By Serkan Unal
Investors looking for supplemental income to pay their regular monthly expenditures can earn monthly income from equities that pay regular monthly dividends/distributions. Monthly dividends/distributions not only provide regular monthly income streams but also enable faster compounding that can yield higher returns over time. Given the rising population of retirees, preference for monthly income is increasing, which is making these equities more attractive to the investors. Equities paying monthly dividends/distributions are often concentrated among REITs and business development companies (BDCs). Here is a closer look at five equities paying dependable monthly income, including a few REITs that fulfill that purpose.
LTC Properties Inc. (LTC) is a REIT that invests in senior housing and long-term care related facilities through facility lease transactions, mortgage loans, and other investments. It pays a distribution yield of 4.0% on a payout ratio of 75% of its 2013 normalized diluted FFO guidance midpoint. LTC's five-year annualized distribution growth is 3.8%. The company boasts strong fundamentals, operating in a defensive sector, which makes it particularly attractive for prudent investors. The REIT has optimistic future prospects, given that demand in the long-term healthcare sector will be supported by the aging demographics and higher healthcare spending. Also supporting will be the overall industry trends, characterized by limited new supply of senior living and long-term care properties, which should boost occupancy rates. LTC also has a solid balance sheet with debt to total market value of only 19.6%. Trading at 18.6x its 2013 normalized diluted FFO, based on the guidance midpoint, this REIT is priced slightly above HCP Inc. (HCP) but below Health Care Reit Inc. (HCN). In the December quarter, the stock was a relatively small holding in billionaire Cliff Asness's portfolio.
Realty Income Corp. (O) is a REIT that acquires and owns commercial retail real estate, leasing it to regional and national retail chain store operators. Realty Income's "primary goal is to provide dependable monthly income to shareholders," which makes its cash distribution as reliable as it gets. The REIT prides itself on having a 44-year track record of providing dependable monthly income. In fact, it has raised its distributions 71 times since going public in 1994. The company's cash distribution for May 2013, was 24.3% higher than that paid in the same month a year earlier. Currently, Realty Income pays a distribution yield of 4.2% on a payout ratio of 92% of the adjusted FFO for fiscal 2013, based on the guidance midpoint. However, investors will pay a premium for this stock, given that it trades at 22.7x adjusted FFO for fiscal 2013, based on the guidance midpoint. Realty Income is bolstering its FFO through accretive acquisitions, with Bank of America analysts projecting some $600 million worth of acquisitions this year, following a record acquisitions tally of $1.16 billion last year. In the December quarter, Cliff Asness was bullish on Realty Income.
Shaw Communications Inc. (SJR) is a Canada-based communications company that provides broadband cable television, Internet, home phone, satellite direct-to-home and other services. The company has paid dividends since 1998. Currently, its dividend is yielding 4.4% on a payout ratio of 63% of the FY2013 EPS estimate. SJR's five-year historical annualized dividend growth is 4.3%. This communications company has reported solid financial performance in the previous quarter, with a particularly robust growth in free cash flow. Due to increased operating income before amortization and lower capex, free cash flow for fiscal year 2013 will be up 14%. This bodes well for continued dividend growth. As a matter of concern, however, is the company's loss of basic cable customers. Still, the Internet and digital phone customer counts are improving. The stock has offered solid total returns over the past one- and 10-year periods, on average, outperforming the benchmark S&P 500 in those periods. Despite a nearly 20% price gain over the past 12 months, the stock is still a good value at 14.1x forward earnings and a price-to-book ratio of 2.6 (below its historical average ratio of 3.2). In the December quarter, Tetrem Capital's Daniel Bubis was bullish about this stock.
Inland Real Estate Corp. (IRC) is a REIT that owns and operates community, neighborhood, power, life-style and single-tenant retail centers in the Midwest, mainly located in the Chicago area. The REIT has a diversified tenant base that is 72% dominated by national retailers. No single tenant accounts for more than 4% of the total portfolio annual base rent. Its defensive mix of retail properties targets locations that have strong demographic trends and high barriers to entry. The REIT has paid cash distributions since 2004. It currently pays a distribution yield of 4.9% on a payout ratio of 63% of the company's 2013 FFO, based on the guidance midpoint. The REIT has reported robust leasing volumes since the fourth quarter of 2010, accompanied by double-digit increases in average base rents for new and renewal leases. Inland Real Estate expects consolidated same-store financial occupancy at 89%-to-90% at year-end 2013. In terms of valuation, this REIT is valued at an attractive 12.7x 2013 FFO, based on the guidance midpoint. Cliff Asness liked the stock in the December quarter.
American Realty Capital Properties, Inc. (ARCP) is a REIT that owns and operates single-tenant, freestanding commercial properties. ARCP initiated its monthly distribution in 2011. The REIT has grown its distribution six times over the past six quarters. As the company expects to expand it adjusted FFO by about 16% in 2014, based on the AFFO guidance midpoint, continued dividend increases are likely. ARCP has solid fundamentals and strong balance sheet, and it boasts low cost of capital and low leverage. The REIT recently posted record first-quarter 2013 operating results, with a continued full occupancy of its properties. The company's acquisition of American Realty Capital Trust III has significantly boosted its property portfolio and FFO. Management estimates that this acquisition will result in "durable dividend income augmented by extraordinary earnings growth potential." ARCP pays a distribution yield of 5.3% on a payout ratio of 98% of its fiscal 2013 adjusted FFO, based on the guidance midpoint. ARCP is priced at 18.9x fiscal 2013 adjusted FFO and 16.2x fiscal 2014 adjusted FFO, based on the guidance midpoints. Among fund managers, Jim Simons was the only reputable hedge fund investor reporting a stake in the stock in the December quarter.