What are dividends, and what are the best monthly dividend stocks to watch?

What are dividends?

Dividends are payments that companies make to their shareholders as a way of distributing a portion of their profits. When you own shares in a company that pays dividends, you receive regular cash payments simply for holding those shares. You can think of dividends as your share of the company's success, because they’re effectively a reward for being an investor and part owner of the business.

Not all companies pay dividends. As you might expect, early stage growth-focused companies typically reinvest all their profits back into the business to fuel expansion. However, more established companies with steady cash flows often choose to share their profits with shareholders through dividend payments. These payments provide investors with a regular income stream in addition to any potential gains from the share price increasing.

Dividends are typically paid in cash directly into your account, though some companies offer stock dividends where you receive additional shares instead of cash. Stock dividends increase your shareholding without requiring additional cash outlay from the company, though they dilute the value of existing shares proportionally.

The amount you receive depends on how many shares you own, and the dividend amount the company declares per share.

While regular cash dividends are most common, companies can distribute profits to shareholders in several ways:

• Regular dividends — standard periodic payments most investors expect, paid according to the company's established schedule (monthly, quarterly or annually)
• Special dividends — one-off payments made when a company wants to distribute accumulated profits after several years. These are paid on common stock but occur outside the regular dividend schedule, often following an exceptionally profitable period or asset sale
• Preferred dividends — issued to shareholders who own preferred stock, which acts more like a bond with a fixed dividend amount. These dividends take priority over regular dividends, meaning preferred shareholders receive their payments first. If a company faces financial difficulties and must reduce distributions, common stock dividends are cut before preferred dividends

How do dividends work?

Understanding how dividends work requires knowing a few key concepts:

Dividend yield and dividend per share

The dividend yield is expressed as a percentage and shows the annual dividend payment relative to the share price. For example, if a company's shares trade at £100 and it pays £5 in annual dividends, the dividend yield is 5%. This metric helps investors compare the income potential of different dividend-paying stocks.

Companies typically announce their dividend as a specific amount per share. If a company declares a 50p dividend per share and you own 1,000 shares, you will receive £500. Companies may increase, maintain or reduce their dividend payments based on their financial performance and strategic priorities.

Payment frequency

Most companies pay dividends quarterly, meaning four times per year. However, payment schedules vary significantly. Some companies pay semi-annually, others pay only annually and a select group pay monthly dividends. The frequency rarely indicates quality, though companies paying out more frequently can be more volatile.

Key dividend dates

When a company declares a dividend, several important dates determine who receives the payment:

• Declaration date — the day the company announces the dividend and commits to paying it
• Ex-dividend date —you must own the shares before this date to receive the upcoming dividend. If you buy shares on or after the ex-dividend date, you won't receive that particular dividend payment, the seller will
• Record date — the date when the company reviews its shareholder list to determine who receives the dividend. This is typically one or two business days after the ex-dividend date
• Payment date — the day the dividend is actually paid into shareholders' accounts

Why companies pay dividends

Companies pay dividends for several strategic reasons. Mature companies with consistent profits and limited growth opportunities often choose to return excess cash to shareholders rather than letting it accumulate. Dividend payments can also signal financial strength and management confidence in the company's future prospects.

Regular dividend payments attract income-focused investors such as retirees who rely on investment income to cover living expenses. Companies with a long history of paying and increasing dividends often enjoy greater investor loyalty and potentially less volatile share prices.

 However, companies must balance dividend payments with the need to retain sufficient cash for operations, debt management and future investments. Occasionally, some companies have sacrificed some financial stability to maintain dividends, which can backfire for obvious reasons. 

Monthly dividend stocks explained

Monthly dividend stocks are shares in companies which distribute dividends to shareholders every month rather than following the more common quarterly, semi-annual or annual payment schedules. This frequent payment structure creates a distinctive investment category that appeals to specific investor needs.

These stocks are predominantly found in sectors that generate defensive and reliable cash flows. For example, Real Estate Investment Trusts (REITs), Business Development Companies (BDCs) and utilities companies dominate the monthly dividend landscape because their business models produce steady, predictable income streams that support frequent distributions.

Pros of Monthly Dividend Stocks

• Consistent cash flow — receiving payments twelve times per year instead of four provides smoother income distribution, which is especially valuable for retirees or anyone relying on dividend income for living expenses
• Faster compounding potential — monthly payments enable quicker reinvestment of dividends, potentially enhancing long-term returns (though the impact depends on reinvestment costs and market conditions)
• Psychological comfort and flexibility — regular income can provide reassurance and allow investors to adjust more quickly to changing personal financial circumstances
• Risk distribution — with monthly dividends, the impact of a missed payment is reduced compared to quarterly payers, as companies have more frequent opportunities to maintain their payment track record

Cons of Monthly Dividend Stocks

• Limited growth potential — monthly payers are often mature companies prioritising income distributions over reinvestment in growth, leading to slower capital appreciation
• Dividend sustainability risks — frequent payments can pressure companies to maintain payouts even when fundamentals weaken, potentially leading to dividend cuts
• Lower total return potential — high-yield monthly dividend stocks may underperform strong quarterly dividend payers that combine income with better growth prospects
• Expense and valuation concerns — REITs and BDCs (common monthly payers) often have higher management fees, transaction costs, and tax burdens

How to invest in monthly dividend stocks with us

1. Learn more about monthly dividend stocks
2. Download the IG Invest app or open a share dealing account online
3. Search for monthly dividend stocks on our app or web platform
4. Choose how many shares you'd like to buy
5. Place your deal and monitor your investment

Investors look to grow their capital through share price returns and dividends - if paid.

But the value of investments can fall as well as rise, past performance is no indicator of future returns, and you could get back less than your original investment.

