Growth stocks might dominate the financial headlines, but savvy investors understand the importance of dividends for long-term returns. In fact, from 1930 to 2020, 41% of the S&P 500's total returns were due to dividends. Increasingly, investors of all ages are using dividend income to fund their lifestyle -- partially or even fully -- as more join the FIRE movement.
Unfortunately, there's a downside of depending on dividend income to fund your expenses: most stocks pay dividends quarterly dividends or even less frequently. However, your bills (including many from these same companies) must be paid monthly. There are a few companies that understand the struggle and pay dividends monthly. In you're looking for monthly-pay stocks, consider these two real estate investment trusts (REITs) for your portfolio.
STAG is a safe monthly income stock
Stag Industrial (STAG 2.08%) is a single-tenant REIT with a focus on providing leases to e-commerce and logistics companies. Stag has an admirable tenant list, with Amazon being its largest renter. However, the company has a well-diversified tenant base, and Amazon represents only 4% of total rental revenue. The top 20 tenants account for less than 20% of Stag's top line.
Industrial rentals are lower risk than residential and commercial properties, and Stag's diversified portfolio has performed well during the pandemic. Currently, the company boasts an occupancy rate of 96.8% among its properties. Additionally, Stag's management has a strong commitment to financial prudence, which includes maintaining an investment-grade rating.
Unfortunately for new investors, Stag is no longer as cheap as it once was. Shares have jumped nearly 27% in the last year. As a result, Stag shares yield only 3.5%, the lowest yield the company has had since initially declaring a payout in 2011. Shares currently offer dividends of $1.45 annualized per share, paid out monthly as $0.1208. The company continues to raise dividends, albeit at a slower pace. In the two prior years , the company raised its annual payout by $0.01 per share.
The dividend is safe as funds from operations (FFO) will support payouts. Management estimates per-share FFO will be $2.03 at the midpoint this year, an increase of $0.05 from prior guidance.
The "Monthly Dividend Company" hasn't disappointed
Realty Income (O 0.91%) is boastful of its history of monthly dividend payments, even referring to itself as "The Monthly Dividend Company" in press releases. In fact, the REIT trademarked this phrase to highlight its commitment to monthly payouts.
Not only has Realty Income lived up to the moniker by announcing its 613th consecutive monthly dividend, the company is committed to raising payouts quarterly, doing so 111 times since its listing in 1994. Realty Income currently pays investors $0.2355 per share monthly, or $2.826 per year.
Although Realty Income is in the commercial industry that has been decimated by the pandemic, the company's history of success means it gets its pick of the most successful retailers. Out of its top 20 clients, more than half have investment-grade debt ratings. Also, the company's occupancy rates fell less than one percentage point to 97.9% in 2020 and have since bounced back.
Realty Income emerged from the pandemic even stronger as it announced a deal to buy smaller competitor VEREIT (VER) in an all-stock transaction.
A key component of this deal is the finance savings from Realty Income's investment-grade debt rating when it refinances VEREIT's higher-cost debt. Per Realty Income, the acquisition will immediately boost adjusted FFO by 10%, which will power future quarterly dividend increases.
Like Stag, Realty Income is considered a low-risk REIT, and shares are priced similarly. Realty Income's 4% yield is at the bottom end of its historic range due to a 17% increase over the last year. However, if you're looking for a lower-risk REIT that is dedicated to paying dividends monthly, Realty Income should be on your shopping list.