of both worlds. If the prospects for a company look good, increased buying pressure from investors can drive the stock price up and generate a capital gain. Even without any growth catalysts coming to light, these firms can continue their day-to-day business, simultaneously churning out income streams for shareholders.
There’s something of a win-win feel about buying cheap dividend stocks under $10. Whilst the yield is not better due to the price point, there is the option with a relatively smaller capital base to acquire a decent sized position in stocks with a lower purchase price. Here are four of the best stocks to consider.
Best Monthly Dividend Stocks
Aegeon NV (NYSE: AEG | EURONEXT: AEG)
Amsterdam-based Aegon NV has a strong position in the life insurance, pensions and asset management sectors. It’s a big and globally recognised operation with 26,000 employees and a dividend yield above 5%. The stock is listed both in Europe, and on the New York Stock Exchange.
The dividend yield of Aegon may not quite match that of some other dividend stocks under $10, but the firm is a relatively safe bet and capital gains could also come into play. Between March 2020 and May 2023, the Aegon stock price skyrocketed from 1.69 to 4.32, representing a capital gain to shareholders of 154%. Over the past 12 months, the AEG has continued to climb, adding 17% to the share price to go alongside all those lovely monthly dividends.
AEGON NV – 5 YR SHARE PRICE CHART
United Microelectronics (NYSE: UMC)
United Microelectronics is a Taiwanese microchip manufacturer with a New York Stock Exchange listing. The ADR has shown significant price strength over the last 12 months, demonstrating that picking the right dividend stock can also result in capital gains and that the chip sector is a hot topic.
UMC’s P/E ratio has risen to 6.52, but the dividend yield of 6.24% is an impressive return for a stock in a high-growth sector.
Demand for chips will continue to increase thanks to there always being a new way of doing things. The metaverse may not yet be part of day-to-day life, but big corporations are already making plans for it to be so. That is why United Microelectronics’ revenues are predicted to remain strong through 2023.
UNITED MICROELECTRONICS (ADR) – 5 YR SHARE PRICE CHART
Itaú Unibanco Holding SA (ADR) (NYSE: ITUB)
Itaú Unibanco is the largest banking firm in Brazil, with ADR shares listed on the NYSE, providing a convenient way for international investors to gain exposure to the potential of Brazil’s economy.
As the Brazilian economy is still emerging, price moves in ITUB can be volatile. Still, the recent dip highlights how investors who get into a position at a lower price enhance the yield they get on their position. If a firm’s cash payout is relatively stable, buying cheap dividend stocks under $10 or at a lower price level means investors get a higher percentage return.
The low P/E ratio of 9.73 suggests that those willing to take on a long-term prospect could factor in regular dividend payouts and the possible kicker of the share price rallying.
ITAÚ UNIBANCO (ADR) – 5 YR SHARE PRICE CHART
Pearson (NYSE: PSO | LON: PSON)
Pearson had a ‘good’ pandemic as many day-to-day activities, including learning, went online. This provider of educational materials was able to take advantage of the scalability of its business model, and from March 2020, its share price rallied by 94% in less than 12 months. Pearson’s stock is listed both on the NYSE, and the London Stock Exchange.
The stock has continued to perform well in the post-Covid era, and dividend hunters will appreciate the capital growth as a nice-to-have feature. But it does not distract from the consistent cash returns to investors, which equate to a dividend yield of more than 2%.
Technically, this stock is no longer under $10, but since it has been on various of our lists for years, some price appreciation outside of that range seemed acceptable in keeping PSO worthy of consideration. On the list before $10, we will keep it around for the time being.
PEARSON PLC –5 YR SHARE PRICE CHART
Pros & Cons of Monthly Dividend Stocks?
Many economists, analysts, and investors are bracing for a global environment of changing interest rates and inflation levels that could also expect to shift in time with monetary policy. This kind of macroeconomic shift would require asset markets to adjust their valuations to factor in the change in underlying conditions.
Equities will be challenged by the new market conditions that are predicted. Inflation and higher borrowing costs are eating into the disposable expenditure of consumers, driving down the revenues of firms.
Not all equities are likely to suffer to the same extent. As the selloff in the Nasdaq 100 index in 2022 proved, likely to be hardest hit are growth stocks that skyrocketed in value during the low-interest rate years. On the other hand, dividend stocks will be better positioned to weather the storm, if only in relative terms.
Dividend stocks are at the lower end of the risk-return spectrum. It’s still possible to lose all your money, but the target firms tend to run well-established business models. That makes them popular with both experienced and new investors.
Dividends are paid at the discretion of a firm’s management. While some stocks ‘typically’ pay dividends and even have long track records of doing so, any downturn in fortunes could see payments to investors dry up as the firm protects its balance sheet.
It is also possible that a firm will adjust the frequency of dividend payments from monthly to quarterly, semi-annually, or annually. That shouldn’t make too much difference to total returns, and the price of dividend stocks usually factors in an element of dividend premium regardless of how frequently dividends are paid. In addition, any payments made to investors may incur a taxation charge, so personal T&Cs need to be checked.
The final potential issue with dividend stocks is that returning cash to investors, while a sign of a successful business, also signals limited growth potential. If the management were aware of exciting new opportunities that would boost the share price over the long term, they would use the spare cash to invest in those projects instead of returning it to shareholders.
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