Most dividend stocks pay out quarterly.  This can create cash flow issues for investors who rely on dividends for income.

After all, most bills come in monthly, not quarterly.  The spacing of dividends can be problematic.

It makes sense why there are so many investors that want to generate a recurring income stream by investing into monthly dividend stocks.  These are stocks that pay their shareholders every month instead of quarterly.

Unfortunately, many monthly dividend stocks have elevated risk.  Some management teams see monthly dividends as little more than a gimmick to attract shareholders.

There are a few high quality monthly dividend payers, however.  Among the best is Realty Income (O).

Company Overview

Realty Income is a real estate investment trust that was founded in 1969 and that is currently valued at $16 billion. The company invests in commercial real estate properties, 81% of total rents are generated from retail properties.

Realty Income’s tenants consist of 254 different companies across 47 industries over almost all of the United States. Its properties are used as pharmacies, dollar stores, cinemas, convenience stores, fitness centers, etc.

This wide array of industries that Realty Income rents its properties to makes it resilient versus downturns in single industries. Realty Income does not own mall properties, but rather invests into standalone real estate properties that can be rented out much more flexibly. Mall REITs have gotten under pressure in recent years, as traffic in lower-grade US malls is declining. This trend is partially due to Amazon and other e-commerce companies gaining market share versus traditional brick-and-mortar retailers.

Realty Income’s standalone properties, on the other hand, are not pressured by online retailers, as its tenants’ services are less easily replicated online. Fitness centers, post offices, etc. will always be needed, which is why occupancy rates across Realty Income’s portfolio remain quite high (98.6% during Q1).

Dividends, Valuation, And Total Returns

Realty Income has been producing very consistent funds from operations growth over the last decades, adjusted FFO per share grew in 21 out of the last 22 years, which shows that the company keeps performing, whether the economy is doing well or not.

During Q1 of 2018 Realty Income’s AFFO per share grew by 3.9%. During that quarter the company has also increased its dividend by 4.3% year over year, its annualized payout stands at $2.64 right now. With its shares trading around $55, Realty Income offers a dividend yield of 4.8%, which is quite attractive relative to what income investors can get from the broad market or fixed income investments.

Since Realty Income’s profits are so resilient and since the dividend payout ratio of 83% is not overly high, Realty Income’s dividend looks relatively safe right now.

Trading at roughly 17 times this year’s adjusted FFO per share Realty Income is not the cheapest REIT by far, but its valuation is not overly high, either. Through a dividend yield of close to 5% and annual AFFO growth of around 4% Realty Income should be able to produce annual total returns of roughly 9% going forward.

Realty Income’s performance was even better in the past, total returns averaged 16% annually over the last 24 years. Going forward total returns will most likely be lower, as Realty Income’s size has made it harder for the company to grow at a high pace. High-single digits annual returns from a high-quality company still look like an attractive investment case, and investors get a high and safe monthly dividend from Realty Income.