3 Conservative Monthly Dividend Investments

In July, the major stock market indexes hit new record high values. In the few weeks since all three indexes hit those highs, the stock market has had trouble pushing higher.

Steep down days have outnumbered the positive days. If companies don’t report second-quarter earnings to justify the current high level of share prices, this is a market that could quickly turn lower. A stock market correction of 10% or more could happen quicker than investors can react.

A 10% correction could trigger massive investor selling, which could quickly push the market to match the 2018 fourth-quarter drop of 20%.

I focus on investing for income, and to earn dividends; you need to own dividend-paying stocks. That means an investor following my strategies will stay in the stock market.

My strategy for defense against a falling stock market is to have a portion of your income portfolio in investment classes that don’t track the rest of the stock market and should be more stable in a steep market decline.

Preferred stocks and utility stocks are two asset classes that are viewed as defensive investments and can provide stability in a portfolio when the stock market gets turbulent or falls into correction territory.

I also like to combine the defensive nature of these categories with investments that will pay monthly dividends. The dividends can provide an income stream you can count on or be reinvested, taking advantage of prices as they swing down and back up.

Here are three income investment ideas that will give you some stability plus income through the next stock market correction, or even a full-blown bear market.

The InfraCap REIT Preferred ETF (PFFR) takes a more conservative approach to preferred stock investing. The fund only owns preferred shares issued by equity real estate investment trusts (REITs).

This means that the ultimate backing of the preferred issues in the fund are secured by commercial real estate and not just the business operations of the issuing companies. For July 2019, PFFR made the shift from paying quarterly dividends to a monthly dividend policy. Even with the very conservative nature of the fund’s portfolio, PFFR yields an attractive 5.7%.

The Flaherty & Crumrine Preferred and Income Fund (PFD) is a closed-end fund that invests in preferred stocks and other income-producing securities.

The fund concentrates its investments in the financial sector, comprised of the bank, thrifts and mortgage finance, diversified financial services, finance, consumer finance, capital markets, asset management & custody, investment banking and brokerage, insurance, insurance brokers and REIT industries. PFD has paid a $0.075 per share monthly dividend since December 2018. Current yield is 6.0%.

The DNP Select Income Fund Inc. (DNP) is a closed-end fund that invests primarily in a diversified portfolio of equity and fixed income securities of companies in the public utilities industry. The fund’s primary investment objectives are current income and long-term growth of income.

DNP has paid its 6.5 cents per share monthly dividend every month since the late 1990s. This is an income check you can count on. One area of caution is the shares are currently trading at a 16% premium to NAV.

Before buying into DNP, I would wait for that premium to narrow to at least the single digits. Fund shares currently yield 6.5%.