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Monthly dividend stocks distribute their dividends on a monthly basis instead of a quarterly basis, thus providing a smoother income stream to their shareholders. They are thus attractive candidates for income-oriented investors, though the latter should not invest blindly in these stocks. Instead, they should perform a thorough analysis in order to make sure that the dividends are reliable. In this article, we will discuss the prospects of three monthly dividend stocks from our 2022 Monthly Dividend Stocks List, namely Realty Income (O), SL Green Realty (SLG) and Sabine Royalty Trust (SBR).

Realty Income

Realty Income is a retail REIT, which has become famous for its exceptional dividend growth history. The trust owns more than 4,000 properties. More importantly, it owns retail properties that are not part of a wider retail development, such as a mall, but are standalone properties. As a result, its properties can attract several types of tenants and hence the REIT is essentially immune to the secular decline of brick-and-mortar retailers.

This is clearly reflected in the outstanding performance record of Realty Income. The REIT has grown its FFO per unit every single year during the last decade, at a 6.4% average annual rate. It has achieved such a consistent growth record thanks to its exemplary management, which is adept at identifying high-return properties. Growth has also resulted from predictable rent hikes year after year.

Realty Income currently enjoys strong business momentum. It invested $2.1 billion in new properties in 2020 and another $6.4 billion in 2021. As these two amounts comprise 21% of the current market capitalization of the REIT, it is evident that management is heavily investing in future growth. It is also important to note that Realty Income acquired its first properties in the UK in 2019 and has stated that it will expand more aggressively in international markets in the upcoming years.

Thanks to its solid growth trajectory, Realty Income has exhibited an impressive dividend growth record. To be sure, the company has grown its dividend for 99 consecutive quarters. It is also offering a nearly 10-year high dividend yield of 4.7%, with a payout ratio of 74%. As the payout ratio lies at the lower end of the 10-year range of Realty Income and given the reliable growth prospects of the REIT, investors can lock in a nearly 10-year high dividend yield and rest assured that the dividend will remain on the rise for several more years.

SL Green Realty

SL Green Realty is a REIT that is focused on acquiring, managing and maximizing the value of Manhattan commercial properties. It is Manhattan’s largest office landlord, with 64 buildings totaling 34 million square feet.

SLG benefits from multi-year growth in rental rates in one of the most popular commercial areas in the world, Manhattan. The trust pursues growth by acquiring attractive properties and raising rental rates in its existing properties. It also signs multi-year contracts with its tenants in order to secure reliable cash flows. During the last decade, SLG has grown its FFO per unit by 2.9% per year on average.

On the other hand, SLG is currently facing a strong headwind due to the coronavirus crisis, which has caused a work-from-home model. While the pandemic has subsided thanks to the massive distribution of vaccines, employees have hardly returned to their offices. The occupancy of office space in most metropolitan areas, including Manhattan, remains around all-time low levels. This business environment is especially friendly for tenants and thus SLG offers significant concessions to them. This helps explain the 39% decline of the stock of SLG this year.

On the other hand, the stock has been punished by the market to the extreme. Its FFO per unit, which are only 7% below the pre-pandemic level, are likely to begin to recover from next year. Moreover, the stock is currently trading at a nearly 10-year low price-to-FFO ratio of only 7.1, which is much lower than the 5-year average of 12.4 of the stock.

Furthermore, the stock is offering a 10-year high dividend yield of 7.9% with a solid payout ratio of 57%. Management has raised the dividend for 11 consecutive years and offered a special dividend of $2.4392, which corresponds to a 5.2% yield at the current stock price, in late 2021. Overall, patient investors, who can endure prolonged stock price pressure, are likely to be highly rewarded by SLG in the upcoming years.

Sabine Royalty Trust

Sabine Royalty Trust is an oil and gas trust set up in 1983 by Sabine Corporation. At initiation, the trust had an expected reserve life of 9 to 10 years. However, the trust has exceeded initial expectations by an impressive margin and thus it still has an estimated life of 8-10 years. The trust consists of royalty and mineral interests in producing properties and proved oil and gas properties in Florida, Louisiana, Mississippi, New Mexico, Oklahoma, and Texas.

In contrast to the well-known oil producers, such as Exxon Mobil (XOM) and Chevron (CVX), SBR has static assets, i.e., no properties can be added to its asset portfolio. As SBR has no downstream segments, it is extremely sensitive to the cycles of the prices of oil and gas.

On the bright side, SBR is thriving this year thanks to the sanctions of the U.S. and Europe on Russia for its invasion in Ukraine. These sanctions have led the prices of oil and gas to skyrocket to 13-year highs this year. As a result, SBR is on track to post 10-year high distributable income per unit this year and hence its unitholders will receive a 10-year high distribution. Notably, its bottom line this year will be approximately double the previous 10-year high of the stock.

However, investors should be aware of the high risk of SBR, which results from the dramatic cyclicality of the prices of oil and gas, before investing in this trust. Most countries are currently suffering from the extremely high prices of oil and gas. As a result, they are investing in renewable energy projects at a record pace. Whenever these projects come online, they will severely hurt the prices of oil and gas. As soon as the market shifts its focus on this secular trend, the stock of SBR will have significant downside risk.

Final Thoughts

Monthly dividend stocks are popular in the community of income-oriented investors, as they offer a smoother income stream. However, investors should perform their due diligence to ensure that their dividends are sustainable before investing in these stocks. Realty Income and SLG are highly attractive for long-term investors right now, whereas SBR is probably close to the peak of its cycle.

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