The stock market can be broadly separated into two groups — dividend stocks and non-dividend stocks. Among stocks that pay dividends to shareholders, most do so on a quarterly basis. But there are other directions a company can take with its capital return policy. Some companies decide to pay a dividend once per year, while others pay semi-annually. There are even monthly dividend stocks.
Income investors may find monthly dividend stocks to be attractive, as they pay 12 dividends per year. Monthly dividend stocks deliver more frequent income payments than stocks with other payout schedules.
This article will discuss our top 7 monthly dividend stocks right now.
- Realty Income (NYSE:O)
- STAG Industrial (NYSE:STAG)
- Shaw Communications (NYSE:SJR)
- TransAlta Renewables (OTCMKTS:TRSWF)
- Dream Industrial REIT (OTCMKTS:DREUF)
- Choice Properties REIT (OTCMKTS:PPRQF)
- Main Street Capital (NYSE:MAIN)
As always, investors should make sure a company has a sustainable dividend backed by a strong underlying business model. Dividend safety is an important consideration for investors looking at monthly dividend stocks.
Safe Monthly Dividend Stocks: Realty Income (O)
Realty Income is the safest monthly dividend stock on this list due to the company’s long history of consistent dividends. The company has paid 602 consecutive monthly dividends without interruption, a track record stretching back more than 50 years. It’s no surprise that Realty Income has trademarked itself as “The Monthly Dividend Company.”
Realty Income also has a long history of consistently raising its dividend over time. Realty Income has increased its dividend 107 times since its initial public offering in 1994. Realty Income qualifies as a Dividend Aristocrat, a group of 65 companies in the S&P 500 that have raised their dividends for at least 25 consecutive years.
Since its initial public listing in 1994, the company has increased its dividend on average by 4.5% per year. This means Realty Income has delivered consistent dividends each quarter and provided dividend growth for an extended period.
Realty Income’s diversified property portfolio is a big reason for its impressive dividend history. Realty Income is a triple-net lease REIT, an attractive structure for REITs to follow. Being a triple-net lease REIT means that Realty Income collects steady rent payments each month, while three major cost components — maintenance, insurance and taxes — are the responsibility of the tenant. Realty Income’s diversified portfolio consists of over 6,500 properties spread across roughly 600 tenants, with an average remaining lease term of 9 years.
The company’s high-quality portfolio has served as a competitive advantage during the coronavirus crisis. Realty Income collected 93.5% of its contractual rent in August, up from 92.3% in July. Investors have some reason for hope that the worst is over for Realty Income, which has an attractive yield of 4.2% right now.
STAG Industrial (STAG)
STAG Industrial is a safe dividend stock because of its advantageous business model. STAG Industrial is a REIT with a particular focus on industrial real estate properties, many of which have exposure to e-commerce activity, an especially attractive feature for long-term REIT investors.
Many REITs are highly exposed to areas of brick-and-mortar real estate that are in distress, such as malls. These property types were already under pressure entering 2020 due to the rise of e-commerce retailers such as Amazon (NASDAQ:AMZN). The onset of the novel coronavirus pandemic only accelerated secular e-commerce trends. As a result, STAG is an excellent stock for REIT investors looking for long-term growth potential.
STAG Industrial’s property portfolio included 457 buildings in 30 different states as of June 30, 2020. According to the company, approximately 43% of its property portfolio handles e-commerce activity. In fact, Amazon is its largest tenant, comprising 2.5% of annualized base rent. Other major tenants such as XPO Logistics and Packaging (NYSE:XPO) will also benefit from the continued growth of e-commerce.
Importantly, STAG Industrial has a healthy balance sheet to help support the dividend. The company has a manageable leverage ratio of 4.3x, as defined by net-debt-to-adjusted EBITDA, down from 4.8x in 2019. It also has just 12% of outstanding debt maturing before 2022.
STAG Industrial collected 98% of rent in the second quarter, an excellent sign that the company is not being negatively impacted by the coronavirus pandemic. With a 4.5% yield and a projected payout ratio of 76% for 2020, we view STAG’s dividend as very safe.
Shaw Communications (SJR)
Shaw Communications is a major communications company based out of Canada. It has become Western Canada’s leading content and network provider, with over $4 billion USD in annual revenue. The company delivers wireline and wireless services to consumers and businesses in Canada. The wireless business operates under the Freedom Mobile brand.
