The Best Stocks with Monthly Dividends: STAG Industrial

06/29/2020 5:00 am EST

Focus: STRATEGIES

Ben Reynolds

CEO, Sure Dividend

Monthly dividend stocks are securities that pay a dividend every month instead of quarterly or annually. More frequent dividend payments mean a smoother income stream for investors, notes Ben Reynolds; here, the editor of Sure Dividend begins a 5-article countdown of his favorite monthly dividend payers.

Our 5 top monthly dividend stocks were selected based on their projected total annual returns over the next five years, but also based on a qualitative assessment of business model strength, future growth potential, and dividend sustainability.

Number five on our list is STAG Industrial (STAG), an owner and operator of industrial real estate. It is focused on single-tenant industrial properties and has ~450 buildings across 38 states in the United States. 

STAG Industrial went public in 2011 and has a market capitalization of $4.0 billion. The focus of this REIT on single-tenant properties might create higher risk compared to multi-tenant properties, as the former are either fully occupied or completely vacant.

However, STAG Industrial executes a deep quantitative and qualitative analysis on its tenants. As a result, it has incurred credit losses that have been less than 0.1% of its revenues since its IPO. As per the latest data, 55% of the tenants are publicly rated and 31% of the tenants are rated “investment grade.” The company typically does business with established tenants to reduce risk.

STAG has an added advantage due to the company’s exposure to e-commerce properties, which gives it access to a key growth segment in real estate.

In early May, STAG Industrial reported (5/1/20) financial results for the first quarter of fiscal 2020. The report was very similar to the previous three reports. Core FFO grew 33% over last year’s quarter thanks to the strength of the industrial market. 

However, core FFO per share rose only 4% due to extensive issuance of new units. Net operating income grew 25% over last year’s quarter. During the quarter, the REIT achieved an occupancy rate of 96.2%.

STAG Industrial is now facing a headwind due to the recession caused by the coronavirus. However, the effect of the pandemic on the REIT has been limited so far thanks to the high credit profile of its tenants. 

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.

STAG Industrial has grown its FFO at a 5.7% average annual rate in the last seven years. We expect 5% annual FFO-per-share growth over the next five years, as it operates in a large and growing market. It still has a market share that is less than 1% of its target market. Therefore, it has ample room to continue to grow in the years to come.

STAG shares trade for a price-to-FFO ratio of 15.1, virtually on par with our fair value estimate of 15. We do not expect meaningful returns from an expanding P/FFO multiple. Still, we expect 6% annual FFO-per-share growth, and the stock has a high yield of 5.3%. Total returns are expected to exceed 11% per year through 2025.

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