ADC - 3 Dividend Stocks That Pay You Every Month

2023-07-28 09:37:00 ET

Summary

• Earning a dividend is great, but earning dividends EVERY month is even better.
• The 3 monthly dividend paying stocks we will look at today hail from the REIT sector.
• All 3 REITs have solid balance sheets and have great tenants that will put them in a position to continue growing moving forward.

When it comes to Dividend Investing, there are various types of dividend stocks, which include:

• Low Yield
• Moderate Yield
• High Yield
• Dividend Growth

However, although these stocks differ in yields, they all have something in common for the most part, the majority of dividend paying stocks pay on a quarterly basis.

However, there are a select few companies that pay monthly dividends and in today's piece, we will cover 3 high-quality dividend stocks that pay monthly dividends.

3 Monthly Paying Dividend Stocks

Monthly Dividend Stock #1 - Realty Income ( O )

Let's begin with the KING of the monthly paying dividend stocks, which is Realty Income, likely the most well-known monthly dividend paying stock. After all, they coined themselves, "The Monthly Dividend Company."

Realty Income currently has a market cap of $43 billion and over the past 12 months, the stock has fallen 12.5%, but even in 2023 thus far.

Over the past 12+ months, the US has gone through an aggressive tightening cycle in terms of monetary policy, which has seen the Fed Funds rate go from 0 at the start of 2022 to 5.50% today. A rising rate environment often does not bode well for stocks in the REIT sector, but instead of looking at it like a problem, look at this as an opportunity in a blue-chip REIT. We are nearing the end of this rate hike cycle, which will come as a relief to many REITs like Realty Income.

When it comes to REITs, the quality of the company from the portfolio to the management team to the balance sheet can be drastically different, and this is why I prefer to own individual REITs rather than REIT focused ETFs.

Realty Income is a company with a strong management team that has shown their ability to operate efficiently regardless of the economic backdrop, which has earned them an A- credit rating. This strong credit rating along with their past performance allows them to obtain favorable debt terms, which creates a competitive advantage over its peers.

Realty Income has a strong portfolio that is always in demand, hence their high 90% occupancy rate. In addition, the company focuses heavily on quality tenants, with a large number being investment grade. Here is a look at the top 20 tenants.

Realty Income pays an annual dividend of $3.07 per share which equates to a dividend yield of 4.8%, which is down from the 5% yield we saw a week ago. The REIT is a Dividend Aristocrat, one of only 3 REITs on that list, as they have increased their dividend for 29 consecutive years and counting.

And as I mentioned earlier, Realty Income pays its dividend EVERY month. On top of raising their dividend every year, they actually increase it every quarter. The increases are not big but they are consistent.

When it comes to REITs, we do not use EPS, because REITs deal with Real Estate and Real Estate has a lot of depreciation expense, as such, we focus on adjusted funds from operations, or AFFO.

Analysts are looking for Realty Income to generate AFFO of $4 in 2023 and $4.18 in 2024. Using those figures, we see that Realty Income trades at a 2023 AFFO multiple of 15.9x and a 2024 AFFO multiple of 15.2x. For comparable purposes, over the past 5-years, Realty Income shares have traded at an average AFFO multiple of 19.4x.

Mo nthly Dividend Stock #2 - STAG Industrial ( STAG )

STAG Industrial is another REIT operating within the industrial and warehouse space, making them an indirect play on the growth of e-commerce. STAG currently has a market cap of $7 billion and over the past 12 months, the REIT is up 19%.

The industrial and warehouse space has been performing quite well, in terms of appreciating real estate as more and more consumers turn to online sales each and every year. Many new and small businesses do not even operate traditional brick & mortar locations, which means all of their inventory either needs to be held in a warehouse, which is where a company like STAG comes into play.

As you can see on this chart from Forbes Advisors, e-commerce sales are only continuing to grow from $5.2 trillion in 2021 to an estimated $8.1 trillion in 2026. That is 55% growth over that period.

There is still a need and demand for physical stores, and there is plenty of room for those and growth in e-commerce at the same time. In 2023, roughly 20% of retail sales will be made online, with that percentage moving higher to 24% of retail sales in 2024.

