Incredibly, the S&P 500 Index has rallied off of its 2020 lows, and is now nearly in positive territory for the year. This belies the fact that the U.S. economy officially entered a recession in February, thus ending the longest period of economic expansion on record. But while stock prices seemingly indicate no lingering damage from the coronavirus crisis, the U.S. economy is by no means out of the woods.
Unemployment remains above 11%, and various stimulus measures such as extended unemployment benefits are set to run out soon. This could mean continued turbulence for the economy, a precarious situation for stock market investors. Therefore, it could be an opportune time for investors to get defensive, by focusing on high-quality dividend stocks.
Most dividend stocks pay on a quarterly schedule. But some pay even more frequently than that.
While some monthly dividend stocks are too speculative to recommend, the following 3 monthly dividend payers are well worth considering due to their strong business models and sustainable payouts:
1. Realty Income
Realty Income (NYSE:O) is by far the safest monthly dividend stock. It has a long history of making consistent dividends, even during recessions. Realty Income just declared its 601st consecutive monthly dividend payout, a track record going back more than 50 years. And it has increased its dividend for 25 consecutive years, placing it on the exclusive list of Dividend Aristocrats. In all, Realty Income has delivered over 100 dividend increases since it went public in 1994 and maintains a current monthly dividend of $0.2335 per share, or just over $2.80 per share annually. The stock yields 5% well above the S&P 500 Index average of 1.9%.
The reason for its impressive dividend growth history: the company’s strong business model. Realty Income is a Real Estate Investment Trust (REIT) which means it owns physical real estate properties, with a specialty in retail properties. Its portfolio includes more than 6,500 properties encompassing 630 tenants, in over 50 industry groups. Most of its top tenants sell non-discretionary items, meaning the tenants do not face excessive competitive threats from Internet retailers. A few of Realty Income’s top tenants include Walgreens (NASDAQ:WBA), Dollar General (NYSE:DG), and FedEx (NYSE:FDX).
Another competitive advantage for Realty Income is that it uses triple-net leases, a structure that means some major operating costs such as maintenance, insurance, and taxes are the responsibility of the tenant.
These qualities have served Realty Income well over the years, and continue to benefit the company in the current difficult period. In the 2020 first quarter, Realty Income generated 17% year-over-year revenue growth. This was due to rent hikes on owned properties, plus the contributions from recently acquired properties. Funds-from-operations, or FFO, rose 7% from the same quarter a year ago. Rent collection reached 85% in June, meaning Realty Income is performing relatively well during the coronavirus crisis.
2. STAG Industrial
Like Realty Income, STAG Industrial (NYSE:STAG) is a Real Estate Investment Trust, and it also pays a monthly dividend. STAG Industrial is a high-quality REIT because it is highly insulated against the downturn taking place in real estate due to e-commerce competition. The rise of Internet retail from the likes of Amazon (NASDAQ:AMZN) and others, has had a devastating impact for many brick-and-mortar retailers. STAG Industrial has not been affected, because many of its properties actually engage in e-commerce.
STAG owns single-tenant industrial properties. As of March 31st, the company’s portfolio consisted of 456buildings in 38 states. This focus is beneficial for STAG because of favorable industry economics. According to STAG, industrial real estate is a highly fragmented market with the top 20 owners of industrial real estate properties owning less than 15% of the total supply. Furthermore, industrial real estate properties generate strong cash flow for the owner, due to high tenant retention, and low capital expenditures.
The rise of e-commerce has been a major boost for industrial real estate owners, as Internet retail giants like Amazon and more need large warehouses and distribution centers. As a result, approximately 43% of STAG Industrial’s property portfolio handles e-commerce activity. This has been a key factor in STAG Industrial’s resilience throughout the coronavirus crisis of 2020. Shelter-in-place orders and lockdowns across the U.S. heavily damaged many owners of real estate, but STAG Industrial continues to post strong results.
In the most recent quarter, core FFO grew 33% over last year’s quarter while core FFO per share rose 4%. Net operating income grew 25% over last year’s quarter. During the quarter, STAG Industrial had an occupancy rate of 96.2%. STAG collected 99% of its rental income in March and 90% of its rental income in April. It also expects to collect an additional 7% in April rental income in the near future.
With a high dividend yield of nearly 5%, monthly dividends, and a safe dividend payout, STAG Industrial is an attractive stock for income investors.
3. TransAlta
TransAlta (NYSE:TAC) is an appealing stock for investors looking for high yields and monthly payouts, with growth potential added in. TransAlta is engaged in renewable energy, with a portfolio consisting of renewable power generation facilities including wind, hydro, and gas. The company is based in Canada, while the stock has a market capitalization of $3 billion. TransAlta owns approximately 60% of TransAlta Renewables.
Assets are located in the United States, Canada, and Australia. In all, the company’s portfolio includes 44 assets. Wind assets represent 51% of the company’s cash flow generation, with 43% from natural gas and the remainder spread across hydro and solar. The portfolio has a weighted average contract life of 11 years.
TransAlta also has a strong financial position, which will help the company achieve future growth in an accretive way for shareholders. The company has a modest net-debt-to-EBITDA ratio of 2.2x, which indicates a manageable level of debt.
The company has generated strong growth over the past several years, thanks to the steady rise in demand for renewable energy. TransAlta Renewables generated cash available for distributions of $82 million in 2014, compared with $293 million in 2019. That represents significant growth over a five-year period. Dividends have risen along the way, growing at a 4% compound annual rate since the company’s 2013 initial public offering.
Since TransAlta Renewables is based in Canada, investors are exposed to currency risk. The company’s dividend payments are made in Canadian dollars, which then will be translated to U.S. dollars based on prevailing exchange rates. In times of U.S. dollar strength, U.S. based investors will collect less dividend payments than if the U.S. dollar was weak. Still, investors receive a strong yield from TransAlta. The company’s annualized dividend translates to $0.69 per share in U.S. dollars. This represents a high dividend yield of 6.3%.