Shaw Communications is uniquely positioned to succeed in the current environment. While many industries are under heavy stress due to the coronavirus pandemic, demand for wireless, video and broadband service only continues to rise. For example, in the most recently reported quarter, Shaw Communication’s consolidated revenue decreased by just 0.8%. Meanwhile, adjusted EBITDA increased 15.3% year-over-year, while postpaid churn rate was a record low 0.96%. Average revenue per user increased 2.6% for the quarter.
Over the first three quarters of the current fiscal year, Shaw Communications grew its free cash flow by 20%. Such strong growth was due to resilient subscriber numbers and higher revenue per user, as well as lower capital expenditures and falling interest expense.
Shaw Communications has a health balance sheet, with an investment-grade credit rating of BBB- from Standard & Poor’s. It also has a net-debt-to-adjusted-EBITDA ratio of 2.4x, which is actually below its target range of 2.5x to 3.0x. The company also has $2.1 billion CAD in available liquidity and no debt maturities until 2023, meaning short-term liquidity is not a concern for Shaw Communications.
The company’s strong performance gives investors confidence that the dividend is safe, even in a prolonged recession. The stock has an attractive dividend yield of nearly 5%.
TransAlta Renewables (TRSWF)
TransAlta Renewables is a top pick, as the stock not only pays a safe dividend each month, but it also provides investors with long-term growth potential.
TransAlta Renewables is a renewable independent power producer based in Canada. It has a diversified portfolio of assets including interests in 23 wind facilities, 13 hydroelectric facilities, seven natural gas generation facilities, one solar facility and one natural gas pipeline.
In all, the company cumulatively has an ownership interest of over 2,500 megawatts of generating capacity. Its assets are spread across the U.S., Canada and Western Australia. Therefore, TransAlta Renewables could be a particularly attractive stock for investors given its exposure to renewable energy, a long-term growth industry.
TransAlta has a successful track record, as its annual Cash Available for Distribution (CAD) has more than tripled since 2014. Investors have benefited right alongside this growth. Since TransAlta’s initial public offering in 2013, the company has increased its annualized dividend by 4% per year.
There is a long runway of growth up ahead, as the renewable energy transformation is still in the early stages. TransAlta’s future pipeline consists of 2,000 megawatts of capacity currently under evaluation. Separately, it also has 900 megawatts of additional capacity under consideration for on-site generation projects in the U.S., Canada and Australia.
In the meantime, investors are rewarded with a hefty dividend currently near 6%. TransAlta has a modest net-debt-to-EBITDA ratio of 2.2x, reassuring investors that debt is not a major concern.
With a projected dividend payout ratio of 65% in terms of 2020 expected adjusted funds from operation, we view TransAlta Renewable’s dividend as safe.
Dream Industrial REIT (DREUF)
Dream Industrial REIT owns high-quality light industrial properties. The trust owns and operates a portfolio of 262 geographically diversified light industrial properties, which makes up ~26 million square feet of gross leasable area across Canada, with some operations in the United States. The trust’s portfolio includes roughly 63% of its gross leasable area in multi-tenant buildings and the remaining 37% in single-tenant buildings.
Dream Industrial currently has a focus on driving occupancy and rental rates, furthering its leasing operations and internal growth. Occupancy stood at 96% as of the second quarter of 2020. Further, as of September 4, Dream Industrial had collected approximately 98% of recurring contractual gross rents due for the second quarter and July 2020 after adjusting for agreed-upon deferrals and Canada Emergency Commercial Rent Assistance.
Similar to STAG Industrial, Dream Industrial is optimally positioned to benefit from emerging trends such as e-commerce, which has driven increased demand for industrial real estate properties. Approximately 43% of Dream Industrial’s property portfolio consists of distribution centers, with 39% of properties in urban logistics and the remaining 18% in light industrial properties.
Dream Industrials’ focus on industrial properties seeing growing demand has paid off, as the company grew first-half Funds From Operation by 9.5% year-over-year, a highly impressive performance in an extremely challenging environment.
One potential risk factor is the company’s elevated debt level. Its net-debt-to-adjusted-EBITDA ratio stood at 5.4x in the 2020 second quarter. While this is higher than investors would like to see, it represents a significant decline from 8.4x as recently as 2016.
