A popular investment strategy for those seeking to rely on passive income from their portfolio is dividend growth investing. The value of this approach lies in the fact that it allows investors to disregard the fluctuations of the stock market and concentrate solely on their income stream.
By purchasing dividend stocks that pay distributions to shareholders each month, investors can streamline their passive income cash flow to fit their monthly expenses. As a result, monthly dividend stocks can be appealing to income investors.
Indeed, attaining a significant amount of monthly passive cash flow is a highly effective way to enhance your financial stability and quality of life. Instead of being emotionally tied to the daily volatility of the stock market, you can sit back, relax and allow the dividends to pour into your bank account.
In this article, we will discuss three of our favorites among the larger universe of monthly dividend stocks.
Realty Income Corporation (O)
With its vast size, Realty Income Corporation (NYSE:O) stands out as the top triple net lease real estate investment trust (REIT) in today’s public market. It boasts an enterprise value of nearly $60 billion and owns 11,733 properties that are rented out to 1,147 tenants.
The company’s leases are structured in a highly conservative manner, with the tenant taking on almost all of the operational and capital expenses. Furthermore, these leases frequently span more than a decade, often containing bankruptcy protections and fixed annual rent increases. The company currently holds a weighted average lease term of 8.8 years until expiration. It generates 43% of its rental income from tenants rated as investment grade.
The company’s A-credit rating reflects a strong balance sheet, which includes a 6.3-year weighted average term to maturity for its notes and bonds, a fixed charge coverage ratio of 5.5x, a leverage ratio of 5.2x, and over $2.5 billion in liquidity. Therefore, the company is unlikely to encounter financial difficulties in the foreseeable future.
Additionally, O’s dividend history is one of the most consistent and predictable in the stock market, owing to its conservative business model and balance sheet. Over the past 27 years, O has increased its dividend and outperformed the market with total returns.
Going forward, the company’s dividend appears safe and supported by strong cash-flow coverage. Analysts expect a mid-single digit annualized growth rate for its dividend per share, which — combined with its 4.5% dividend yield and the potential for valuation multiple expansion — could drive potential double-digit annualized returns. Given its very low-risk profile, O presents an attractive monthly dividend stock investment opportunity.
Global Water Resources (GWRS)
Global Water Resources (NASDAQ:GWRS) is a company engaged in the management of water resources. The firm is responsible for the ownership, operation and administration of water, wastewater and recycled water utilities located in Phoenix, Arizona. Global Water Resources has adopted a total water management approach, which involves the ownership of the complete water cycle.
This approach aims to maximize the economic value of water by conserving it through the operation of water, wastewater and recycling facilities in the same geographical area. Global Water Resources concentrates on communities in which it anticipates both population growth and a rise in demand that could surpass the available supply.
The company’s business strategy is prudent given that areas with these characteristics are likely to have increasing demand for water production assets. Global Water is also experiencing several favorable conditions that include an upswing in recycled water deliveries, substantial rate increases and robust population growth in Phoenix. Its regulated yearly revenues have exhibited steady growth over the years, averaging a 2.5% annual growth rate during the past decade.
Since water is an indispensable resource, demand for it remains stable even during the most unfavorable economic conditions. As a result, Global Water’s revenue is likely to remain resilient even in the event of a recession, as it did during the Great Recession.
We anticipate that Global Water will generate low-single-digit annual growth from rate increases as part of its organic growth contributions. As with other utility companies, Global Water is capable of passing on approved pricing adjustments to its customers, providing a consistent and long-term support to its revenue. We project that with the significant rate increases and consistent expansion, Global Water’s earnings per share (EPS) will grow at an average annual rate of 6% in the coming five years.
We believe that Global Water has a favorable earnings growth outlook. With the diverse sources of organic growth, the company is on a dependable path for revenue expansion. This makes it an intriguing recession-resistant long-term monthly dividend growth stock.
TransAlta Renewables (TRSWF)
TransAlta Renewables (OTCMKTS:TRSWF) is headquartered in Calgary, Alberta, and specializes in renewable energy infrastructure. The company holds the distinction of being Canada’s largest wind energy producer. Additionally, it is one of the country’s leading suppliers of renewable energy. Its roots in renewable power generation date back over 100 years. In 2013, TransAlta Renewables spun off from TransAlta. The parent company still holds a significant stake in the firm. TransAlta Renewables has consistently maintained or increased its dividend each year since 2014.
TransAlta Renewables aims for long-term growth by prioritizing renewable and gas-fired power generation. This approach aligns with the global trend towards cleaner energy sources and away from fossil fuels, which has accelerated since the beginning of the pandemic. The company enjoys robust internal cash generation, which enables it to invest strategically over time to expand its portfolio. These investments create an optimistic growth outlook for the company.
The company demonstrated resilience during the Covid-19 pandemic. Unlike many oil companies that experienced significant losses due to the drop in global demand for oil products, TransAlta only suffered a modest 12% decline in its funds from operations per share, from $1.13 in 2019 to 99 cents in 2020. The company has since begun to recover, increasing its funds from operations per share to $1.05 in 2021. TransAlta’s potential for growth in the long term is also promising, given the increasing demand for clean energy sources. The company’s growth prospects include organic growth as well as acquisitions.
Its attractive monthly dividend payments and high dividend yield make it an appealing investment option for income investors, particularly retirees. Our analysis indicates that the company’s dividend is secure. As a result, investors seeking a dependable monthly dividend from the renewable energy sector may find TransAlta Renewables to be a suitable investment.
On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.