We maintain an ongoing list of all monthly dividend payers — and in this article we conclude our 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.
Realty Income (O) — our #1 monthly dividend stock — is a retail-focused REIT that owns more than 6,500 properties. Realty Income owns retail properties that are not part of a wider retail development (such as a mall), but instead are standalone properties.
This means that the properties are viable for many different tenants, including government services, healthcare services, and entertainment. Realty Income is a large-cap stock with a market capitalization above $21 billion.
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.
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Realty Income has declared over 600 consecutive monthly dividend payments without interruption, and has increased its dividend 107 times since its initial public offering in 1994. Realty Income is a member of the Dividend Aristocrats.
The company’s long history of dividend payments and increases is due to its high-quality business model and diversified property portfolio.
In the 2020 third quarter, AFFO per share fell 2.4% to $0.81 year-over-year. Realty Income collected 86.5% of contractual rent across the total portfolio. AFFO growth was due to a combination of rental increases at existing properties, as well as contributions from new properties.
Realty Income collected 93.1% of contractual rent in the third quarter, an improvement from the previous quarter. Therefore, investors have some reason for hope that the worst is past for Realty Income.
We currently expect Realty Income to generate adjusted FFO-per-share of $3.50 for 2020. The stock trades for a P/FFO ratio of 17.5 based on this forecast.
Our fair value estimate is a P/FFO ratio of 18, which means the stock is slightly undervalued. An expanding P/FFO multiple could increase annual returns by about 0.6% per year through 2025.
Expected FFO-per-share growth of 4.0% and the current dividend yield of 4.6% lead to total expected returns of about 9% per year, including a slightly negative impact from a declining valuation multiple over the next five years.
Realty Income is the top monthly dividend stock, not just because of a high dividend yield, but also its uniquely high level of dividend safety and long history of consistent dividend growth.