Dividend stocks are a staple of many income-seeking investors' portfolios, but quarterly payments can be less than ideal. After all, if you rely on your investments for income, or if you eventually will, getting paid once every three months isn't exactly the best form of cash flow.
With that in mind, here are two solid real estate investment trusts (REITs) that pay higher-than-average dividends and make payments to shareholders every month.
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|
Company (Symbol) |
Recent Stock Price |
Type(s) of Real Estate |
Dividend Yield |
|---|---|---|---|
|
Realty Income Corporation (O +0.70%) |
$55.41 |
Net-Lease (Mostly Retail) |
4.8% |
|
Apple Hospitality REIT (APLE 3.40%) |
$18.08 |
Hotels |
6.6% |
Data source: TD Ameritrade. Prices and dividend yields as of 7/5/2018.
The Monthly Dividend Company
Notice that each word in this section's heading is capitalized. That's not a style choice. Realty Income actually has a registered trademark on the phrase "The Monthly Dividend Company."
If you aren't familiar with the company, Realty Income is a REIT that specializes in net-lease real estate. The bulk (about 80%) of the company's portfolio is occupied by retail tenants, but there are also substantial concentrations of office and industrial properties.
The company's business model makes for fantastic dividend reliability and long-term growth for two main reasons.
First, the nature of net-lease real estate is geared toward stability for the landlord. Tenants sign long-term leases, often with initial terms of 15 to 20 years. There are generally annual rent increases, or escalators, built into the lease. And the tenant is responsible for variable expenses such as property taxes, insurance, and most maintenance costs. All the landlord has to do is put a tenant in place and enjoy year after year of predictable, increasing income.
Second, Realty Income's tenants are rather recession-resistant and e-commerce-resistant businesses. For example, the company has many tenants engaged in nondiscretionary retail, such as drugstores and gas stations. Despite the recent wave of retail bankruptcies, there really hasn't been much of an effect on Realty Income.
Because of this, as well as an excellent history of value creation through acquisitions, it's difficult to find a stock with a better dividend and growth history than Realty Income. The stock pays about 4.8% in monthly installments and has increased its payout for the past 83 consecutive quarters. As far as growth goes, Realty Income has delivered 15.8% annualized total returns since its 1994 NYSE listing, handily beating the S&P 500.
The "sweet spot" of the hotel market
Apple Hospitality REIT invests in hotel properties. Specifically, the company focuses on so-called "select service" hotels, the midrange of the hotel market. These are properties that provide more amenities than discount hotel chains but aren't quite to the level of luxury hotels and resorts.
Just to give you an idea of what I'm talking about, Apple Hospitality has 242 hotel properties, and they are almost split down the middle between Hilton- and Marriott-branded properties. Examples of select-service brands that are abundant in the portfolio include Hilton Garden Inn, Courtyard by Marriott, and Residence Inn by Marriott.
Why select-service hotels? There are a few reasons Apple Hospitality loves them. For starters, they're more efficient to run than luxury properties. They require less staff and less maintenance, and they tend to be smaller, so there are fewer rooms to fill. They're also relatively easy to renovate, and therefore are highly adaptable to changing consumer tastes.
Perhaps most important, select-service hotels tend to be rather recession-resistant. To be clear, hotels are a far more cyclical form of real estate than the net-lease properties in Realty Income's portfolio. This is one of the reasons Apple Hospitality has a significantly higher dividend yield: It's potentially a more volatile stock. Hotels effectively "rent" their space on a daily basis, so it's rather easy for vacancies to spike and market rental rates to fall during tough times.
Having said that, select-service hotels have an advantage over high- or low-end properties. As CEO Justin Knight explained to me in an interview last year, when times get tough, travelers who would ordinarily stay at luxury hotels might downgrade to one of Apple Hospitality's brands. Conversely, in booming times, travelers who would ordinarily stay at economy hotels may upgrade to a select-service property. In other words, there's demand from some demographic during bad times, good times, and the in-between times.
