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Move Over Realty Income! Stag Industrial Inc Is Packing a Dividend Punch

By Reuben Gregg Brewer - Jan 29, 2014 at 11:03AM

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When it comes to paying dividends, Realty Income's streak of 65 consecutive quarterly dividend hikes is nothing short of impressive—STAG Industrial looks like it may be trying to follow that lead.

STAG Industrial ( STAG -0.73% ) wants to give you your money sooner. That's a good thing for investors. Here's why.

Paying monthly
Many dividend investors are looking for a way to replace their salaries. One way is to build a collection of quarterly dividend payers with different payment schedules so you receive a roughly equal amount of dividends every month. That's harder than it sounds. Another way is to buy securities that pay monthly.

Realty Income ( O -2.94% ), the Monthly Dividend Company, is the poster child for monthly distributions. It's been paying monthly since 1995 and has long made a point of presenting itself in a way that would appeal to individual investors. That's the exact group that would be most interested in buying and holding a stock that could act as an income replacement.

That works well for Realty, too, since individual investors tend to be less fickle than institutional investors concerned more with the next quarter's total return than month-to-month dividends. It's one of the reasons companies like American Realty Capital Properties ( VER ) have followed Realty's monthly dividend lead. And, in the middle of 2013, STAG Industrial announced it would go the monthly route, too.

According to CEO Ben Butcher, STAG went monthly "...in recognition that these dividends belong to our shareholders and should be delivered to them sooner rather than later!" That's a beautiful sentiment, and one that I wish more companies shared. But it gets better than that.

Increasing quarterly
Realty Income's other defining trait is the regularity with which it increases its dividend -- 65 consecutive quarterly dividend hikes. That's over 16 years of quarterly increases. While American Realty has used acquisitions to take the size crown from Realty Income in the triple-net lease space, it can't come close to matching the dividend consistency Realty has shown -- including right through the deep 2007 to 2009 recession.

To American Realty's credit, however, it has been increasing on a quarterly basis -- basically mimicking the successful record of Realty Income. STAG, meanwhile, seems to be telegraphing that it has the same intention. In December, the company announced: "In an effort to continue its policy of sharing revenue growth with the Company's stockholders, the Board anticipates evaluating its dividend policy on a quarterly basis."

STAG is clearly saying all the right things and following the impressive lead of Realty Income and, to a lesser degree, American Realty. And all three are triple-net lease REITs, letting their lessees pay for virtually all of the costs of the properties they're renting. It's a great model.

The big differences, however, come in size and focus. STAG is tiny compared to Realty Income and American Realty, which are basically Nos. 1 and 2 based on size. That means STAG should be able to grow more rapidly since smaller acquisitions will be more meaningful to performance.

In addition, STAG focuses on secondary markets. That puts it up against mom and pop type investors that don't have the institutional backing STAG does. It's the same edge that has helped regionally focused Whitestone REIT ( WSR -2.16% ) grow in its core Arizona and Texas markets.

Interestingly, retail-focused Whitestone is another monthly payer. However, it hasn't increased its dividend in several years, and that doesn't look like a trend that will change any time soon. That's not nearly as desirable, and it helps explain why Whitestone yields around 8.4% and STAG yields about 5.9%.

Going monthly and increasing regularly
If you're an income investor looking to replace a paycheck, buying monthly dividend payers is a prefect choice for your portfolio. Realty Income has proven its chops on this front, but look for American Realty and STAG to offer similar consistency. If you want a high yield, Whitestone might be to your liking, but you'll be trading income growth for income now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Realty Income Corporation Stock Quote
Realty Income Corporation
O
$65.92 (-2.94%) $-2.00
STAG Industrial, Inc. Stock Quote
STAG Industrial, Inc.
STAG
$43.26 (-0.73%) $0.32
Whitestone REIT Stock Quote
Whitestone REIT
WSR
$9.06 (-2.16%) $0.20
VEREIT, Inc. Stock Quote
VEREIT, Inc.
VER

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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