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High inflation has formed a challenging investing environment for income-oriented investors, as it has triggered a bear market since early last year while it has also been eroding the real value of the portfolios and dividends of investors. Monthly dividend stocks are interesting candidates for the portfolios of income-oriented investors. These stocks distribute their dividends on a monthly basis and most of them offer above-average dividend yields. In this article, we will discuss the prospects of three monthly dividend stocks that are cheap right now, namely SL Green Realty (SLG), AGNC Investment Corporation (AGNC), and Permianville Royalty Trust (PVL).
 

SL Green Realty

SL Green Realty is a REIT that engages in acquiring and managing commercial properties in Manhattan. It is the largest office landlord in Manhattan, with 61 buildings that have a total surface area of 33 million square feet. The REIT was formed in 1980.

SL Green Realty has been hit by the work-from-home trend, which has resulted from the coronavirus crisis. The pandemic has subsided this year but the work-from-home trend has persisted much longer than initially expected. As a result, the occupancy of office space in New York remains near historic lows and hence there is an unprecedented tenant-friendly environment, which has led SL Green Realty to offer concessions of several months to its tenants.

Notably, the revenue of SL Green Realty has declined for six consecutive years and is currently slightly less than half of the revenue of the trust in 2017. This trend undoubtedly raises a red flag for the stock.

On the other hand, the stock has been punished to the extreme by the market. SL Green Realty is currently trading at a 10-year low price-to-FFO ratio of 4.4, which is much lower than the 4-year average FFO multiple of 9.9 of the stock. In addition, the stock is offering an all-time high dividend yield of 14.2%, with a reasonable payout ratio of 59%. The dividend is not safe but the REIT will keep offering an above-average yield even if it cuts its dividend. Overall, whenever the occupancy of office space in Manhattan begins to recover, SL Green Realty is likely to offer excessive returns to its unitholders.
 

AGNC Investment Corporation

AGNC Investment Corporation is a mortgage REIT that was founded in 2008 and invests primarily in agency mortgage-backed securities (MBS) on a leveraged basis. The asset portfolio of the company consists of residential mortgage pass-through securities, collateralized mortgage obligations (CMO), and non-agency MBS. Most of its investments are fixed-rate agency MBS, with a 30-year maturity period.

AGNC greatly benefited from the depressed interest rates that prevailed over the last decade. However, due to the surge of inflation to a 40-year high, the Fed has been raising interest rates aggressively since early last year. This is a strong headwind for the performance of AGNC, whose business model is adversely affected by any unexpected hikes in interest rates. It is also important to note that AGNC has exhibited a volatile business performance over the last decade due to the sensitivity of its business model to changes in interest rates and economic conditions.

On the bright side, due to the uncertainty that results from the challenging economic conditions, AGNC has become remarkably cheap. The stock is trading at an exceptionally low price-to-earnings ratio of 4.1 and is offering a 14.5% dividend yield. While the payout ratio is decent, at 60%, the dividend is not safe due to the vulnerable business model of the company.

Nevertheless, it is important to note that the worse is probably behind AGNC with respect to interest rates, as the Fed is likely to end its cycle of rising rates in the next few months. Whenever interest rates begin to revert towards normal levels, the stock of AGNC is likely to offer outsized returns to its shareholders' thanks to its cheap current valuation.
 

Permianville Royalty Trust

Permianville Royalty Trust was incorporated in 2011 and is based in Houston, Texas. It operates as a statutory trust and owns a net profits interest representing the right to receive 80% of the net profits from the sale of oil and natural gas production from properties located in Texas, Louisiana, and New Mexico. The company was formerly known as Enduro Royalty Trust and changed its name to Permianville Royalty Trust in 2018.

Permianville was severely hit by the coronavirus crisis in 2020. Due to the collapse of the prices of oil and gas in that year, the distribution of the trust plunged from $0.31 in 2019 to a nearly 10-year low of $0.13 in 2020. Fortunately, thanks to the massive distribution of vaccines, Permianville recovered strongly from the pandemic in 2021, along with the global energy market.

Even better for the trust, due to the sanctions imposed by the U.S. and Europe on Russia for its invasion in Ukraine, the global oil and gas markets became extremely tight last year. Before the sanctions, Russia was producing about 10% of global oil output and one-third of natural gas consumed in Europe. Due to the sanctions, the prices of oil and gas rallied to 13-year highs last year. As a result, Permianville offered an 8-year high annual distribution of $0.44 in 2022. At the current stock price, this distribution corresponds to a 16.7% yield.

Unfortunately for Permianville, the price of natural gas has collapsed this year, primarily due to an abnormally warm winter. As a result, the trust reduced its distribution by 66% in March. At the current distribution rate, the stock is offering an 8.8% distribution yield. The distribution remains high but investors should be aware of the threat that comes from the record number of clean energy projects that are under development right now. This means that Permianville will have significant downside risks when all these projects come online and take their toll on the consumption of oil and gas. Nevertheless, Permianville is one of the most cheaply valued oil and gas royalty trusts right now. Therefore, the stock is a great candidate for investors who seek exposure to the category of oil and gas royalty trusts.
 

Final Thoughts

The above three monthly dividend stocks are currently facing significant business headwinds but they seem to have been beaten to the extreme by the market. As a result, they are likely to highly reward investors in the upcoming years. Nevertheless, these volatile stocks are suitable only for patient investors, who can endure extended periods of strong business headwinds and high stock price volatility.

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