Dividend growth investing can be an excellent way to produce secure cash flows in retirement. Markets go up and down, but dividends often grow, especially when one invests in quality companies.
With most companies distributing dividends on a quarterly basis, investors needing predictable monthly cashflows could face some uncertainty due to the timing of payments.
The good news is that there are a number of securities that pay dividends on a monthly basis, helping to deliver a steady stream of income. Real estate investment trusts (REITs) are some of our favorite monthly paying stocks as REITs are required by law to distribute the vast majority of income in the form of dividends.
Here are three of our favorite monthly dividend stocks.
|SL Green Realty
Monthly Dividend Stocks: Realty Income (O)
Our first entry of monthly dividend stocks to consider is Realty Income (NYSE:O), which specializes in single-tenant standalone properties. The trust is valued at $41 billion and generates annual revenue approaching $2 billion.
Realty Income has more than 11,100 properties in its portfolio, giving the trust an expansive reach that is largely unmatched by competitors. The trust operates a highly diversified business model, with more than 1,000 clients in 60 industries across 50 U.S. states and Puerto Rico. Realty Income has also expanded its business into Europe, with properties located in Spain and the U.K.
The trust’s top 20 tenants account for 42% of properties and include names such as Walgreens Boots Alliance (NASDAQ:WBA), Dollar General (NYSE:DG), CVS Health (NYSE:CVS), Home Depot (NYSE:HD) and Amazon (NASDAQ:AMZN). Just three tenants represent ~4% of the portfolio and nearly half of properties are leased to investment grade tenants.
Realty Income is diversified across industries as well, with the top three of grocery stores, convenience stores and dollar stores contributing 10.2%, 9.1%, and 7.5% of annual revenue, respectively. Geographically, only Texas makes up more than 10% of properties.
Realty Income has made several moves to improve the quality of its business. Last November, the trust finalized its merger with VEREIT, which held nearly 4,000 single-tenant properties. Overnight, Realty Income become a leading property manager in the U.K. and Spain. As a result, the U.K. now holds the second largest number of properties for the trust at nearly 8% of the total.
The trust then spun off its office property business, which had been among the weakest areas of the business during the worst of the Covid-19 pandemic, into Orion Office REIT (NYSE:ONL). Following these strategic endeavors, Realty Income simultaneously strengthened its portfolio and expanded its operations.
Realty Income has earned the title Monthly Dividend Company because it has distributed dividends on a monthly basis since its IPO in 1994. In total, the trust has declared more than 620 consecutive monthly dividends. The dividend has a compound annual growth rate of more than 5% over the last decade. The dividend appears to be on very stable ground as the projected payout ratio for this year is 75%, lower than the 10-year average of 84%. Shares currently yield 4.4%, nearly three times the average yield of 1.5% for the S&P 500.
SL Green Realty (SLG)
Next up is SL Green Realty (NYSE:SLG), which owns, develops and leases office properties in the New York City metropolitan area. The trust had revenue of just over $678 million in 2021 and has a current market capitalization of $3.7 billion.
SL Green Realty’s portfolio includes 35 million square feet of office space spread out over 70 buildings, making the trust the largest owner of office space in Manhattan. This area has been synonymous with the financial industry for a long period of time, making the trust’s properties ideally located for companies in this space.
One cautionary item is that SL Green Realty is beholden to the operating environment within New York City given the density of its portfolio. When Covid-19 first emerged, restrictions were implemented to slow the spread of the virus and the fallout meant that companies tightened their budgets. With many employees working from home, office space wasn’t a large need. At one point, Manhattan office buildings were less than 15% occupied.
That has changed, with the majority of unoccupied office space now having a tenant. SL Green Realty’s portfolio was close to 93% occupied as of the most recent quarter, showing that the trust’s properties remain in high demand following the unprecedented actions that were taken in 2020.
While SL Green Realty does lack geographic and industry diversification, the trust is increasing becoming attractive to the technology sector. New York City is now one of the largest employers in the tech sector, giving SL Green Realty a potential additional avenue for growth. Pivoting away slightly from just financial sector tenants would provide some diversification to the trust’s business model.
SL Green Realty ended the last quarter with nearly 4 million square feet of properties in development, which would further add to the trust’s leading position in its area of operations. The majority of SL Green Realty’s leases range from seven to 15 years. The length of the agreements provides the trust idea of what revenue will look like in the future.
SL Green Realty joined the list of monthly dividend stocks in 2020. The trust has raised its dividend for 11 years and with a CAGR of 14.5% over the last decade. The expected payout ratio for 2022 is 57%, higher than the 10-year average of 41%, but still quite low for a REIT. The stock yields 6.5%, more than four times the market index average.
Monthly Dividend Stocks: STAG Industrial (STAG)
Our final name on this list of monthly dividend stocks is STAG Industrial (STAG), which specializes in industrial real estate properties. The $6 billion trust produced revenue of $562 million last year.
STAG Industrial is very much a niche business as it is the only public pure-play industrial real estate company. This is a significant advantage because potential tenants are limited in their choices when it comes to leasing a facility.
Unlike SL Green Realty, STAG Industrial has a highly diversified business model. The trust owns and leases 553 buildings across 40 U.S. states. STAG Industrial tenants are found in more than 45 industries. The trust counts Amazon as its largest contributor to annual base rents, but this one tenant amounts to just 8% of yearly totals.
The top 20 tenants account for less than 20% of annual rent, with each company’s annual revenue ranging from $50 million to $100 billion. This level of diversification protects STAG Industrial from weakness in any one area, whether its geographic region, industry, or company size.
STAG Industrial has grown quickly since going public in 2021. The trust now has more than 110 million square feet of leasable space as the property total has climbed from 93 to its current total. This expansion continues has the trust had almost $4 billion of deals completed through the first four months of 2022. And with a total addressable market value of $1 trillion, STAG Industrial, thanks to its size, scale, and experience, is likely to continue to grow its portfolio.
STAG Industrial has raised its dividend for 11 years and with a 3.4% growth rate since 2012. The payout is projected to be 66% for this year, well below the long-term average of 85%. Today’s dividend looks safer than it has in a long time. STAG Industrial yields 4.3% today.
Investors needing income on a more regular basis should consider owning securities that pay dividends monthly. With less than 50 names that do so, the pickings can be slim. However, we believe there are high-quality companies that have competitive advantageous that should allow for continued dividend growth.
Realty Income, SL Green Realty and STAG Industrial are three such examples of REITs that we believe will continue to pay monthly dividends given the strength of their respective business model.
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.