There are many stocks that pay dividends monthly, and investors might be interested in those that are providing annual yields keeping pace with the inflation rate of about 7%.
Let's take a look at four real estate investments on the list that meet this tempting threshold: Armour Residential REIT (ARR 2.60%), Broadmark Realty Capital (BRMK), Ellington Financial (EFC 1.33%), and Gladstone Commercial (GOOD 1.47%).
All four are real estate investment trusts (REITs), a corporate structure that carries the obligation to pay out at least 90% of taxable income as dividends to shareholders. Three are mortgage REITs (mREITs), which means they invest in mortgage assets rather than properties themselves. The fourth, Gladstone, operates a diversified portfolio of industrial and office properties.
Image source: Getty Images.
The chart below shows the five-year dividend performance for each of these REITs, along with that of the Vanguard S&P 500 ETF, an exchange-traded fund that tracks the stocks on the S&P 500, as a comparison. Note the dramatic spike in yields back in 2020. That's when share prices plunged during the first months of the pandemic, and these REITs kept paying dividends.
GOOD Dividend Yield data by YCharts.
1. Armour Residential REIT
Armour Residential REIT buys and sells residential mortgage-backed securities, including those issued or backed by the federal government through Fannie Mae, Freddie Mac, and Ginnie Mae.
Based in Vero Beach, Florida, this mREIT has been in operation since 2008. It is now paying a monthly dividend of $0.10 per share, giving it a hefty annual yield of about 14% at a price of $8.56 per share, which is about 32% off its 52-week high of $12.56.
A payout ratio of 120% based on 2022 earnings estimates could be a reason for concern and bears watching, but this stock has not missed a monthly dividend payout since it began paying them in January 2011, so there's some experience and stability here.
2. Broadmark Realty Capital
Broadmark Realty Capital specializes in short-term and first-deed-of-trust loans to builders, developers, and investors in residential and commercial properties.
The Seattle-based company was founded in 2010 and went public in 2019 through a SPAC merger. It's now paying a monthly dividend of $0.07 per share, giving it a nice annual yield of about 9.8% at a price of $8.59 per share, which is about 22% off its 52-week high of $11.10.
A payout ratio of about 102% based on 2022 earnings estimates could be a reason for concern here, too, but the company's construction-heavy portfolio held up well enough during the pandemic so far to avoid dividend reductions and should provide stability and even share growth opportunities as building activity improves.
3. Ellington Financial
Ellington Financial is a hybrid mREIT that invests in loan-origination businesses, consumer and corporate loans, and residential and commercial mortgages.
This REIT, based in Old Greenwich, Connecticut, was founded in 2007. It is now paying a monthly dividend of $0.15 per share, giving it an attractive annual yield of about 10% at a price of $18.11 per share, which is about 7.6% off its 52-week high of $19.60.
The company cites its ability to shift allocation across various asset classes as a reason to trust its stability going forward, and its payout ratio of 91.37% based on 2022 earnings estimates is reasonably modest for an mREIT.
4. Gladstone Commercial
Unlike the others in this quartet, Gladstone Commercial directly buys, owns, and operates real estate. It has a portfolio of 129 net-leased industrial and office properties in 27 states.
Based in McLean, Virginia, the company was founded in 2003. It is now paying a monthly dividend of $0.1254 per share, giving it an annual yield of about 7% at a price of $21.85 per share, which is about 16% off its 52-week high of $26.13.
A payout ratio of 88.76% based on 2022 earnings estimates seems reasonable given the company's 97% occupancy rate and ability to sign long-term leases with investment-grade tenants. Just one example is the 15-year pact it just signed with CVG Management Corp. for the automotive supplier's office building near the site of the $20 billion chip manufacturing plant that Intel just announced near Columbus, Ohio.
Balancing risk and reward
Gladstone's yield is not as high as the mREITs discussed here, but is still respectable for an equity REIT. Like all mREITs, the others in this group use interest rate spreads and leveraged debt to make their money, and these can be particularly volatile times for this kind of investment right now.
That doesn't mean they can't be profitable investments that provide solid monthly income. But if you go that route, you should stay alert and be ready to move your money elsewhere if you're not comfortable with that volatility, especially if there's a dividend cut.
