Stag Industrial (NYSE:STAG)
STAG Industrial is a REIT focusing on single-tenant industrial properties in the United States.
Although high on the surface, the P/E ratio of 34.9 is good compared to the REIT industry in the U.S. at 45.2. Both returns on assets and return on equity outperform the industry. The company uses no leverage and it covers both the short-term and long-term debt. Dividend payments have been stable and increasing for 10 years. The payout ratio of 79% is well-covered by earnings.
LTC Properties (NYSE:LTC)
LTC Properties is a REIT focusing on senior housing and healthcare properties through financial arrangements like sale-leasebacks, mortgage financing, joint ventures and others. LTC operates 181 investments in 27 states, with an equal split between senior housing and skilled nursing properties.
Despite trading below the industry P/E standards, LTC outperforms both on return on assets and return on equity. Debt-to-equity is within acceptable levels at 0.86. Although the dividend payout ratio is at 100% and thus not in the ideal range, forecasts are pointing at a lower ratio (78%) in 3 years.
While the profit margin declined over the last year, it’s in line with interest rates being at the lowest point in history and financing being widely available.
Yet these rates are not poised to remain forever. With fears of inflation growing, LTC is well-positioned to pass on the inflationary costs onto the consumer due to the low elasticity of demand.
Prospect Capital (NASDAQ:PSEC)
Prospect Capital Corporation is a business development agency. It specializes in debt and equity investments in the U.S. and Canada. The company operates a portfolio of 123 companies over 39 industries. With a rigorous screening process, the company accepts less than 2% of investment prospects.
With interest rates at a historical low, PSEC is a contrarian play — betting on the rising interest rates, that will make these types of businesses more profitable. Although it rallied recently, the stock is still well below the financial market industry average.
Despite negative revenue forecasts, these assumptions are based upon the premise of interest rate staying at 0 — debatable given the rise in inflation. With a debt-to-equity ratio of 0.61, the company is unleveraged.
Even with the yield falling over the last few years, it is still outperforming the industry. With a payout ratio of 59%, the company is well-positioned to endure any headwinds without cutting the dividend.
Dividend stocks have been a staple feature of any serious portfolio. For those who are at the beginning of their investment journey, dividends provide a strong reinvestment opportunity. But for those who have already accumulated wealth, dividends bring in steady cash flow and fuel a sustainable lifestyle. While most dividend stocks pay a quarterly dividend, there are companies that do it on a monthly basis. Read on to learn more about the best monthly dividend stocks and how to select them.
Quick Look at the Best Monthly Dividend Stocks:
- STAG Industrial
- LTC Properties
- Prospect Capital Corporation
Features to Look for in Best Monthly Dividend Stocks
Here are the top attributes to check when evaluating a dividend stock:
1. High-dividend yield: Dividend yield is a ratio measuring the amount of cash paid as a dividend in comparison to the market value per share. Dividend yield varies by the industry so relative comparisons are necessary. Yet, comparing with the broad market, the current S&P 500 yield is at 1.38% — anything significantly higher is worth looking at.
2. Good dividend payout ratio: High-dividend yield is not worth a lot if it isn’t reliable. Chasing yield for yield's sake can take a bad turn if the company has to slash the dividend when facing turmoil. So, it is necessary to check the dividend payout ratio and ensure that it’s sustainable.
Good payout ratios will vary by industry — for cyclicals, this should be 50% or lower. For businesses that are recession-resistant, like consumer staples or utilities, up to 75% is a reasonably safe ratio. Other types of businesses, like real estate investment trusts (REITs) that skew the accounting due to depreciation, can have a ratio up to 80% — if they carry a quality balance sheet.
3. Fair valuation: The easiest way to underperform on the stock market is to pay a price that is too high. When selecting a good opportunity, it is necessary to check the metrics that give insight into the valuation of these businesses. This includes checking price-to-earnings, debt-to-equity, price-to-book and other ratios.
4. Optimistic industry perspective: It’s no secret that the market, just like fashion, is cyclical in nature. A savvy investor might remember to rotate into consumer staples and 10-year bonds just like one would take out a stack of short-sleeved shirts for the summer.
Market trends come and go, some within a year, some within a decade or longer. Paying attention and riding the coattails of trends will make investing much easier in the long run.
Best Online Brokers for Monthly Dividend Stocks
There is no easier way to start investing than using a quality broker. With phones and loud broker agents being a thing of the past, you can now safely and conveniently invest using a web platform or even a mobile app. Check out or broker comparison in the table below.
Monthly Dividends as an Inflationary Shield
As inflation fears wear down investors, the Federal Reserve is placed between a hammer and an anvil. By keeping money spigots open, the inflation risk becomes real, and by closing them (through the interest rate hike) — the market faces a credit crunch.
Historically, commodities outperform during inflation, with stocks following in second place. But, commodity producers have already rallied significantly, some being over 50% up YTD.
In that situation, businesses like REITs offer the next best hedge against inflation, especially those in the healthcare and housing subsectors. These are businesses that can pass the cost of inflation onto the customer more easily.
While the Fed still stands by the 0% interest rate through 2023, recent comments by former Chairwoman Janet Yellen bring that into question. In case of rate hikes, financials like PSEC will get a boost while the broad market experiences a correction.
Yet, if the Fed stays put for too long, it will end up in a loss-loss situation… and as the saying (kind of) goes — it’s darned if they do it and darned if they don't.
Planning for the Future
While you can use dividend-producing stocks as an inflationary shield, you may also plan for the future. Remember, no stock is destined to pay dividends forever, but keeping some dividend-paying stocks in your portfolio helps you guarantee a certain amount of income in the future. As a result, it’s much easier to plan for retirement or simply have a bit more cash coming in each year.
Frequently Asked Questions
What are monthly dividend stocks?
Monthly dividend stocks are shares in companies that pay monthly dividends.
Do stocks pay dividends?
Yes, some stocks pay dividends to shareholders.