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The 2 Best Monthly-Paying REITs

Reliable dividend payments can be crucial for income investors, and monthly payors, while rare, offer an added bonus. Here are two monthly-paying REITs I like right now.

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One of the major benefits of owning dividend stocks is that, absent a significant change in the company’s business conditions, those dividends are likely to keep rolling in for investors.

It makes them particularly attractive to investors who use dividend payments to supplement their normal income, Social Security payments, or retirement account drawdowns.

Most stocks that pay dividends do so quarterly—that’s every three months. Public companies that send shareholders dividend checks every single month are rare. But the handful that exists tends to be laser-focused on rewarding shareholders and a source of very reliable income. They also tend to be real estate investment trusts (REITs).

If you’re retired, stocks that pay dividends monthly are a perfect source of regular income you can use to pay bills, rent or buy groceries. Non-retirees also find monthly dividends attractive because they compound faster.

Beware, however, as monthly dividend payers can be high risk. You have to watch out for unsustainable business models as well as too-good-to-be-true yields. In other words, a monthly dividend is a nice bonus, but that shouldn’t be your main factor in deciding whether or not to invest in a company.

You need to search for investments with timelessness and longevity—companies that are sure to not only be around 20 or 30 years from now, but still thriving. Dividend stocks become more powerful and usually make up a larger part of your annual return, the longer you hold on to them.

What’s so great about REITs? Alright, dividend stocks are good. What about REITs? REITs trade like stocks and give investors the advantage of participating in large-scale commercial real estate projects. REITs must pass 90% of their taxable income through to shareholders. In exchange, they pay no corporate income tax. They can own any type of real estate, and many specialize in one type, like apartment buildings, malls, office buildings, self-storage facilities or hotels.

Generally speaking, REITs tend to offer high income, portfolio protection, diversification, and liquidity. REITs typically have more defensive businesses that tend to hold up well in a bad economy.

Even when investors get optimistic and greedy, they still have one foot on safety. Nobody knows when the party will end and it is nice to own stocks built for a downturn, especially when they perform in an up market as well.

Steady cash flow + location, location, location = monthly dividend REITs you can’t turn down

So what are the reasons to own monthly dividend REITs? Well, even though monthly dividend stocks are challenging to find, some of the best do happen to also be REITs.

So to put it all together, here are 10 reasons monthly dividend REITs are worth thinking about for your portfolio:

  1. Steady income
  2. Accelerated compounding if you reinvest your dividends
  3. Dividend-paying stocks are usually more trustworthy
  4. Their value grows the longer you hold them
  5. They are often lower-risk
  6. Even when the share price falls, you still have dividend income
  7. REITs bring diversification to your portfolio
  8. REITs give you access to a growing real estate market
  9. Good monthly dividend REITs can have high yields
  10. Conservative real estate stocks hold up relatively well in a bad economy.

Like any investment, it’s more important that monthly dividend REITs match your risk profile and are suitable for your investing needs. If REITs do make sense for your portfolio, prioritizing monthly payers over quarterly payers can make sense, whether it’s faster compounding or just the added attractiveness of paycheck-like monthly dividends.

So which monthly dividend REITs do I like in today’s high interest rate environment, thanks to a year and a half of Federal Reserve rate hikes to curb inflation? Here are two that stand out.

The 2 Best Monthly-Paying REITs

Realty Income (O) Yield 6.2%

Realty Income is one of the highest-quality and best-run REITs on the market. Cash flow from a conservative portfolio of 6,500 properties has enabled the company to amass a phenomenal track record of paying dividends—to such an extent that Realty Income actually has the audacity to refer to itself as “The Monthly Dividend Company”.

The large REIT has operated for 54 years and its 13,100 properties are rented to 1,300 different tenants in all 50 states, Puerto Rico, the United Kingdom, Italy and Spain. Since its 1994 IPO, Realty Income has amassed a record of one of the most successful income investments on the market.

Here are a few things to like about it.

  • 15% average annual total return since 1994
  • 637 consecutive monthly dividends
  • 104 consecutive quarters of dividend hikes
  • 5% annual dividend growth since 1994
  • Sky-high credit ratings.

A great business formula delivers such results. Realty buys established properties and leases them back to tenants under long-term leases of 10 to 20 years. Most of these contracts are “triple net leases” whereby the tenants pay all the costs associated with the property including maintenance, insurance and taxes. This reduces unpredictable expenses and provides a rock-solid cash flow.

I like the timing. As a retail REIT, O took it on the chin during the pandemic—but unjustifiably so. The biggest tenants (Walgreens, 7-Eleven, Dollar General and FedEx) were considered essential services and remained open. Only a small portion of tenants, including restaurants, movie theaters and fitness centers, had trouble.

In the darkest days of the pandemic, Realty still collected about 85% of rents, and that number rebounded to 93.6% by the end of 2020. Earnings and revenues actually increased for the year because of acquisitions. Of course, the economy came roaring back, and is still holding mostly steady, much to the Fed’s chagrin.

The stock is still priced well below pre-pandemic levels – and even significantly below its 2023 highs – while earnings are better, and revenues are on track to improve 17.5% this year and another 11.7% next year. Throw in the 6.2% yield, and I think it’s a bargain right now.

STAG Industrial (STAG) Yield 4.5%

STAG Industrial, Inc. (STAG) is a REIT that invests in single-tenant industrial properties in the eastern and midwestern U.S. The property portfolio includes warehouses, distribution centers, and manufacturing facilities. It’s a diverse portfolio with 561 buildings in 45 different industries located in 41 states.

A couple of big things stand out about this stock. First, 43% of the properties are warehouses and distribution centers related to e-commerce. Those spaces are in huge demand and there isn’t enough supply to keep up. STAG is directly benefitting and will continue to benefit from the rise in e-commerce.

The other thing is that industrial properties are cyclical, which is good in a still-strong economy, and in high demand. Industrial properties are getting a boost from the surge in manufacturing activity in the country, a trend that may just be beginning. There is also huge growth potential. The U.S. market for industrial properties is estimated to be $1 trillion. As of now, STAG only has about 0.5% of that market.

The stock has been a stable-if-unspectacular performer this year, up about 1.7%, but it pays a 4.5% dividend yield on top of that while providing a stellar monthly income.

Tom Hutchinson is the Chief Analyst of Cabot Dividend Investor, Cabot Income Advisor and Cabot Retirement Club. He is a Wall Street veteran with extensive experience in multiple areas of investing and finance.