Fortunately, the company has limited maturities over the next several years, as well as an available $250 million credit facility to help shore up its liquidity.
Dream Industrials stock has an attractive dividend yield above 6%. As long as FFO continues to grow due to increasing demand for e-commerce activity, the dividend appears secure.
Choice Properties REIT (PPRQF)
Choice Properties invests in commercial real estate properties across Canada. The company has a high-quality real estate portfolio of over 700 properties, including retail, industrial, office, multi-family and development assets. Over 500 of Choice Properties’ investments are rented to their largest tenant Loblaw, Canada’s largest retailer.
On July 20, Choice Properties released second-quarter results that showed resilience during a difficult operating environment. Funds From Operations, a highly crucial measure of cash flow for REITs, declined 19% from the same quarter last year. The decline in FFO per-diluted-unit was largely due to a higher weighted average number of units outstanding, as well as the disposition of a 30-property portfolio.
The trust is also assisting smaller tenants with rent deferrals for 60 days as well as by participating in the Canada Emergency Commercial Rent Assistance program. Still, Choice Properties collected 89% of rents in the second quarter and 94% of rents in July, indicating that they are weathering the COVID-19 conditions relatively well.
On an adjusted basis excluding various one-time items from the company’s financial results, Choice Properties generated FFO of $0.404 per share over the first six months of 2020. This sufficiently covered the company’s per-share dividend payout. Choice Properties maintained a dividend payout ratio of 91.6% in the 2020 first half.
While this is a fairly high payout ratio, the dividend remained covered and if adjusted FFO continues to recover the dividend payout will decline in future periods. With a nearly 6% yield, Choice Properties is attractive for investors looking for high yields.
Main Street Capital (MAIN)
Main Street Capital operates as a Business Development Company, which means it makes money by providing financing to privately-held companies. It focuses on lower middle-market companies, generally defined as those generating between $10 million and $150 million in annual revenue.
As of June 30, Main Street’s investment portfolio consisted of 177 companies, with no individual investment representing more than 3.7% of total investment income. Main Street’s investments typically support management buyouts, recapitalizations, growth investments, refinancing and acquisitions.
The over-arching business strategy for Main Street is to earn a high rate of profit on its investments and returning significant cash to its own shareholders through dividends. The company has never decreased its monthly dividend rate and in fact has grown the payout steadily over the years. For example, Main Street’s monthly dividend has increased 86% from $0.11 per share in 2007 to the current level of $0.205 per share.
This is a particularly challenging time for Main Street. The coronavirus crisis has had an extremely negative impact on the global economy, which has also affected many of its portfolio investments. In addition, the low interest rate environment has also resulted in lower investment yields. These twin headwinds have resulted in poor performance to begin 2020. In the second quarter of 2020, Main Street’s distributable net investment income fell 19% year-over-year. On a per-share basis, distributable NII fell 22% to $0.52 per share.
Over the first half of 2020, net investment income per share declined 18% from the same six-month period last year. The company paid dividends of $1.23 per share over the first half of the year, while generating NII-per-share of $1.04 in the same period. Therefore, coverage of the dividend has fallen below 100%, which poses a risk of a dividend cut.
That said, there is reason to believe the worst is behind Main Street. Gradual reopening of the economy has led to significant improvement in economic conditions in recent months. And, Main Street has taken appropriate action to raise capital, such as a recent $125 million bond offering, to improve its liquidity in the near-term.
Main Street’s dividend safety has been weakened by the coronavirus crisis, but assuming the worst is behind us, an improvement in net investment income could once again sufficiently cover the dividend. Main Street has an attractive dividend yield of 8%.
The coronavirus pandemic has wreaked havoc on the global economy. While the stock market has virtually recovered all of its losses from earlier in the year, the broader economy is by no means out of the woods. Therefore, investors should be more selective when picking high-yield stocks. There are never any guarantees when it comes to the stock market and while a continued downturn in the economy could jeopardize monthly dividend stocks’ dividend payments, we believe these seven monthly dividend stocks have sustainable payouts.
On the date of publication, Bob Ciura did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a Bachelor’s degree in Finance from DePaul University and an MBA with a concentration in Investments from the University of Notre Dame.