As it stands right now, Amazon ( AMZN ) accounts for more than 35% of all e-commerce sales, making them the largest player to no surprise and when we look at STAG Industrials largest tenant, we see Amazon.

So the company has in-roads and a good working relationship with the top e-commerce company in the world. Amazon accounts for nearly 3% of the company’s annual base rent, but overall the REIT has a very diverse group of tenants with no major reliance on any single tenant.

Looking now at the company's financials and debt, you can see that more than 90% of their debt is fixed, which is a plus in a rising rate environment like we have been going through for the past year and a half. In addition, the REIT has solid Net Debt to EBITDA metrics which have been improving over the past 12 months and no major dent balances due until after 2025, so a lot to like with STAG and their balance sheet as well.

STAG pays an annual dividend of $1.47 per share which equates to a dividend yield of 3.4%, but just a few weeks ago the yield was above 4%. The company has been increasing their dividend for 11 consecutive years. Again, like Realty Income, the dividend growth is consistent but slow moving, and they also pay out their dividend on a MONTHLY basis.

Finally, let's look at the company’s valuation. Analysts are calling for 2023 AFFO of $1.97 in 2023 and $2.06 in 2024, which equates to an AFFO multiple of 19.5x in 2023 and 18.6x in 2024. Over the past five years, shares of STAG have traded at an average AFFO multiple of 18x, meaning that with the run the REIT has seen of late, it may be better to keep STAG high on your watch list, but remain patient as the long-term growth story is fully intact.

Mont hly Dividend Stock #3 - Agree Realty ( ADC )

Agree Realty is a much smaller version of Realty Income, but quickly becoming a favorite REIT of mine. They operate in the same retail sector as Realty Income and have many of the same top tenants, which we will look at here in a second.

The REIT currently sports a market cap of $6.4 billion and over the past 12 months, the stock is down 12%.

ADC owns 1908 properties located in all 48 continental states. These properties are leased to industry leading, omni-channel retail tenants with 68% being Investment Grade.

Here is a look at some of those top tenants within the portfolio with Walmart ( WMT ) leading the pack accounting for 6.6% of ABR. Other notable names include: Tractor Supply ( TSCO ), TJ Maxx ( TJX ), Lowe’s ( LOW ), The Home Depot ( HD ), and many other great companies.

Many similar names as we saw with Realty Income, but the difference comes down to exposure. Given that ADC is much smaller in size, the exposure they have to top tenants is naturally going to be much higher. As such, the REIT must be laser focused on quality when it comes to leases and investors need to be comfortable with the top tenants.

Agree Realty also has a very stable Balance Sheet as well, not to the level of Realty Income yet, but well on their way. ADC has a BBB credit rating with a low net Debt to EBITDA ratio of 4.5x and no major debt maturities coming due until after 2027.

ADC has performed well and only continues to grow, speaking of growth, you can see how the company has prioritized dividend growth over the past decade with a 10yr CAGR of 6% paying out 136 CONSECUTIVE monthly dividends and counting.

ADC currently yields a dividend of 4.4% with 10 consecutive years of dividend growth. Unlike the first two monthly dividend payers, ADC gives you a little more dividend growth as we saw from the image a second ago having a 10-year CAGR of 6% and a 5-year CAGR of nearly 7%.

Now for valuation, where analysts are looking for 2023 AFFO of $3.95 in 2023 and $4.10 in 2024. This equates to AFFO multiples of 17.4x for 2023 and 16.8x for 2024. Over the past five years, shares of ADC have traded at an average AFFO multiple of 20.7x, so they are well below that, but that average may have been a bit high moving forward. I think somewhere in the range of their 10-year average of 18x is more realistic, which still shows the stock being undervalued.

Investor Takeaway

When it comes to REITs, if you are a long-term investor looking for some real estate exposure and good valuations, the REIT sector is a great place to look right now. REITs have been under pressure for much of the past 18 months during this rate hiking cycle we have endured.

However, there are some great REITs, both small and large that could pay major dividends, or monthly dividends for that matter, for years to come.

In the comment section below, let me know: Which of these 3 Monthly Dividend REITs are your favorite.

Disclosure: This article is intended to provide information to interested parties. I have no knowledge of your individual goals as an investor, and I ask that you complete your own due diligence before purchasing any stocks mentioned or recommended.

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