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All Contents © 2020The Kiplinger Washington Editors
By Lisa Springer, Contributing Writer
| September 7, 2018
What income investor doesn’t love the frequent payout and reliable cash flow that can come from owning monthly dividend stocks, trusts and other entities? The ability to offset predictable expenses such as mortgage payments and utility bills every month with income from dividends provides the ultimate convenience, timeliness and peace of mind.
And there are other advantages to owning monthly dividend stocks.
One plus: the accelerated compounding effect that results from more frequently reinvesting dividends over time. Over long periods, the incremental growth from monthly versus quarterly reinvesting can add up. Consider a stock purchased for $20 that yields 5%, pays quarterly dividends and grows the dividend 5% a year. Over the course of 20 years, the value of a 100-share investment would rise from $2,000 to $10,756 and produce 21.9% annual returns. That same investment, paying monthly dividends rather than quarterly, would rise in value to $11,015 over 20 years and generate 22.5% yearly returns.
Another factor is the signaling power of monthly payout, which advertises the safety of the dividend. What company would commit to monthly payments if it lacked confidence in its ability to maintain and/or raise the dividend over time?
Lastly, because of more frequent distributions, many monthly dividend stocks can be less volatile than their quarterly paying counterparts.
Here are 16 monthly dividend stocks, trusts and even funds that offer not just generous yields, but relatively safe, reliable income.
Data is as of Sept. 6, 2018. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price.
Market value: $4.0 billion
Dividend yield: 6.9%
Apple Hospitality REIT (APLE, $17.53) is one of the hotel industry’s largest owners of select-service and extended-stay hotels. Apple Hospitality invests in only two brands, Hilton (HLT) and Marriott (MAR), and is one of the top five owners of Hilton and Marriott hotels nationwide. The REIT owns 241 hotels in 34 states and focuses on top business traveler markets such as Los Angeles, San Diego, Atlanta, Nashville and Dallas.
The benefits of the REIT’s strong brand affiliations include a majority of bookings sourced directly through brand channels, a global network, branded hotels that consumers recognize and trust, and strong loyalty programs.
During the first six months of 2018, Apple acquired hotels in Atlanta and Phoenix for $137 million and signed purchase contracts valued at $110 million for hotels in Cape Canaveral, Florida and Tempe, Arizona. These hotels are scheduled to open in 2020.
Apple Hospitality was formed through the roll-up of several non-traded REITs. Since becoming publicly traded in 2015, APLE has generated consistent income growth and a steady monthly dividend of 10 cents per share ($1.20 annualized). Funds from operations (FFO, an important measure of REIT profitability) per share totaled 89 cents through the first six months of 2018, easily covering the 60 cents paid out in dividends.
In August, B. Riley FBR analyst Bryan Maher upgraded his rating on Apple Hospitality from “Neutral” to “Buy,” citing the REIT’s attractive valuation and well-covered dividend.
Market value: $212.3 million
Dividend yield: 4.0%
Gladstone Land (LAND, $13.21) invests in farms and farmland. The REIT owns 75 farms and 63,000 acres of land across nine states. Its portfolio is valued at $537 million and is 99.7% leased.
The REIT’s farmland is primarily used to grow fresh fruits and vegetables, rather than commodity crops like corn and soybeans. The advantages of fresh produce farms are higher productivity and rents. Also, there is no tariff risk since production from Gladstone farms is consumed domestically and rarely exported.
The market for farmland is highly fragmented. In addition, roughly two-thirds of American farmers are nearing retirement age, creating many acquisition opportunities for the REIT. Gladstone has acquired more than $446 million of farmland assets since its 2013 initial public offering.
Farm portfolio growth and annual rent increases have fueled 11 dividend increases over five years and 48% dividend growth.
One thing that investors should be aware of: During Q2 2018, Gladstone’s FFO failed to cover the dividend for the first time in three years. However, management expects income from recently acquired farms to boost FFO and more than cover the full-year dividend. In fact, Gladstone anticipates another dividend hike in October or next January.
Gladstone, which currently holds four “Buy” ratings and two “Holds,” has $33 million of farm acquisitions under contract and expects to accelerate its acquisition pace in the second half of this year.
