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.
SL Green Realty (SLG) — our #4 monthly dividend stock — is an integrated REIT that is focused on acquiring, managing, and maximizing the value of Manhattan commercial properties. It is Manhattan’s largest office landlord, and currently owns 96 buildings totaling 41 million square feet.
The company has been adversely affected by the coronavirus pandemic, but there are signs of recovery emerging when it comes to Manhattan office and retail real estate.
In late January, SLG reported (1/27/2021) financial results for the fourth quarter of fiscal 2020. Its same-store net operating income decreased -5.9% over the prior year’s quarter and its occupancy rate dipped from 94.2% at the end of the previous quarter to 93.4%.
As a result, its funds from operations (FFO) per share decreased -11% over the prior year’s quarter, from$1.75 to $1.56. In the full year, the REIT collected 97.9% of total billings for office, 80.8% of billings for retail and 94.8% of total billings.
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SLG benefits from reliable growth in rental rates in one of the most popular commercial areas in the world, Manhattan. The REIT pursues growth by acquiring attractive properties and raising rental rates in its existing properties.
It also signs multi-year contracts (7-15 years) with its tenants in order to secure reliable cash flows. SLG has grown its funds from operations per share at a 4.5% average annual rate in the last decade and at a 2.2% annual rate in the last five years.
Due to the effect of the pandemic on its business, funds from operations have stumbled this year but they have remained fairly resilient. We expect SLG to grow its funds from operations per share at a 5.0% average annual rate over the next five years.
Thanks to its financial strength, the REIT can endure the ongoing crisis and emerge stronger whenever the pandemic subsides. It can also maintain its dividend, which is well-covered with a healthy payout ratio. SLG recently raised its dividend by 2.8%, and also announced a special dividend of $1.6967 per share, due to its asset dispositions in 2020.
Based on expected FFO-per-share of $6.50 for 2021, SLG stock trades for a P/FFO ratio of 9.8. This is significantly below our fair value P/FFO ratio of 13. An expanding valuation multiple could boost annual returns by 5.8% per year over the next five years.
In addition to 5% expected annual FFO growth and the 5.7% dividend yield, we expect annualized returns of 16.5% per year over the next five years, albeit with an elevated level of risk due to its exposure to Manhattan office space.