Monthly Dividend Stocks: How to Create a Consistent Income Stream Worth $631

Payday ringed on a calendar

The market may be recovering slightly, with the TSX today inching upwards as the second quarter comes closer for many companies. Yet it’s still a bit of a wild west out there, which is why monthly dividend stocks still seem so attractive.

But how does an investor get in on that monthly income and keep it? After all, monthly dividend stocks can also mean exposure to riskier investments. That’s why today we’re going to look at how to create that consistent income stream and create passive income through monthly dividend stocks that last.

Creating consistency

First off, let’s look at what investors should consider when looking for monthly dividend stocks. Investors should focus on companies with a strong track record of paying dividends. These companies typically have stable earnings, robust cash flows, and a history of weathering economic downturns. Sectors like utilities, consumer staples, and real estate often house such companies.

From there, diversify. Diversification is key to reducing risk and ensuring a steady income stream. By investing in a mix of industries and sectors, investors can protect their portfolios from sector-specific downturns. A diversified portfolio might include utility companies, real estate investment trusts (REITs), and consumer staple firms, all of which tend to offer reliable monthly dividends.

Now, to maximize growth and keep things consistent, investors should consider reinvesting dividends. Many companies offer dividend-reinvestment plans (DRIPs), allowing investors to automatically reinvest their dividends to purchase additional shares.

Now that the steps are there, here is perhaps the best option for investors on the TSX today.

NPI stock

Now, while I wouldn’t put all my investment into one stock, a great option if you’re only looking for one is Northland Power (TSX:NPI). NPI stock is well-positioned in the growing renewable energy sector. With a focus on wind, solar, and efficient natural gas projects, the company is poised to benefit from the global shift towards cleaner energy sources. This strategic positioning ensures long-term growth and sustainability.

Furthermore, NPI stock’s expansion into international markets, including Europe and Latin America, provides diversification and reduces reliance on any single market. This geographic diversification enhances the stability of its revenue streams and mitigates risks associated with market-specific downturns.

Furthermore, many of NPI stock’s projects operate under long-term contracts, providing predictable and secure cash flows. These contracts often include fixed pricing mechanisms, which protect against market volatility and ensure steady income.

The company has continued to provide strong financial performance during recent quarters, providing positive guidance and a healthy balance sheet. NPI stock now also offers a dividend yield of 5.12%, making it a steady dividend yield. What’s more, that dividend yield holds strong at a 77% payout ratio, still far and away higher than the five-year average of 3.75%.

Bottom line

So, if you’re looking for consistent dividend income, this is certainly your stock. In fact, considering both dividends and returns, you could earn massive income during the next year. The compound annual growth rate for NPI stock over the last decade has been 7.6% over the last five years. Here is what that could turn into through a $5,000 investment.

In total, you could create $376.60 in returns and $254.40 in dividend income. Altogether, that’s passive income of $631 in 2024 alone!

Should you invest $1,000 in Northland Power right now?

Before you buy stock in Northland Power, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Northland Power wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $16,110.59!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the 10 stocks * Returns as of 6/20/24

More reading

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.