Rising food and energy costs caused the consumer price index to jump 9.1% year over year in June, the fastest increase since November 1981.Higher prices are weighing on consumers and companies alike.
The good news is that hard assets like real estate tend to hold up well in inflationary environments. This is because increased building and financing costs make new properties more expensive to construct, which boosts the value and demand of existing commercial real estate. With that in mind, let's take a look at two monthly dividend-paying real estate investment trusts (REITs) that pay dividends monthly and boast high-demand properties that can help your own portfolio offset the brunt of inflation.
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1. Realty Income
Realty Income's (O 0.67%) $42 billion market capitalization places it among the largest REITs in the world. Due to the strength of its business model, the REIT holds over 11,200 freestanding, single-unit properties throughout the United States, Puerto Rico, and western Europe.
NYSE: O
Key Data Points
Realty Income offers prospective clients a way to leverage the equity in their real estate. The proceeds from selling real estate to Realty Income can provide businesses with the capital needed to expand their businesses or repay debt. The REIT's weighted average lease term comes in at just under nine years. In the U.S., Realty Income's annual lease escalators are more than 2%, and in Europe, they are linked to inflation. This has contributed to an adjusted funds from operations (AFFO) per share compound annual growth rate of 5.1% since 1995.
Operating in a $12 trillion commercial real estate market that spans the U.S. and Europe, Realty Income should have no issues closing lucrative property acquisitions in the years to come. This is because the company's solidly investment-grade credit ratings give it one of the lowest costs of capital in its industry. This allows the company to target the highest-quality properties with low cap rates, which aren't economically viable for most of its other peers to acquire. The company's dividend payout ratio of 75.6% should also allow it to continue building its real estate portfolio. A conservative dividend payout ratio such as Realty Income's is essential for two reasons. First, it gives the REIT a buffer to sustain its dividend in the event of a temporary downturn in profitability. Second, it allows the company to keep enough capital to finance future property acquisitions to move AFFO per share higher.
Income investors can snatch up shares of Realty Income and its market-topping 4.3% dividend yield at a forward price-to-AFFO-per-share ratio of 17.9. That's hardly a premium valuation for a company of Realty Income's quality.
2. Stag Industrial
Stag Industrial (STAG +0.00%) is a pure-play industrial REIT with 110.1 million square feet of industrial properties located in 40 U.S. states. That said, Stag Industrial is a highly diversified business: The company's top-10 tenants make up just 10.8% of its annualized base rent (ABR). And no single market comprises more than 8% of Stag Industrial's ABR.
NYSE: STAG
Key Data Points
The REIT offers both financing and debt repayment for companies that have equity in valuable real estate that they would like to harness. In exchange for this capital, Stag Industrial's tenants pay all expenses associated with leased properties and a base rent check to the REIT each month.
The company is forecasting between 4% to 4.5% same-store sales growth for 2022, which would be the strongest growth in the history of the company. Because 40% of Stag Industrial's portfolio handles e-commerce activity, expect domestic warehouse demand to remain robust in the years ahead.
Along with the $1 billion to $1.2 billion in property acquisitions that the company is targeting for 2022, this should push Stag Industrial's core FFO per share higher in the future. The company currently holds a 0.7% share of U.S's $1 trillion-plus industrial market, which presents the company with a long growth runway. Stag Industrial doesn't look like it will stop growing anytime soon.
Yield-oriented investors can pick up Stag Industrial's monthly 4.7% dividend yield at a trailing-twelve-month core FFO per share ratio of 14.7.