We also offer many monthly dividend ETFs, including the popular JPMorgan US Equity Premium Income Active UCITS ETF [JEIP], which sells covered calls on stocks and uses these to pay the dividend. It sports a competitive expense fee of 0.35%.

Top monthly dividend stocks to watch

These were some of the highest-yielding monthly dividend stocks as of October 2025.

Eagle Point Credit Co Inc. (NYSE: ECC)

Eagle Point Credit focuses on investing in CLO equity tranches, which offer the potential for high returns but also come with significant risk. The fund's portfolio does invest in other asset-backed securities, is actively managed and offers high-yield potential, especially in a favourable credit market.

Like other CLO-focused funds, the risk comes from the volatility of the CLOs, because the heavy focus on this financial product exposes it to substantial losses during economic downturns when loan defaults rise.

Horizon Technology Finance (NASDAQ: HRZN)

Horizon Technology Finance is a business development company that provides financing to venture capital-backed companies in the technology, life sciences and sustainability sectors.

The company focuses on providing secured loans to growth-stage companies, earning interest income and fees from these investments. While strong returns are on offer, the company is exposed to the risks of its portfolio companies failing to meet growth expectations, or encountering financial difficulties, which can lead to defaults. It also comes with the generic risks of the volatile venture capital and private equity markets.

Oxford Square Capital Corp. (NASDAQ: OXSQ)

Oxford Square Capital invests in a variety of credit instruments, including CLOs and corporate debt. The company targets high-yield returns through investments in lower-rated securities, which as a trade-off carry higher risk.

The company is highly exposed to the performance of credit markets, and unexpected changes in interest rates or an economic downturn could hurt the value of its investments. Its focus on lower-rated debt also means it is more vulnerable to defaults and credit deterioration, which can lead to dividend cuts.

Gabelli Multimedia Trust Inc. (NYSE: GGT)

Gabelli Multimedia Trust is a closed-end fund that invests primarily in equity securities of companies in the media and entertainment industries. The fund benefits from the expertise of Gabelli Asset Management in identifying value opportunities within the multimedia sector.

However, the fund faces concentration risk due to its focus on a single sector, making it vulnerable to downturns in media and entertainment industries. Additionally, as a closed-end fund, it can trade at a premium or discount to its NAV, which can affect investor returns.

Orchid Island Capital, Inc. (NYSE: ORC)

Orchid Island Capital is a REIT which focuses on investing in residential mortgage-backed securities. The company's portfolio consists mainly of agency RMBS, which are backed by government-sponsored enterprises. Orchid's strength lies in the stability of its income generation, as agency RMBS are guaranteed by the US government, providing some level of security.

However, it is still highly sensitive to interest rate changes, as rising rates can reduce the value of its holdings, potentially impacting its profitability and dividend payments. Additionally, prepayment risks in the mortgage market can affect returns.

Prospect Capital Corporation (NASDAQ: PSEC)

Prospect Capital Corporation is a business development company that provides financing solutions

to middle-market companies across various industries. The company invests in first lien senior secured loans, second lien secured loans, and unsecured debt as well as equity investments.

The fund generates income through interest payments and fees, offering attractive yields to investors. However, it faces risks related to the credit quality of its borrowers, and economic downturns can lead to increased defaults. The company's leverage also amplifies both gains and losses.

Ellington Credit Company (NASDAQ: EARN)

Ellington Credit focuses on investing in mortgage-backed securities, commercial real estate debt, and other credit assets. The company has a solid reputation for generating attractive returns in credit markets.

Its strength lies in its diversified portfolio, which helps reduce risk by spreading investments across various credit sectors. However, it still faces exposure to interest rate risk, as in line with others on this list, rising rates can negatively affect the value of its MBS holdings.

ARMOUR Residential REIT, Inc. (NYSE: ARR)

ARMOUR Residential REIT invests in agency mortgage-backed securities. The company's portfolio provides stable dividends supported by its MBS investments, which tend to generate consistent income, particularly in a low-interest-rate environment.

However, the company faces significant risks related to elevated interest rates, as rising rates can lower the market value of its securities. Like Orchid Island, the REIT is vulnerable to prepayment risk and a slowdown in the housing market.

Sound Point Meridian Capital (NYSE: SPMC)

Sound Point Meridian Capital is a closed-end fund that invests primarily in credit-related securities, including CLO debt and equity tranches, as well as other structured credit products. The fund aims to generate high current income through its focus on credit investments.

This fund benefits from professional management and a diversified credit portfolio. However, it faces risks related to credit market volatility, interest rate changes and the performance of underlying CLO assets. As with other closed-end funds, it may trade at a premium or discount to NAV.

2020 Bulkers LTD (OTC: TTBKF)

2020 Bulkers is a shipping company that owns and operates a fleet of modern Newcastlemax dry bulk vessels. The company transports commodities such as iron ore and coal across global markets, with its dividend policy closely tied to charter rates and vessel utilization.

The company's strength lies in its modern fleet and exposure to the dry bulk shipping market. However, it faces significant volatility related to commodity prices, global trade patterns and shipping rates. The shipping industry is cyclical, and downturns can severely impact profitability and dividend payments.

Monthly dividend stocks summed up

• Dividends are payments companies make to shareholders as a way of distributing profits, providing regular income for investors
• Most companies pay dividends quarterly, but monthly dividend stocks distribute payments twelve times per year for more consistent cash flow
• Monthly dividend stocks are predominantly found in REITs, BDCs, and utilities, sectors with defensive and reliable cash flows
• Benefits include consistent income, faster compounding potential, and better cash flow management for those relying on investment income
• Drawbacks include limited growth potential, pressure to maintain unsustainable payouts, higher expense fees and premium valuations