Monthly dividend paying stocks have become increasingly popular over the years, and investors are constantly on the lookout for the best monthly dividend stocks good reason.
A monthly dividend can be a great way to help pay for living expenses in retirement, or simply act as a way to compound one’s wealth faster through more frequent dividend reinvestment.
But while the number of monthly dividend stocks has grown well into the hundreds in recent years, investors need to be extremely selective about where they invest their hard earned money.
That’s because the world of monthly dividend paying stocks is a minefield packed with terrible value traps just waiting to destroy your wealth. In fact, most monthly dividend stocks score dangerously low using our Dividend Safety Scores.
In this article, you will learn about seven of the best monthly dividend stocks that potentially represent attractive long-term investments and discover three types of monthly dividend stocks to avoid.
The Best Monthly Dividend Stocks
While quality monthly paying dividend stocks are few and far between, some do exist.
Here are seven of the best monthly dividend stocks for investors to consider. Six of the stocks are REITs, and one is an internally managed BDC.
Each of the top monthly dividend stocks on this list has proven it can grow long-term shareholder value as well as offer generous income each and every month of the year.
- Realty Income (O): Yield 4.4%
Realty Income is the gold standard of low-risk REITs and has become famous for a fantastic long-term track record of growing monthly dividends (76 straight quarterly increases).
If only one company could make the best monthly dividend stocks list, it would be Realty Income.
The underlying strength of “the monthly dividend company” is its diverse portfolio of 4,703 properties rented to 247 companies in 49 states and Puerto Rico. Each of these properties is rented out under very long-term 20- to 25-year triple net lease agreements, meaning that the tenant pays insurance, maintenance costs, and property taxes.
These low-risk lease agreements allow Realty Income to just sit back and collect a growing stream of rents with which to pay its steadily growing monthly dividend.
Of course, in the long-term what matters more than just a generous current yield is a company’s dividend safety and growth prospects. Thanks to Realty Income’s 83.5% adjusted funds from operations, or AFFO (REIT equivalent of free cash flow and what pays the dividend), payout ratio, the dividend is highly secure.
As for growth, the world-class and highly conservative management team has proven itself able to consistently grow through any kind of interest rate and economic environment. This is due to a disciplined growth strategy, both through individual bolt-on property buys, as well as big needle-moving REIT mergers.
What many investors especially like about Realty Income is that, until recently, when its share price was trading at record highs, management was funding 2016’s $1.1 billion in year-to-date acquisitions through equity sales. This has allowed the company to de-lever its balance sheet in preparation for a higher interest rate environment in which its shares would likely trade a lot lower (as they are now).
Or to put it another way, Realty Income now has the strongest balance sheet in nearly a decade and has plenty of cheap borrowing power available to continue buying high-quality properties going forward, without having to dilute existing investors.
That should help it to drive consistent long-term AFFO per share growth and allow it to deliver 4.5% to 5% dividend growth over the next decade.
Investors can read my full investment thesis on Realty Income here.
- LTC Properties (LTC) Yield 4.8%
LTC Properties is one of the best monthly dividend stocks for long-term income investors to profit from the aging of America’s population.
That’s because LTC owns 223 medical properties, including skilled nursing facilities and assisted living facilities across 30 states. In addition, LTC is an expert in making long-term loans to medical providers to fund investments into these kinds of facilities, the demand for which is very high (meaning high occupancy rates) and should only strengthen in the coming decades.
LTC’s top notch management team has proven itself one of the industry’s best capital allocators as well, generating margins and returns on shareholder capital that are double or triple the industry average.
Better yet, with a very strong balance sheet and a small base of properties from which to grow, LTC has many more years of strong growth ahead of it. For example, year-to-date the REIT has grown revenue and AFFO per share at 20% and 10.2%, respectively.
That not only means that, with a payout ratio of 78.6%, the dividend is among the safest in its industry, but LTC Properties has potential to continue growing its monthly dividend at around 5% over the next decade.
Better yet, with a beta of just 0.2, LTC is one of the least volatile stocks in the market, which makes it a holding to consider for risk-averse investors such as retirees.
- EPR Properties (EPR): Yield 5.4%
EPR is a REIT that specializes in triple net leases of entertainment and education properties. As of Q3 2016 it owns: 298 movie theaters, charter, and private schools, water parks, ski parks, golf courses, and a casino. Its 19.6 million square feet of leasable space has an impressive 99.5% occupancy under long-term leases.
The REIT has been growing like a weed, thanks to its small property base but aggressive acquisition strategy, including $675 million of acquisitions this year. That has fueled strong growth that allowed management to just raise the dividend 5.8%, marking the sixth consecutive year of payout increases.
More importantly, with an AFFO/share payout ratio of 81%, the dividend is highly secure and likely to continue growing around 5% to 6% a year for the foreseeable future. That’s thanks to the just-announced acquisitions of 34 additional water, ski, and amusement parks for $700 million.
This 11.4% increase in properties represents just a small piece of management’s growth plans. In 2017, EPR expects to invest $1.35 billion into further asset expansion, which makes this one of the fastest-growing monthly dividend payers you can find.
- Stag Industrial (STAG): Yield 5.9%
STAG Industrial is an industrial REIT specializing in secondary market warehouses. The growth catalyst for this top monthly dividend stock is the highly fragmented and vast size of the warehouse market ($250 billion), and the fact that STAG currently has just a 1% market share. In other words, the company appears to have a very long growth runway.
Better yet, the warehouse market is likely to grow in coming years thanks to the rise of e-commerce and the insatiable demand for more fulfillment centers being created from the continued rise of online retail giants such as Amazon (AMZN).
With its top execs having nearly a quarter century of industry experience each, STAG is well situated to achieve strong but disciplined growth. For example, management has chosen to keep the REIT’s dividend growth modest in recent years, in order to allow its fast-growing cash flow to catch up to the dividend (small industrial REIT’s like STAG usually IPO with payout ratios of 90% to 95% to attract