Market value: $1.6 billion
Dividend yield: 9.9%
Global Net Lease (GNL, $21.63) owns retail, industrial and office assets across the U.S. and Europe. The portfolio consists of 333 properties covering 25 million square feet of leasable space, and leased at a 99.5% clip to 104 tenants. Major tenants include FedEx (FDX), U.S. government agencies and prominent banks.
Global Net Lease is focused on expanding its portfolio of U.S. industrial facilities. In the first six months of 2018, it acquired 14 properties valued at $182.4 million, and the REIT expects to close roughly $372 million of acquisitions this year.
The company has been paying dividends since 2012. The last rate increase was in 2015 when the REIT tripled its monthly payout from 6 cents per share to 18.
FFO per share rose 20% in this year’s second quarter, but growth in the past has been inconsistent. Funds from operations overall rose in 2017, but FFO per share declined 18% due to dilution from share offerings. The dividend payout ratio from 2018’s FFO has been around 97%.
In short: Global Net Lease is getting the job done; it just doesn’t have as much wiggle room as some of the other companies on this list.
Market value: $1.9 billon
Dividend yield: 5.0%
Canada’s Granite REIT (GRP.U, $41.92) owns industrial, warehouse and logistics properties across North America and Europe. Its portfolio consists of 90 properties and 34 million square feet of leasable space.
The REIT’s principle tenant is automotive parts supplier Magna International (MGA), but Granite also counts Samsung, Bosch and Mercedes Benz as major tenants. The portfolio has 42 tenants in all, representing a variety of industries, and has a high 98.7% occupancy rate.
This REIT has generated consistent growth in FFO and dividends since 2012. Dividend payout is conservative at below 80% and dividend growth has averaged 5.3% annually in the past five years. Granite improved the dividend by another 4.6% this year to a new monthly rate of 17 cents per share ($2.09 annualized).
Granite has lower leverage than most REITs, providing more flexibility for growth through development and acquisitions. The REIT acquired American and European properties representing 5.1 million square feet of leasable space during the second quarter of 2018 and sold U.S. and Canadian properties for a $65 million gain on sale. Granite expects to distribute that gain through a special distribution paid to shareholders later this year.
Assets sales in 2018 also have reduced the Magna International share from 65% to 49% of the portfolio. Granite is committed to further reducing its Magna exposure while keeping leverage near 40%.
Analysts from TD Securities, Canaccord Genuity, BMO and Royal Bank of Canada have all raised their price targets on Granite this year.
Market value: $1.8 billion
Dividend yield: 4.9%
Healthcare REIT LTC Properties (LTC, $46.39) invests in skilled nursing and assisted living facilities. The REIT owns 205 properties across 29 states and leases its facilities to 29 different operators under long-term leases.
Its facilities are located in states attracting large numbers of seniors, which should enable the REIT to benefit from a doubling of America’s senior population projected over the next 30 years.
Texas is LTC’s largest market, accounting for roughly 18% of the portfolio. All of the REIT’s leases are triple net, meaning tenant pays taxes, insurance, maintenance and other costs, and most of its leases don’t expire until after 2024.
Over the past 12 quarters, LTC has generated funds from operations averaging 76 cents per share, easily covering the 19-cent monthly dividend. Payout is modest for a REIT at 73%, signaling room for dividend growth, too.
The REIT began paying dividends 24 years ago and has increased its payouts at about 4.8% annually over the past five years. That includes a 4.1% bump to the distribution last year to a $2.28 annualized rate.
Market value: $2.4 billion
Dividend yield: 5.9%
Main Street Capital (MAIN, $39.94) is a business development company (BDC) that provides growth capital for middle-market businesses. Main Street helps its customers fund facility expansion, management buyouts, acquisitions and recapitalizations.
The BDC controls portfolio risk by lending across many industries and keeping average loan size small. Main Street invests in 181 companies representing 30 different industries. Its average loan size is only $11.4 million and no single investment represents more than 2.7% of the portfolio.
Assets have been growing roughly 6.1% per year to more than $4 billion currently under management.
The BDC’s income has risen in 11 of the past 12 years and at a 16% annual rate in the past five years. During the first six months of 2018, income rose 8% year-over-year.
