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Monthly Dividend stocks pay their dividends on a monthly basis and thus they are attractive candidates for income-oriented investors. High-yield stocks, i.e., stocks that offer dividend yields above 5%, are great candidates for the portfolios of income-oriented investors as well. In this article, we will discuss the prospects of three high-yield monthly dividend stocks, namely SL Green Realty (SLG), San Juan Basin Royalty Trust (SJT), and AGNC Investment Corporation (AGNC). Investors should be aware that there are usually good reasons behind high dividend yields and hence they should perform their due diligence to make sure that the dividends are sustainable before purchasing these stocks.
 

SL Green Realty

Founded in 1980, SL Green Realty is a REIT that is focused on acquiring and managing commercial properties in Manhattan. It is the largest office landlord in Manhattan, with 62 buildings totaling 34 million square feet.

SL Green Realty benefits from long-term growth in rental rates in one of the most popular commercial areas in the world, Manhattan. The trust tries to grow by acquiring attractive properties and raising rental rates in its existing properties. It also signs multi-year contracts with its tenants in order to generate reliable and predictable cash flows. The REIT has grown its funds from operations per unit by 2.9% per year on average over the last decade.

However, SL Green Realty has been hit by the pandemic, which has negatively affected many companies that are tenants of the REIT. Occupancy of office space in New York remains near historic lows, despite the recovery of the economy from the pandemic. Consequently, there is an unprecedented tenant-friendly environment, which has led SL Green Realty to offer material concessions to its tenants. The trust has offered average concessions of 9 months of free rent in its new leases so far this year, though this metric improved to 5 months in the third quarter.

While the pandemic has subsided and people have returned to their normal lifestyles, the work-from-home trend has persisted longer than initially expected. This has caused some uncertainty over the growth prospects of SL Green Realty but we expect the REIT to return to growth mode in the upcoming years.

SL Green Realty recently cut its dividend by 13%, after 11 consecutive years of dividend growth. In addition, the REIT has failed to grow its funds from operations per unit meaningfully over the last four years. Given also its somewhat weak balance sheet, which has resulted from the acquisition of some new properties, the new dividend is not entirely safe. Nevertheless, thanks to its healthy payout ratio of 49% and the expected recovery of its business, SL Green Realty is likely to be able to defend its 8.9% dividend for the foreseeable future. Overall, the stock appears attractive from a long-term point of view.
 

San Juan Basin Royalty Trust

San Juan Basin Royalty Trust is a medium-sized gas trust, which produces a negligible amount of oil. It was formed 40 years ago by the Southland Royalty Company. The producing properties are all in northern New Mexico, in the San Juan Basin. They are currently operated by Hilcorp San Juan, which acquired the interests in 2017. The trust has static properties, i.e., it cannot add new properties to its portfolio.

Although San Juan Basin Royalty Trust operates exclusively in New Mexico, it has greatly benefited from the ongoing war in Ukraine. Before the war, Russia was providing approximately one-third of the natural gas consumed in Europe. Due to the sanctions imposed by Europe and the U.S. on Russia, the global gas market has greatly tightened this year. A record number of LNG cargos has been exported from the U.S. to Europe this year and thus the price of U.S. natural gas has rallied to multi-year highs. This is an extremely strong tailwind for San Juan Basin Royalty Trust.

In the third quarter, the trust nearly quadrupled its distributable income per unit over the prior year’s quarter, from $0.12 to $0.45. As a result, it is on track to more than double its bottom line in the full year, from $0.77 in 2021 to a 10-year high of $1.71. Given its distributions over the last 12 months, the stock is currently offering an impressive distribution yield of 14.4%.

However, investors should be aware that gas prices are highly cyclical, with boom-and-bust cycles. San Juan Basin Royalty Trust is highly sensitive to these cycles. The trust slashed its distribution by 70% in 2015 and suspended its distributions for six months in 2019 as well as four months in 2020 due to low gas prices. Whenever the price of natural gas enters its next downcycle, San Juan Basin Royalty Trust is likely to cut its distribution significantly and its stock price will probably follow suit. Overall, as long as the natural gas market remains tight, San Juan Basin Royalty Trust is likely to keep thriving but the trust will be vulnerable whenever the (inevitable) next downturn of the gas market shows up.
 

AGNC Investment Corporation

Founded in 2008, AGNC Corporation is a mortgage REIT that 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 nearly all-time low-interest rates that prevailed over the last decade. However, due to the surge of inflation to a 40-year high, the Fed has raised interest rates aggressively this year. This is a strong headwind for the performance of AGNC, which suffers from any unexpected rise in interest rates.

The impact of the environment of rising interest rates on the performance of AGNC was evident in the latest earnings report of the company. In the third quarter, AGNC incurred a loss per share of -$2.01, which amounted to 20% of the market capitalization of the stock. In addition, its tangible book value per share decreased by 21% sequentially.

AGNC Corporation is currently offering a nearly 9-year high dividend yield of 14.2%, which seems attractive, at least on the surface. However, given the material losses of the company in the third quarter and its vulnerability to the environment of rising interest rates, its dividend is at risk of being cut. Investors should also note that AGNC has cut its dividend several times over the last decade. Overall, AGNC is likely to reward investors from its current depressed stock price but investors should keep in mind that the stock is vulnerable to any unexpected interest rate hikes.
 

Final Thoughts

The above three stocks are currently offering exceptionally high dividend yields and pay their dividends on a monthly basis. However, the dividends of San Juan Basin Royalty Trust and AGNC are likely to be significantly reduced sooner or later. On the other hand, the 8.9% dividend of SL Green Realty seems to have a much wider margin of safety, especially if the REIT begins to recover from the work-from-home trend next year.

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