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Monthly dividend stocks pay their dividends on a monthly basis instead of a quarterly or annual basis. They thus offer a smoother income stream to their shareholders. As these stocks are usually extremely shareholder-friendly and offer attractive dividend yields, they are great candidates for the portfolios of income-oriented investors. In this article, we will discuss the prospects of three attractive monthly dividend stocks, namely Realty Income (O), SL Green Realty (SLG), and STAG Industrial (STAG).
 

Realty Income

Realty Income is a REIT that is well-known for its monthly dividend payments and its exceptional dividend growth history. The trust owns more than 4,000 retail properties, with an impressive occupancy rate of approximately 99%.

Retail REITs are highly vulnerable to the secular shift of consumers from brick-and-mortar purchases to online shopping. Realty Income is essentially immune to this threat, as its retail properties are not part of a wider retail development, such as a mall, but instead, they are standalone properties. The properties of the trust are thus eligible for many different tenants, including government services, healthcare services, and entertainment. The resilience of the business model of Realty Income is clearly reflected in its exceptional growth record.

Realty Income has grown its funds from operations (FFO) per share every single year over the last decade. This is an enviable achievement, particularly given the severe recession caused by the coronavirus crisis in 2020. The REIT has grown its FFO per share at a 6.4% average annual rate over the last decade.

Even better, business momentum has accelerated this year, primarily thanks to the excessive investments of the trust in the last two years. Realty Income invested $2.1 billion in new properties in 2020 and another $6.4 billion last year. As a result, it is on track to grow its FFO per share by approximately 11% this year, from $3.59 to a new all-time high of $3.97. Given the lack of any signs of fatigue and ample room for future growth, Realty Income is likely to continue growing its bottom line at a fast pace for many more years.

Thanks to its solid business model and its exemplary management, Realty Income has grown its dividend for 97 consecutive quarters. As this period includes two recessions and the coronavirus crisis, the dividend growth streak is certainly admirable.

Moreover, the stock is currently offering a 4.4% dividend yield. Thanks to its disciplined business model, Realty Income spends less than 1% of its net operating income on capital expenses. As a result, it enjoys excessive free cash flows and FFO. Furthermore, its payout ratio currently stands at 75%, which is a decade-low level. Given the healthy payout ratio of Realty Income, its solid balance sheet, and its reliable growth trajectory, investors should rest assured that the REIT will keep raising its dividend for many more quarters.
 

SL Green Realty

Founded in 1980, SL Green Realty is an integrated REIT that is focused on acquiring, managing and maximizing the value of Manhattan commercial properties. It is the largest office landlord in Manhattan, with 72 buildings totaling 35 million square feet.

SL Green Realty has a significant competitive advantage, namely the expertise it has built-in high-quality commercial properties in Manhattan over the last four decades. However, the trust is currently facing a downturn due to the pandemic. While the health crisis has subsided, it has caused some companies to adopt a work-from-home model. While some companies have returned to their offices, many companies continue to work remotely. As a result, the office occupancy level in Manhattan and other metropolitan areas remains far below the pre-pandemic level.

Due to this headwind, SL Green Realty incurred a 4% decrease in its FFO per share last year and is expected to incur another 3% decline this year. However, we believe that the trust will soon stabilize its performance and will probably begin to recover next year.

It is also important to note that the stock is trading at a nearly 10-year low price-to-FFO ratio of 8.8 and is offering a dividend yield of 6.4%. It is also critical to realize that SL Green Realty has a healthy balance sheet, with net debt of $5.2 billion or 10 times the annual FFO. Thanks to its healthy financial position, the trust can easily endure the ongoing downturn and cover its dividend. In fact, management has been repurchasing shares aggressively thanks to the cheap valuation of the stock, thus enhancing shareholder value. Overall, SL Green Realty is an attractive stock for those who believe that the work-from-home model will fade in the upcoming years.
 

STAG Industrial

STAG Industrial, which became public in 2011, is an owner and operator of industrial real estate. It is focused on single-tenant industrial properties and has 544 buildings across 40 states in the U.S. Single-tenant properties might be riskier than multi-tenant properties, as the former are either fully occupied or completely vacant. However, this has not proved to be the case for STAG Industrial so far.

STAG Industrial has exhibited a decent performance record over the last decade. During this period, the trust has grown its FFO per share at a 5.7% average annual rate. During the last five years, the REIT has somewhat accelerated, with a 7.6% average annual growth of FFO per share.

STAG Industrial is currently offering a 4.3% dividend yield and has never cut its dividend throughout its 11-year history. It also has a well-laddered lease maturity schedule, with a weighted average lease term of 5.2 years and about half of the leases maturing after the end of 2025. As a result, its cash flows are reliable under normal business conditions. Given also the decent payout ratio of 66% of the stock, the dividend has a wide margin of safety for the foreseeable future.

On the other hand, it is prudent not to expect material dividend hikes. STAG Industrial has raised its dividend by less than 1% on average over the last six years. Management has not provided any signs that dividend growth will accelerate anytime soon.
 

Final Thoughts

As inflation has soared to a 40-year high this year, investors are struggling to protect the real value of their portfolios from eroding. The above three stocks are offering above-average dividends with a wide margin of safety. As a result, they can help investors endure high inflation more easily than other stocks, which are highly volatile and offer lower yields.