4 Picks for Monthly Dividends

02/22/2016 10:00 am EST

Focus: DIVIDEND

Tim Plaehn

Investment Research Analyst, Investors Alley

Looking for a steady stream of reliable income? Tim Plaehn, editor of The Dividend Hunter, highlights a diverse group of four favorite income generating idea that each pays monthly dividends to shareholders.

Steven Halpern:  How are you doing today, Tim?

Tim Plaehn:  Doing really well Steve, how about yourself?

Steven Halpern:  Very good, thanks for taking the time. Could you give our listeners a brief overview of The Dividend Hunter and the strategy underlying the newsletter?

Tim Plaehn:  Yes, The Dividend Hunter is a high yield stock focused investment newsletter.  I’m looking to make stock recommendations, buy and hold stock recommendations with above average yields.  

The strategy focus is to find those high yield stocks where we have a high level of safety at the same time in the current dividends and some potential for dividend growth over time also.

Steven Halpern:  Could you explain your current market outlook and how income investors should approach the recent market weakness?

Tim Plaehn:  Markets like this are tough for everybody because we all hate to see our share prices go down, but I really tried to, you know, if we’re dividend focused investors we kind of almost always have to be in the market.  

I tried to explain to my subscribers—and people I talk to—that periods like these, if buying high quality dividend stocks, they’re just great buying opportunities.  

You can buy at lower prices which will average up your yield and you’re locking in those high yields you see right now, basically, forever or at least as long as you own the stock.

Steven Halpern:  Among the dividend investments that you analyze are some that pay monthly dividends, how common is this and are there benefits to this payment schedule?

Tim Plaehn:  I would say maybe 10% or so of the dividend paying universe, maybe less than that, pay monthly dividends. One thing we do like, you know, everybody likes getting that monthly check.  It provides better stability of the income.  

The biggest downside with monthly dividends is I think some company management teams try to use the monthly dividends as a crutch to attract investors without providing superior returns at the same time.

Steven Halpern:  Let’s look at some individual stocks that offer monthly dividends and one that you recommend is Main Street Capital (MAIN), what’s the attraction here?

Tim Plaehn:  Main Street Capital is by far and away the best run of the business development companies, BDCs. Those are companies that make loans to small and mid-size non-publicly traded corporations. Main Street Capital just has a tremendous track record.  

They’ve been able to increase their monthly dividend rate twice a year since they’ve been in existence and they also pay regular capital extra dividends, which are distributions of capital gains they make on their portfolio.  It’s just been a tremendous growing income stock return and you still get a nice 7% plus yield right off the bat.

Steven Halpern:  Now you also recommend a company called EPR Properties (EPR), what do you like about this idea?

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Tim Plaehn:  EPR Properties is a real estate investment trust that owns a combination of movie theater multiplexes, entertainment centers like indoor golf facilities, and some snow skiing facilities near large cities, and then they’re also developing a third sector of charter and private schools.  

They just really have their own niche in the world where nobody competes with them and they do a very nice job of growing their dividend by 6% to 8% every year.  

They’ve been very stable. Just a really well-managed company.  You find it hard pressed to find a REIT with a more on-the-ball management team than we have with EPR Properties.

Steven Halpern:  Many listeners may not be familiar with a third monthly dividend payer which is Stag Industrial (STAG), what’s this company do and why do you like it?

Tim Plaehn:  Stag Industrial is a fairly new real estate investment trust.  I think they IPO'd in 2011.  As their name applies, they own industrial properties.  The big box things we see around our local airports, and out on the edge of town, where people have warehouses and light manufacturing facilities.  

STAG has taken a different approach, they do most of their property buying out in secondary and tertiary markets. They have a very rigorous investment analysis program where they look at thousands of properties every year to find the ones that will produce the best long-term cash flow returns, taking in a lot of different variables.  

They’ve been able to grow their dividend over time.  It’s not a rapid dividend grower, but with the recent pullback in the market, you’re picking up a very attractive 9% dividend yield with STAG.

Steven Halpern:  Now, finally, I point out that in January you chose Reaves Utility Income Fund (UTG)—another monthly dividend payer—as your Top Pick for 2016 in our annual MoneyShow survey.  The stock’s now up over 4% while the broad market has fallen by more than 8% over the same period.  Are you still comfortable with the utility income fund’s prospects?

Tim Plaehn:  Yes, I am. The reason I made this a Top Pick for the year is—in volatile markets where everybody’s not sure what’s going to happen going forward—utilities tend to be a safe harbor where money tends to go.

The Reaves Utility Income Fund, as we said, pays the monthly dividends, it has a very attractive yield so I think people can continue to purchase this fund and give themselves some safety and stability in their portfolio. Especially as we wait for the markets to work out what they think business prospects are going forward.

Steven Halpern:  Again, our guest is Tim Plaehn of The Dividend Hunter, thank you so much for your time today.

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