Monthly vs. Quarterly Dividends: Which Earns Higher Returns?

Updated September 11, 2020
posted on 06-07-2019

le most securities pay their dividends quarterly (every three months), you might see others paying monthly. Although quarterly payments are far more typical, more frequent monthly dividends may provide a slight advantage for investors.

Quarterly vs. Monthly Dividends: Which Is Better?

For starters, monthly payments give you a simple way to get a steady income stream throughout the year. That said, with a little effort you can also create a consistent income stream by carefully selecting stocks that pay their quarterly dividends at different time slots.

 For example, income investors could purchase a security that pays a dividend in January, April, July, and October. Meanwhile, they could invest in two others: One that pays in February, May, August, and November and another paying in March, June, September, and December. By holding these three securities, you would receive regular dividend checks every month.

How to Grow Your Dividends 

If you let your dividends grow instead of using them for income, then investing in securities that pay monthly dividends can give you a slight edge. They allow you to grow your dividend income somewhat faster through the magic of compounding. In the short-term, the difference between monthly and quarterly dividends is fairly negligible. Over the long-term, however, monthly installments do add up.

Example of Monthly vs. Quarterly Dividends 

For example, let's say you buy 1,000 shares of a $10 stock, which pays a $1.20 per share annual dividend. That equates to a 12% yield per year (or 1% per month). If the dividend is paid monthly and then reinvested back into the stock, you would receive $1,268.25 in dividends after one year. As a fraction of your original $10,000 investment, your total compounded returns would be +12.68%.

Say that the dividend is distributed quarterly instead. Every three months, you’d receive 3% of your original investment. At the end of the year, you would earn $1,255.09 in compounded returns – or a +12.55% return on your investment (ROI) – on the initial $10,000.

As you can see from the table below, your compounded returns are slightly better (13 basis points) from the monthly versus quarterly payout if you hold the stock for one year only.

Monthly Payments                            
Month    Principal         Dividend               
1             $10,000.00       $100.00                  
2             $10,100.00       $101.00                    
3             $10,201.00       $102.01                             
4            $10,303.01        $103.03
5             $10,406.04       $104.06                               
6             $10,510.10       $105.10
7             $10,615.20       $106.15              
8             $10,721.35       $107.22
9             $10,828.57       $108.28       
10           $10,936.85       $109.37
11           $11,046.22       $110.46
12           $11,156.68       $111.57

Total Dividends             $1,268.25
Return on Investment       12.68%

Quarterly Payment
Quarter     Principal        Dividend
1               $10,000.00       $300.00
2               $10,300.00       $309.00
3               $10,609.00       $318.00
4               $10,927.27       $327.82

Total Dividends              $1,255.09
Return on Investment         12.55%

Pros and Cons of Monthly Dividend Payments

The advantage of the monthly payouts becomes somewhat more significant when it comes to long-term investments. If you hold the stock for 10 years, your compounded gains on the monthly dividend would provide $23,003.87. That’s a +230.04% return on an original $10,000 investment (+23% annually). 

Your compounded returns on a quarterly dividend payout over 10 years are $22,620.38, giving you a +226.20% gain. Over this longer term, the compounded returns for a monthly dividend recipient would improve by 38 basis points per year. 

The Bottom Line About Monthly Dividend Stocks 

Monthly dividends definitely have a slight edge over quarterly payouts. They provide a steady income stream and marginally higher returns on your investment. Still, the differences are not typically substantial, and the main focus of your stock selection should be on the quality of the dividend payments (not on their frequency). 

In other words, considerations like earnings prospects and dividend growth potential are far more critical to your overall returns than dividend frequency.