3 Monthly Dividend Stocks With High Yields

Income investors oftentimes like it when the cash flows they receive from their investments are distributed evenly over the year. Some companies make semi-annual or annual dividend payments, which results in months with high proceeds and long periods of no proceeds. Quarterly dividend payments are better, but even those go hand in hand with some cyclicality.

Monthly dividend stocks are able to generate very consistent, stable cash flows for investors. Especially retirees and others that utilize their dividends for paying for everyday expenses see the benefits of very consistent dividend payments over time.

In this report, we will showcase three companies that offer monthly dividend payments and that currently trade with a high dividend yield at the same time.

SL Green

SL Green (NYSE:SLG) is a real estate investment trust that primarily invests in high-end office space in New York City. SL Green’s vast and NYC-centered portfolio makes it the largest office landlord in Manhattan. SL Green has a market capitalization of $2.2 billion, but thanks to significant debt usage, its asset footprint is several times larger than that.

The work-from-home trend has resulted in somewhat weaker demand for office space among major American corporations during the pandemic.

On top of that, some companies have been moving out of New York City and have expanded in other cities such as Miami, which has resulted in some headwinds for SL Green’s occupancy rate over the last three years. Nevertheless, the company is easily profitable and offers sizeable dividends.

The company recently announced a small dividend reduction, but even at the reduced rate of $0.2708 per month, which pencils out to $3.25 per year, the dividend yield is highly attractive. With SL Green trading at $35 today, the dividend yield stands at 9.3% right now.

SL Green is forecasting that it will generate funds from operations of $5.45 next year, which will result in a dividend coverage ratio of 1.7, with the dividend payout ratio standing at a little below 60%, which seems very reasonable.

SL Green will focus on reducing debt levels in the near term, which is why there is not a lot of growth to be expected. Still, with some expansion projects coming online over the next years, and with debt reduction resulting in interest expense declines, SL Green should be able to generate some FFO-per-share growth in the foreseeable future. Thanks to its very high dividend yield, even a low growth rate can result in attractive total returns.

Realty Income

Realty Income (NYSE:O) is a real estate investment trust as well. Unlike SL Green, it does not focus on office properties, however. Instead, Realty Income invests in triple-net-leased retail space, with a large portion of its assets being standalone properties. Its tenants include post offices, fitness clubs, restaurants, dollar stores, groceries, drug stores, and so on.

The company thus enjoys a lot of diversification across its tenant base, and many of the tenants operate resilient business models that are not under threat during a recession and that are also “Amazon-proof”, such as dollar stores and pharmacies.

Realty Income is also geographically diversified, as it owns properties all across the United States, with an expanding footprint in Europe on top of that.

Combined with the fact that its triple-net leases mean that the tenant is responsible for all operating expenses, these factors allow Realty Income to generate very resilient and consistent results.

In fact, the company grew its funds from operations during every year of the last decade on a per-share basis, even during the pandemic-impacted years 2020 and 2021. 2022 will be another record year for the company according to management’s current guidance.

The monthly dividend of $0.248 results in a dividend yield of 4.7% at current prices, which is above the average yield Realty Income has traded with over the last decade. Based on management’s guidance, the payout ratio is a little below 75%, which isn’t especially low, but which is still very reasonable, considering Realty Income’s very resilient cash flows.

Realty Income has increased its dividend for more than 20 years in a row, proving its ability to reward shareholders even during tough times.

Main Street Capital

Main Street Capital (NYSE:MAIN) is a business development company (‘BDC’). Small companies oftentimes can’t access debt markets directly, e.g. by placing bonds. Instead, they have to find different financing options when they want to expand, and that’s where business development companies such as Main Street Capital come into play.

Main Street Capital finances a wide range of portfolio companies, sometimes owning equity stakes in these companies as well. The dependence of these usually small portfolio companies on BDCs such as Main Street Capital allows these financiers to demand above-average interest rates, which is why the loans that Main Street Capital makes generally have higher yields than the average bond.

With a focus on risk management, Main Street Capital nevertheless manages to keep default rates low across its portfolio, which is why the company has been operating very profitably in the past, even during macroeconomic downturns such as during the pandemic.

The company is currently paying a monthly dividend of $0.225 per share, which pencils out $2.70 per share per year. With Main Street Capital’s share price standing at $37 today, that makes for a dividend yield of 7.3%, which is quite attractive already.

The company regularly distributes surplus cash flows to its owners on top of these regular dividend payments, however, which makes the effective annual dividend yield rise to an even higher level. For the most recent quarter, for example, Main Street Capital paid out an additional $0.10 per share, or around $0.03 per month, which, if maintained, would result in an annual dividend yield of 8.4%.

There is no guarantee that these surplus dividend payments will be made in the future, too, but Main Street Capital’s dividend history suggests that this is more likely than not.

The payout ratio, based on the regular dividend, is around 80% today, when we account for the additional surplus dividend payments, the payout ratio rises to a little more than 90%. That’s far from low, but Main Street Capital’s dividend history suggests that a dividend cut is nevertheless unlikely.

This post appeared at ValueWalk.com. It was written by Jonathan Weber for Sure Dividend.

Category: Dividend Yield