This is a guest contribution by Bob Ciura of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth portfolios for the long run.
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 for income investors.
In this article, we will discuss three of our favorites among the larger universe of monthly dividend stocks.
#1. Realty Income Corporation (O)
Realty Income is a retail real estate focused REIT that has become famous for its successful dividend growth history and monthly dividend payments. Today, the trust owns thousands of properties. Realty Income owns retail properties that are not part of a wider retail development (such as a mall), but instead are standalone properties. This means that the properties are viable for many different tenants, including government services, healthcare services, and entertainment.
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On August 2, 2023, Realty Income released its Q2 results. For the quarter ending June 30, 2023, the company reported net income available to common stockholders of $195.4 million, equivalent to $0.29 per share. Normalized FFO available to common stockholders was $688.3 million, or $1.02 per share, while AFFO available to common stockholders stood at $671.7 million, or $1.00 per share.
The company invested $3.1 billion in 710 properties and properties under development or expansion, yielding an initial weighted average cash lease yield of 6.9%. Realty Income generates its growth through growing rents at existing locations, via contracted rent increases or by leasing properties to new tenants at higher rates, but also by acquiring new properties. Realty Income expects to increase its investments in international markets moving forward.
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 6.4% dividend yield and the potential for valuation multiple expansion – could drive potential double-digit annualized returns. Given its low risk profile, Realty Income presents an attractive monthly dividend stock investment opportunity.
#2. SL Green (SLG)
SL Green Realty Corp. (SLG) was formed in 1980. It is an integrated real estate investment trust (REIT) that is focused on acquiring, managing, and maximizing the value of Manhattan commercial properties. It is Manhattan’s largest office landlord, with a market capitalization of $2.3 billion, and currently owns 59 buildings totaling 33 million square feet. On June 26th, 2023, SLG sold its 50% stake in 245 Park Avenue for $1.0 billion. Since then, the stock has rallied 45%, as the sale signaled that the assets of the REIT are probably worth more than the market values them. To provide a perspective, the stock had a market cap of only $1.6 billion before the announcement of the above sale. In mid-October, SLG reported (10/18/2023) financial results for the third quarter of fiscal 2023. Its same-store net operating income grew 10.4% over the prior year’s quarter and its occupancy rate edged up sequentially from 89.8% to 89.9%. However, due to some assets sales and higher interest expense, funds from operations (FFO) per share fell -23% over the prior year’s quarter, from $1.66 to $1.27, though they exceeded the analysts’ consensus by $0.01.
SLG has been severely hit by the pandemic, which has led many tenants to adopt a work-from-home model. Occupancy of office space in New York remains near historic lows. This has caused an unprecedented tenant-friendly environment. Moreover, high interest rates have increased the interest expense of SLG from $17 million in Q1-2022 to $43 million.
But the company has effectively managed its property portfolio to navigate the work from home trend. SLG provided guidance for FFO per share of $5.05-$5.35 in 2023. SLG benefits from long-term growth in rental rates in one of the most popular commercial areas in the world, Manhattan. The REIT pursues growth by acquiring attractive properties and raising rental rates in its existing properties. It also signs multi-year contracts (7-15 years) with its tenants in order to secure reliable cash flows.
SLG has a healthy BBB credit rating. As a result, it can endure the ongoing crisis and emerge stronger whenever the work-from-home trend subsides. It can also maintain its attractive 10% dividend, which is well covered by cash flows, with a healthy payout ratio of 62%.
#3. STAG Industrial (STAG)
STAG Industrial is an owner and operator of industrial real estate. It is focused on single-tenant industrial properties and has 563 buildings across 41 states in the United States. STAG Industrial went public in 2011 and has a market capitalization of $5.9 billion. The focus of this REIT on single-tenant properties might create higher risk compared to multi-tenant properties, as the former are either fully occupied or completely vacant.
STAG Industrial executes a deep quantitative and qualitative analysis on its tenants. As a result, it has incurred credit losses that have been less than 0.1% of its revenues since its IPO. As per the latest data, 53% of the tenants are publicly rated and 31% of the tenants are rated “investment grade.” The company typically does business with established tenants to reduce risk.
In late October, STAG Industrial reported (10/26/23) financial results for the third quarter of fiscal 2023. Core FFO per share grew 3.5% over the prior year’s quarter, from $0.57 to $0.59, exceeding the analysts’ consensus by $0.02, thanks to the sustained strength of the REIT’s tenants and material hikes in rent rates. Net operating income grew 7% over the prior year’s quarter while the occupancy rate edged down sequentially from 97.7% to 97.6% and interest expense increased 12% year-on-year due to high interest rates.
STAG Industrial has proved fairly resilient to the surge of interest rates to 16-year highs thanks to its decent balance sheet. Moreover, the REIT slightly improved its guidance for core FFO per share in 2023, from $2.22-$2.26 to $2.26-$2.28.
STAG Industrial currently offers a 4.2% yield and has never cut its dividend throughout its short history.
Disclosure: No positions
