The Best Stocks with Monthly Dividends: Realty Income

07/03/2020 5:00 am EST

Focus: STOCKS

Ben Reynolds

CEO, Sure Dividend

Ben Reynolds, editor of Sure Dividend concludes a 5-article countdown of his favorite monthly dividend payers. The number one monthly dividend paying stock in his review is Realty Income (O), a real estate investment trust.

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.

Our 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.

Read about monthly dividend payer #5 — STAG Industrial

Read about monthly dividend payer #4 — Main Street Capital

Read about monthly dividend payer #3 — Shaw Communications

Read about monthly dividend payer #2 — TransAlta Renewables

As we conclude this 5-part countdown, our favorite monthly dividend payer is Realty Income (O), a retail-focused REIT that owns more than 4,000 properties. Realty Income owns retail properties that are not part of a wider retail development (such as a mall), but instead are standalone properties.

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This means that the properties are viable for many different tenants, including government services, healthcare services, and entertainment. Realty Income leaps to the top spot on the list, because of its highly impressive dividend history, which is unmatched among the other monthly dividend stocks.

Realty Income has declared 598 consecutive monthly dividend payments without interruption, and has increased its dividend 106 times since its initial public offering in 1994. Realty Income is a member of the Dividend Arisocrats.

Previously, Realty Income stock did not make our list of top monthly dividend stocks due to its persistently high valuation. But in times of crisis, when so many companies are cutting or suspending their dividends, Realty Income’s relative safety becomes even more important.

And, as Realty Income stock has declined 37% year-to-date, this has had the effect of lowering its valuation multiple to an attractive level, and also pushing up the dividend yield to over 6%.

Realty Income announced its first-quarter earnings results on May 4. The trust reported revenues of $414 million during the quarter, up 17% year-over-year. Revenue growth was due to a combination of rental increases at existing properties, as well as contributions from new properties.

Funds-from-operations increased 7% year-over-year. It appears Realty Income is handling the coronavirus crisis relatively well, as its rent collection during April and May both exceeded 80%.

We currently expect Realty Income to generate adjusted FFO-per-share of $3.50 for 2020. Although this forecast may change given the recent closure of many retail locations across the country, the stock trades for a P/FFO ratio of 16.3 based on this.

Our fair value estimate is a P/FFO ratio of 18, which means valuation multiple expansion could boost annual returns by 2.0% per year through 2025. In addition, expected FFO-per-share growth of 4.0% and the current dividend yield of 4.9% lead to total expected returns of 10.9% per year over the next five years.

Realty Income is the top REIT pick, not just because of a high rate of expected return, but also a uniquely high level of dividend safety among the monthly dividend stocks.

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