While many public companies that pay out a dividend do so on a quarterly basis, there are a few companies that elect to do so monthly. Here are two real estate investment trusts (REITs) with a monthly dividend. Both have been able to navigate the COVID-19 crisis better than many of their peers in the sector.
Dividend investors who like a favorable yield and regular payments should take a closer look at these two stocks that provide a steady flow of monthly income.
1. Realty Income: "The monthly dividend company"
A well-known stock among dividend investors that pays out monthly is Realty Income (NYSE:O), which bills itself as "the monthly dividend company." As a Dividend Aristocrat -- a company that has raised its yearly dividend rate for 25 consecutive years or more -- Realty Income has paid 601 consecutive monthly dividends. The company manages freestanding retail real estate properties with a concentration on consumer nondiscretionary products -- typically drugstores, convenience stores, supermarkets, and dollar stores. These have a much more robust business model that tends to be less sensitive to the ebbs and flows of the economy.
Realty Income is a REIT that uses the triple net-lease model. Under such a lease, the tenant is responsible for insurance, maintenance, and taxes, as well as the monthly rent. This is different than the typical lease you might get if you are renting an apartment, where you just make your rent payment and call the superintendent if anything goes wrong in the apartment.
These triple net leases are generally longer (around 10 to 20 years), and usually contain periodic increases of about 1% to 1.5% to account for inflation. In addition, almost half of Realty Income's leases are to investment-grade tenants.
Realty Income generally uses a two-thirds equity, one-third long-term debt model to fund its properties. The company's income is then the yield on the property less the cost of capital, which could be long-term debt, preferred stock, or common stock.
Realty Income's model of focusing on consumer nondiscretionary businesses has demonstrated its value during the COVID-19 pandemic. Despite the national shelter-in-place orders, the company collected 83% of contractual rent during April, with the non-payers limited to companies impacted by COVID closures, like restaurants, theaters, and fitness centers. The company even increased its dividend in June. Based on annualizing the June dividend, Realty Income pays a yield of 4.8%. With many REITs cutting dividends, Realty Income is one of the few raising them.
2. AGNC Investment survives the COVID-19 crisis
AGNC Investment (NASDAQ:AGNC) is another REIT that pays a monthly dividend. Unlike Realty Income, which owns properties and rents them out, AGNC Investment is a mortgage REIT (mREIT), which means it invests in mortgage-backed securities and collects interest. The COVID-19 crisis was a tough period for the mREIT sector; mortgage assets lost value quickly as margin calls forced the REITs to sell assets and pay off debt.
AGNC Investment had the most bulletproof portfolio of the mortgage REITs, preferring to invest almost exclusively in mortgage-backed securities that are guaranteed by the U.S. government. These securities are currently being supported by the Fed, which is good news for AGNC's income predictability.
Like every other mREIT, AGNC was forced to cut its monthly dividend in order to preserve cash during the sell-off. It trimmed it from $0.16 to $0.12 per share. Still, if you annualize the dividend, AGNC is paying a double-digit yield. Based on what the company said on its earnings conference call, book value per share as of late April was around $14.70. This means that AGNC is trading at a 9% discount to book, which is increasing as the Fed supports the markets. Since mREITs generally trade around book value, there are two ways to win with AGNC.