Dividend stocks are an excellent way to make passive income, especially if you have a long-term horizon. Most companies pay dividends every quarter, while others provide them once per year. A small group of them, typically REITs and midstream firms, pay dividends every month. This article will look at some of the most popular monthly dividend stocks to invest in today.
What is a dividend?
For starters, a dividend refers to funds that a company pays back to its investors. A good example is to look at a family-owned business that makes a profit of $1 million in a quarter. The management can decide to set aside $500k and distribute it to the family members. In this case, each member can receive $50,000. This amount can be called a dividend.
Dividends are one way in which shareholders make money after investing in a company. The other way is through share price appreciation. In fact, many companies like Facebook, Amazon, and Google never pay a dividend. Instead, some of these companies pay their shareholders using share buybacks. This is where they spend part of their profits to buy back some of the outstanding shares. This, in turn, boosts their shareholders’ earnings-per-share (EPS). Here are the four top monthly dividend stocks.
Realty Income (O)
- Industry: Real Estate.
- Market cap: $26.7 billion
- Dividend yield: 4%
Realty Income is a large Real Estate Investment Trust that has offered 109 dividend increases and 93 consecutive quarterly dividend increases. It is also a dividend aristocrat, meaning that it has increased its dividend for more than 25 years. The company owns more than 6,500 properties across most US states and Puerto Rico. Notably, the firm’s buildings have an occupancy ratio of more than 96%, which is substantially higher than the typical average.
Realty Income leases its properties to all types of businesses. 12% of its customers are convenience stores, while 8.8% of them are dollar stores like Family Dollar and Dollar Tree. Other top tenants are grocery stores, restaurants, and automotive services.
Realty Income’s business is relatively stable. Its revenue had increased from over $1.1 billion in 2016 to more than $1.65 billion in 2020. Indeed, its revenue increased by more than $200 million in 2020 amid the pandemic. It is also a highly profitable company that makes more than $350 million in profits every year. This performance is mostly because most of its properties are in long-term leases.
While Realty Income has more than $8 billion in debt, it is a good company to invest in because of its strong business franchise and its long track record of increasing dividends even in tough market conditions.
STAG Industrial (STAG)
- Industry – Real Estate.
- Market Cap – $6.18 billion.
- Dividend yield – 3.7%
Like many REITs, STAG Industrial is a company that many Americans have never heard about. Yet, it is a company where many people have used its services since it leases its property to some of the leading companies like Amazon, General Motors, Ford, FedEx, and UPS.
STAG owns more than 490 buildings in most American states. 409 of these are warehouses, while 73 of them are for light manufacturing companies. This makes it a relatively reliable company since its tenants are rarely affected by significant events. For example, tenants like Amazon thrive in all types of economic environments.
As a result, STAG’s revenue increased by more than $800 million from 2019 to 2020, even as the Covid-19 caused havoc to many industries. This is partly because demand for warehouses has been rising over the years as more Americans shop online. Also, the company has long contracts with its clients.
STAG Industrial clients
Therefore, STAG Industrial is an excellent and highly dependable monthly dividend stock to invest in since the companies in the list above will never build their own warehouses.
Main Street Capital (MAIN)
- Industry: Investment
- Dividend yield: 6%
- Market Cap: $2.83 billion
Main Street Capital is an investment company surpassing $4.5 billion in assets under management (AUM). The company provides debt and equity investments to companies, meaning that it is a Business Development Company (BDC). As a result, it makes its money from the interest paid and shares appreciation.
MAIN invested in Grand Flower Growers, BOSS Industries, Apex Linen, and Hawthorne Global. All these are relatively small companies that have annual revenue of less than $50 million, meaning that they are generally underserved by large institutions.
Main Street Capital generates over $200 million in annual revenue and a profit of more than $100 million. This is a relatively good result for a company that has a market capitalization of around $3 billion. The company has a long history of increasing shareholder returns, making it a good monthly dividend stock.
LTC Properties (LTC)
- Industry: Real Estate
- Market Cap: $1.5 billion.
- Dividend yield: 5.85%
LTC Properties is a REIT that faced elevated challenges in 2020 as its revenue dropped by more than $25 million to $126 million. Its total profit also declined by around $15 million. This is because, unlike the previous REITs, the company provides its services to seniors and health care systems, industries that suffered during the pandemic.
The company offers its services through skilled nursing centers, assisted living communities, independent living communities, and memory care communities. It owns more than 12,000 beds or units across its properties.
LTC is an excellent source of passive income as the stock has a history of strong returns to investors, high dividend yield, and the opportunity presented by Covid-19. As the economy reopens, more senior citizens will likely go back to its facilities.
Long-term investors can particularly benefit from the stocks we discussed. Furthermore, they ensure that a dividend check comes every month. However, like in all stocks, you should do due diligence before you invest. Ensure that you get companies with a substantial moat and those that have a long track record of doing well.