Main Street has never cut its dividend, which is unusual among BDCs. The company plays it conservatively by paying a supplemental dividend twice a year in addition to its monthly dole. Regular payouts have grown 7% a year since Main Street’s IPO in 2007, and dividends are set to rise 2.6% in October to a new monthly rate of 19.5 cents per share ($2.34 annualized).
B. Riley FBR analyst Tim Hayes initiated coverage of Main Street Capital in March with a “Buy” rating, citing the BDC’s above-average returns that result from its diligent underwriting, high credit quality and commitment to preserving net asset value.
Market value: $16.7 billion
Dividend yield: 5.3%
Canadian pipeline operator Pembina Pipeline Corporation (PBA, $33.23) has served North American energy markets for more than 60 years. The company owns 8,000 kilometers of oil and gas pipelines capable of transporting 3 billion barrels per day and 19 gas processing facilities with daily throughput of 6 billion cubic feet.
Pembina closed the largest acquisition in its history last year by purchasing rival Veresen for $7.1 billion. The deal strengthens the company’s presence in Canada’s major gas plays and positions it to take on larger projects. Pembina placed pipeline and facility projects valued at $5 billion into service in 2017 and expects to complete $1 billion worth of new projects this year.
Over the past decade, Pembina has grown daily production volume by 169%, cash flow per share by 43% and cash dividends by 50%. Despite the dividend growth, the payout ratio is very manageable, at a 55%-60% range.
Pembina plans to soon begin building a world-class liquid natural gas (LNG) storage and export facility that will transport North American natural gas to Asia and capitalize on demand for natural gas projected to double by 2030, with two-thirds of new demand coming from Asia.
The company’s last dividend hike was 5.6% in May to a 15-cent monthly rate, or $1.80 annualized.
Wall Street has plenty of faith in PBA, garnering 12 “Buy” or “Overweight” ratings versus just two “Holds.”
Market value: $17.1 billion
Dividend yield: 4.5%
Realty Income (O, $58.79) has increased dividends 24 years in a row and is one of several stocks on the verge of becoming a Dividend Aristocrat. It’s also one of only nine REITs that maintain an “A” or higher credit rating.
Realty Income’s portfolio consists of 5,483 properties across 49 states and Puerto Rico and leased to 257 tenants. More than half its largest tenants are investment grade and operate in industries like retail grocery and drug stores that face few threats from e-commerce. Top tenants include Walgreens (WBA), CVS (CVS), 7-Eleven, Kroger (KR) and Walmart (WMT). Portfolio occupancy is high at 98.7%.
This steady Eddie has grown earnings in 21 of the last 22 years and at a 5.2% annual rate, which is much better than the 3.7% yearly growth rate for the overall REIT industry. Dividends have risen 4.7% annually on average over the past five years, including a 4.3% hike in April to a new monthly rate of 22 cents per share ($2.64 annualized). The payout ratio sits around 83% of FFO.
Realty Income recently raised its 2018 FFO guidance and expects to close at least $1.5 billion of acquisitions this year.
In July, Mitsubishi UFJ analyst Karin Ford upgraded her rating on these shares from “Neutral” to “Overweight.” This followed an upgrade to “Buy” by D.A Davidson analyst Barry Oxford, who called Realty Income a high-quality REIT available at a reasonable price.
Market value: $9.7 billion
Dividend yield: 4.6%
Shaw Communications (SJR, $19.16) is Canada’s fourth largest wireless services provider. The company acquired its wireless business two years ago and has grown its wireless network at an impressive pace. So far in 2018, Shaw has added nearly 100,000 new users, increasing the total to more than 7 million subscribers.
Subscriber growth has come from offering lower-cost data packages, upgrading the network and expanding retail distribution. Shaw began marketing wireless services at 100-plus Loblaws grocery stores in April and will roll out services through 140 Walmart stores later this year. By early 2019, the company expects sales through 600-plus retail locations.
An investment impairment charge caused Shaw to record a net loss last quarter, but the company’s free cash flow improved 45% year-over-year and easily covered $98 million in dividend payments. Shaw expects to generate more than $375 million in free cash flow this year.
