We maintain an ongoing list of all monthly dividend payers — and in this article we continue a 5-part series on the best current buys among these stocks, explains Bob Ciura, contributing editor with Sure Dividend.
High-yielding monthly dividend payers have a unique mix of characteristics that make them especially suitable for investors seeking current income.
Our current top 5 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 Part 1 of this report here.
STAG Industrial (STAG) — our #4 monthly dividend stock — is an owner and operator of industrial real estate. It is focused on single-tenant industrial properties and has ~462 buildings across 38 states in the United States.
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 the 2020 third quarter, core FFO of $0.46 per share was flat from the year-ago quarter, while revenue increased 14.5% year-over-year thanks to the combination of new properties and rent increases.
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Same store cash NOI of $73.5 million increased 0.8% compared to the third quarter of 2019. The company achieved an occupancy rate of 96.3% on the total portfolio while the company collected 98.2% of third quarter base rental billings as of November 5th.
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.
If anything, many of its properties have benefited from the coronavirus due to their exposure to e-commerce activity, which explains how STAG Industrial has continued to generate growth. The company recently increased its monthly dividend by 0.7%.
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 16.6, which is slightly above our fair value estimate of 15. A declining P/E multiple to 15 over the next five years would reduce annual returns by 2.0% per year. Still, we expect 5% annual FFO-per-share growth, and the stock has a high yield of 4.7%. Total returns are expected at roughly ~8% per year.
