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Johnson & Johnson, AT&T, Innovative Industrial: Dividend stocks that can generate monthly income

David Jagielski
The Motley Fool

Buying dividend stocks can be a great way to grow your portfolio's value while enjoying recurring cash flow. But most dividend stocks only pay on a quarterly basis, and stocks with monthly dividend payments (that are less common) may not pique your interest. However, there's a way to generate monthly cash flow with dividend stocks that involves creatively buying shares of companies with different payment schedules.

By stacking your dividend payments with three different income-generating investments, you can have cash flow coming in every month of the year, even though you're not investing in stocks that individually pay their investors every month. A good trio of stocks that achieve this purpose is Johnson & Johnson (NYSE: JNJ), AT&T (NYSE: T), and Innovative Industrial Properties (NYSE: IIPR). Here's why each is a solid buy and should be able to keep the dividend income coming in from January to December.

1. Johnson & Johnson

Drug manufacturer Johnson & Johnson is one of the more stable healthcare stocks you can pick in 2020, having recorded a profit margin of at least 14% in nine of the past 10 years. On Oct. 13, the New Jersey-based company released its most recent results for the period ended Sept. 27, and its sales of $21.1 million were up a modest 1.7% from the prior-year period. Sales of medical devices were still down 3.6% during the period due to COVID-19 and deferred procedures, but the consumer health segment's revenue rose 1.3% and the pharmaceutical division enjoyed sales growth of 5%.

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Johnson & Johnson has been making recent headlines as a coronavirus stock, because the company is in the midst of phase 3 trials for its vaccine candidate, JNJ-78436735. Johnson & Johnson paused trials in October after a patient developed an unexplained illness, but the company says it will be resuming the trials after finding "no clear cause" related to the medical event.

At worst, Johnson & Johnson makes for a boring but stable investment that's been able to preserve and post strong results despite legal headaches surrounding some of its products. At best, it's an investment that can generate growth plus recurring dividend income.

Sun shining on a jar full of coins.

Today, the company pays its shareholders a quarterly dividend of $1.01, which yields 2.9% – better than the 2% yield the average S&P 500 stock pays. Johnson & Johnson also earned the title of Dividend King, having increased its payouts for more than 50 years in a row.

Johnson & Johnson will normally pay you a dividend every March, June, September, and December.

2. AT&T

AT&T is a great telecom stock that can also generate recurring income. While its margins aren't as high as Johnson & Johnson's, AT&T has been a consistently profitable stock over the years, with its net margin coming in at 7% or better in each of the past five years.

It released its third-quarter numbers on Oct. 22 for its most recent period, which ended June 30. Sales in Q3 were $42.3 billion, down 5.2% from the prior-year period as COVID-19 continues to negatively impact the company's operations with fewer people traveling and roaming. But net income of $2.8 billion remained firmly in the black, even though it was down more than 24% from the same period last year when AT&T reported a profit of $3.7 billion. The good news is that the company's subscriber numbers continued growing during the period. AT&T reported 5 million net additions in its domestic wireless mobile segment. The number of domestic subscribers for its HBO and HBO Max services also reached 38 million, which was more than the 36 million that AT&T was aiming for by the end of the year.

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The business still looks to be in good shape, and that's great news for its quarterly dividend, which today is $0.52 and yields an incredible 7.8%. AT&T has also raised its payouts for 36 years in a row. While it's not a Dividend King like Johnson & Johnson, it still falls into the category of Dividend Aristocrat

AT&T currently pays its shareholders every February, May, August, and November.

3. Innovative Industrial

Innovative Industrial Properties is a dividend stock that lets you to tap into the cannabis industry's exciting growth opportunities. And the good news is the stock isn't nearly as risky as that of a pure-play pot producer. It's a real estate investment trust (REIT), and it owns a portfolio of properties that it rents out to cannabis growers. The company's strategy typically involves acquiring distressed assets in the industry that it can buy at a cheap price and then lease back to cannabis growers and processors.

Unlike the other big names on this list, Innovative Industrial doesn't have a long history, having only commenced real estate operations in December 2016. However, it's been growing at an impressive rate; sales of $44.7 million in 2019 tripled 2018's tally of $14.8 million. In its most recent quarterly results, released on Aug. 5 for the period ended June 30, sales of $24.3 million grew 183% from the prior-year period. A big reason behind all that growth is that Innovative Industrial has been adding to its portfolio. As of June 30, it owned 58 properties across the country, up from just 22 properties a year ago. 

As a REIT, Innovative Industrial is legally required to pay out at least 90% of its taxable earnings to shareholders. Today, its quarterly dividend is $1.17 and yields 3.9% annually. Although it's not a Dividend Aristocrat, the company has been raising its payouts sharply in recent years. The current dividend is more than triple the $0.35 that Innovative Industrial was paying just two years ago.

This quarterly dividend stock will pay you every January, April, July, and October.

These stocks could be pillars for your portfolio

Investing in all three of these stocks can keep the dividend income rolling into your portfolio every month. With healthcare, cannabis, and telecom industries covered, these stocks can automatically diversify your portfolio too.

Only Innovative Industrial has outperformed the S&P 500 this year, which makes sense given that Innovative Industrial's market cap is a measly $2.6 billion compared to Johnson & Johnon's $362 billion and AT&T's $194 billion. But AT&T is showing promise, especially with HBO Max delivering some good results in its early stages, and investors shouldn't rule out a rally in the stock's price in the years ahead. Johnson & Johnson could also get a lift if its COVID-19 vaccine is successful. And even if not, it likely won't drop significantly, and at the very least Johnson & Johnson can generate some solid dividend income that you can expect to grow over the years. Innovative Industrial may be the most promising of the stocks, especially with its exposure to the cannabis industry, which is expected to grow at a compound annual growth rate (CAGR) of 18.1% between now and 2027, according to Grand View Research.

As a group, all three of these investments can act as pillars for your portfolio that you can rely on for dividend income and major capital gains.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Innovative Industrial Properties. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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