3 high yield monthly dividend stocks

While most dividend stocks pay dividends on a quarterly basis, there are some that pay dividends monthly.

The nice thing about monthly dividend payments is that they come in much more frequently than quarterly dividends and therefore can make a retiree’s monthly cash flow much more consistent.

They also provide more frequent psychological stimulation to investors during bear markets, providing them with monthly cash flow. As a result, investors may be less likely to sell at inopportune times when they hold monthly dividend stocks than quarterly dividend stocks or even stocks that pay no dividend.

Below, we will discuss three monthly dividend stocks that have attractive yields.

If he can do it…

SL Green Realty Corp. (SLG) is a real estate investment trust (REIT) that owns some of Manhattan’s best real estate assets. In fact, it is the largest office owner in Manhattan. Its assets are generally highly regarded by technology and financial services companies due to their attractive services and strategic centralized location in the business hub of New York City.

While the share price has decimated recently, it continues to drive organic growth. SLG’s same-store net operating income increased 3.3% year over year in the fourth quarter, while occupancy remained solid at 91.2%. The company is currently opportunistically selling some of its assets and using the proceeds to deleverage its balance sheet and buy back its deeply discounted stock.

Going forward, we believe SLG occupancy and rental rates will likely recover as lingering headwinds from the Covid-19 outbreak and New York City’s severe lockdowns dissipate. When combined with fairly aggressive share buybacks, we believe SLG can grow its FFO (funds from operations) per share at a 5% CAGR over the next half-decade.

As SLG returns to FFO growth per share, its recently cut dividend is also expected to resume growth. Most importantly, the massive price-to-NAV discount should also start to close. When you combine significant multiple valuation expansion with growth in average single-digit annualized FFO per share and a current dividend yield of 8%, SLG appears to be a very likely candidate for double-digit total return performance at long term.

The main risk to the investment case is that SLG’s balance sheet is quite heavily leveraged and cap rates are starting to come under pressure from rising interest rates. If cap rates continue to rise and SLG doesn’t reduce its leverage ratio soon, it could quickly find that its price-to-NAV gap disappears and its stock may not be so undervalued after all.

That said, the total return potential would still be attractive when you combine the high monthly dividend with growth prospects.

A REIT with immense scale

Realty Income Corp. (O) is the leading triple net lease REIT with immense size. It has an enterprise value of $59 billion and owns 11,733 properties that are leased to 1,147 tenants.

O’s leases are very conservatively structured with the tenant assuming virtually all capital and operating expenses along with 10+ year lease terms which often enjoy bankruptcy protections and have contractual increases fixed every year. O currently has a weighted average lease term to maturity of 8.8 years and generates 43% of its rent from investment grade lessees, giving it a secure and highly visible cash flow profile.

Its balance sheet is also quite strong, as evidenced by its A- credit rating. O has a weighted average maturity of 6.3 years for its notes and bonds, a fixed expense coverage ratio of 5.5x, a leverage ratio of 5.2x, and liquidity of over $2.50 billion. As a result, he has little risk of experiencing financial hardship for the foreseeable future.

Last, but not least, its track record and dividend profile remain among the most consistent and predictable in the entire stock market. Thanks to its conservatively structured business model and balance sheet, O has increased its dividend for 27 consecutive years while delivering market-crushing total returns.

Looking forward, O’s dividend remains very safe with a strong cash flow hedge. Additionally, analysts expect its dividend per share to grow at a mid-single-digit annualized rate for the foreseeable future, combining with its dividend yield of 4.5% and likely multiple valuation expansion to generate potential annualized returns at two digits. When you include its very low risk profile, O looks like a very attractive monthly dividend equity investment.

An armor of dividends

Armor Residential REIT (ARR) is a mortgage REIT that invests in residential mortgage-backed securities, including U.S. government-sponsored entities such as Fannie Mae and Freddie Mac. The company also invests in fixed-rate, adjustable-rate home loans hybrid and floating rate by the Government National Mortgage Administration.

The company’s business model is to issue debt alongside preferred and common stock and then reinvest the proceeds into the aforementioned debt instruments. It then returns the vast majority of the net spread it earns on this process to shareholders via dividends.

As a result, whenever spreads widen, ARR generally sees its growth rate accelerate and then as interest spreads tighten, it sees its earnings decrease. This has led to a very volatile earnings per share and dividend per share track record for the trust. Indeed, over the long term its dividend per share has declined significantly because interest rate spreads have generally gone in a negative direction on confidence and its high payout ratio leaves little room for safety.

As a result, while the current monthly dividend payout looks very attractive with an annualized yield of 19.4%, investors should keep in mind that the dividend is highly subject to interest rate movement. As a result, ARR is more of a speculative investment than a long-term wealth compound, so investors should keep that in mind when deciding whether to buy shares in it.

Final thoughts

For retirees looking to finance their monthly living expenses, monthly dividend stocks can be a great tool. That said, just because a dividend is attractive and paid monthly doesn’t automatically make it perfect for the portfolio.

With O, you’ll get a slightly less than 4.5% dividend yield, but it will be very reliable and likely to grow over time.

With SLG, you get an attractive dividend yield of 8% with substantially more risk than you would with O. However, there’s a good chance it’s sustainable for the foreseeable future from current levels and could even grow over time .

Finally, with ARR you get by far the most attractive dividend yield of the three at 19.4%. However, given the speculative and volatile nature of the business model, this dividend is far from reliable and investors should expect it to be cut going forward.