Dividend growth has averaged 5% per year over the past half-decade. The last increase was four years ago, when Shaw raised its monthly payout 8% to 8 cents per share (96 cents annualized).
In April, Barclays Capital analyst Phillip Huang upgraded his rating on the stock to “Overweight,” noting that Shaw has reached an inflection point for its wireless business and that its growth potential is undervalued.
Market value: $3.0 billion
STAG Industrial (STAG, $28.57) owns 370 industrial properties across 37 states. The REIT is differentiated from larger competitors by its focus on secondary markets, which enable STAG to keep capital expenditures and tenant improvement costs low, while maintaining a high 95.6% occupancy rate.
“STAG” stands for “Single Tenant Acquisition Group” and signals this REIT’s preference for single-tenant properties. The advantage of this niche is that more assets are available for purchase, supporting STAG’s robust acquisition pipeline. Acquisition volume has more than doubled this year. The REIT has already closed $190 million of property purchases and budgets $600 million-$700 million for acquisition spending this year.
Acquisitions, high tenant retention and rising release rates have helped produce steady growth in cash flow and five consecutive years of rising dividends. Dividend growth has averaged 5.5% per year, and the payout is a conservative 83% of FFO.
The last dividend hike was by a fraction of a penny last January to a new monthly rate of 12 cents ($1.44 annualized).
The Street is overall bullish on this company, too; the consensus rating from 13 analysts who follow STAG is “Overweight.”
Market value: $4.7 billion
Dividend yield: 6.8%
Canadian firm Vermillion Energy (VET, $30.94) owns oil- and gas-producing assets across Europe, North America and Australia. Its North American assets represent roughly 60% of production and solid footholds in Wyoming’s Powder River Basin and Canada’s gas-rich Manville play. Vermillion’s output from its European gas fields enjoys premium pricing. In Australia, Vermillion operates in that country’s well-known Wandoo field.
Vermillion acquired Saskatchewan oil producer Spartan Energy last year in a deal that expands its presence in attractive drilling areas, increases the premium-priced, light oil component of the production mix and boosts production by one-third to 100,000 barrels a day generating $1.2 billion of annual cash flow.
Primarily because of the Spartan acquisition, Vermillion’s production rose 20% year-over-year in the second quarter of 2018 and FFO per share was 18% higher.
VET began paying monthly dividends in 2003 and has raised dividend four times. The last increase was 7% in April to an $0.18 monthly rate ($2.12 annualized). Payout has ranged around 86% of cash flow.
JPMorgan analyst Gabriel Daoud initiated coverage of Vermillion Energy last February with a rating of “Outperform,” citing the Spartan acquisition as a major growth catalyst. Of 14 analysts covering the stock, 13 have “Buy” ratings and one rates the shares “Hold.”
Market value: $542.1 million
Dividend yield: 8.4%
Whitestone REIT (WSR, $13.30) owns neighborhood shopping centers in fast-growing areas of the Sunbelt states such as Phoenix, Austin, Dallas-Fort Worth, Houston and San Antonio.
Its portfolio consists of 72 retail centers and 6.4 million square feet of leasable space recently valued at $1.1 billion. Whitestone’s tenant mix is well-diversified, consisting of more than 1,600 tenants with operations in professional services and entertainment (31%), restaurants (23%), specialty retail (15%), health and wellness facilities (13%) and groceries (12%). Its largest tenant, Safeway (SWY), accounts for just 2.5% of the portfolio.
Whitestone REIT went public in 2010 and has grown assets and income steadily, with annual growth rates averaging 22% and 24%, respectively. FFO per share has expanded at a 6% annual rate.
Future growth will come from rising occupancies and rents, acquisitions in its core Sunbelt markets and development-stage projects in Houston, Texas, and Mesa, Arizona.
Whitestone began paying dividends in 2010 and has held its monthly payout steady at 9.5 cents per share ($1.14 annualized) for seven years as portfolio growth has taken precedence over dividend hikes.
Analyst Merrill Ross at Boenning & Scattergood initiated coverage of Whitestone last July with a rating of “Buy,” noting the REIT’s expanding presence in high-growth areas of the Sunbelt.
Market value: $81.2 million
Distribution rate: 6.1%*
Expense ratio: 1.34%
Investors seeking the safety of a utility investment should consider shares of Gabelli Global Utility and Income Trust (GLU, $19.12). This closed-end fund (CEF), managed by legendary value investor Mario Gabelli, invests at least 80% of its assets in domestic and foreign utilities.
GLU owns 208 securities, mainly from the integrated energy and utilities (28.7%), telecommunications (10.9%), cable and satellite (7.8%) and food and beverage (6.8%) industries. Top holdings include Sony (SNE), Liberty Global (LBTYA), Rogers Communications (RCI) and American Electric Power (AEP). Portfolio turnover is exceptionally low at 9.2%.
Gabelli Global Utility and Income Trust launched in 2004 and has returned roughly 6% a year to investors over the past decade – a slow but steady return that one would expect from the sleepy utilities sector.
The fund has paid a 10-cent monthly distribution ($1.20 annualized) since inception, and it currently garners a three-star rating from Morningstar. The Gabelli CEF’s 1.34% expense ratio is reasonable for an actively managed fund, though it does trade at a slight 4% discount to its net asset value at the moment.
Distribution rate can be a combination of dividends, interest income, realized capital gains and return of capital, and is an annualized reflection of the most recent payout. Distribution rate is a standard measure for CEFs.
Market value: $420.8 million
Dividend yield: 6.0%*
Expense ratio: 0.45%
Investors can obtain monthly income and diversification within a single holding by owning shares of Global X Super Dividend U.S. ETF (DIV, $25.36).
This equity ETF is designed to generate high income and minimize volatility by owning a blend of utility, real estate, energy and consumer defensive and cyclical stocks. This ETF has delivered 7% per year returns since its launch five years ago and is rated “low risk” by Morningstar.
The ETF’s portfolio consists of 48 stocks. Brinker International (EAT), Universal Corp (UVV), National CineMedia (NCMI), Exxon Mobil (XOM) and MTGE Investment Corp (MTGE) are top holdings, but no one stock represents more than 3% of the portfolio.
The ETF paid dividends totaling 91 cents during the first six months of 2018, compared to $1.52 for the entirety of 2017.
* Yield represents the trailing 12-month yield, which is a standard measure for equity funds.
Market value: $345.1 million
Expense ratio: 2.4%
Invesco KBW High Dividend Yield Financial Portfolio ETF (KBWD, $23.75) invests more than 90% of its assets in the stocks and bonds of banks, insurance and diversified financial services firms. The ETF boasts a tight portfolio of 37 holdings at present, with a very heavy concentration in mortgage REITs such as Orchid Island Capital (ORC), Western Asset Mortgage Capital Corp (WMC) and Annaly Capital Management (NLY). No single investment represents more than 6% of the portfolio.
The fund launched in 2010 and has been run by the same fund managers for eight years. While its expense ratio appears high at 2.4%, this is a bit misleading since the ETF is required to include the operating expenses of private equity holdings in the ratio. The net expense ratio is modest at 0.35%.
Monthly payouts vary. However, the ETF paid out dividends totaling $1.20 during the first six months of 2018, versus $2.07 in total last year.
Market value: $199.3 million
Dividend yield: 8.5%
Expense ratio: 2.02%*
YieldShares High Income ETF (YYY, $18.38) invests in 30 closed-end funds that are highly ranked based on yield, value and liquidity.
The fund’s exposure is a mix of 74% bonds and 26% stocks. More than 87% of its holdings are in the U.S., but the ETF also has investments in Europe, Latin America and Asia. In addition to geographical diversification, the ETF is diversified across multiple sectors. Its largest weightings are energy (17.1%), technology (12.9%) consumer cyclical and defensive (11.9%) and financial services (11.9%).
The fund launched in June 2013 and has delivered 5.3% in annual returns over the past five years. The ETF has paid a 13-cent monthly dividend for nearly a year now, though that is down from a year ago, when its monthly payout was 16 cents. Despite the lower payout, this fund yields well more than 8%.
* Includes 1.52% in acquired fund fees and expenses. Management fee is 0.5%.