Back in February I wrote an article on REITs that pay monthly dividends and since that time, a few new REITs have been added to my research lab. Notably, former non-traded REITs, United Development Funding (NASDAQ:UDF) and New York Recovery Trust (NYSE:NYRT) recently listed shares, and I also added Canadian REIT, WPT Industrial (TSX: WIR.U) (OTCQX:WPTIF) to my coverage universe. In total, I'm now tracking a growing list of 17 REITs (all that own property in the US).
In this article I'll provide you with an updated list of these 17 REITs that pay monthly; however, I wanted to first provide you with a few critical advantages to owning and investing in dividend stocks that pay monthly. Starting in July I will be adding a new column in my newsletter called the "The REIT Paying Monthly Report" in which I will rank the group of frequent payers based on dividend safety and predictability.
What's the Fuss with Monthly Paying Stocks?
Not all US REITs pay monthly, most pay quarterly; however, regardless of frequency, the one metric that provides me with the most intelligence is consistency. As I analyze the numerous flavors and sizes of REITs, the most important piece of the news that I'm looking for is the commitment by the company to its shareholders - that speaks plainly that management is strongly committed to increasing the dividend that shareholders are counting on.
Whether monthly, quarterly, or annually, the dividend increase sends a message that the company's earnings stream can be relied upon and that the underlying business model is sustainable. In the Ultimate Dividend Playbook, the author, Josh Peters, sums up the signal inherent with a stock that increases its dividend over time:
Durability implies that the firm can take a financial punch in one year and come back swinging the next.
But oftentimes investors overlook the frequency of the dividend payment. On one hand, I understand the oversight. After all, if a security pays an annual dividend of $2.00 per share, what difference does it make it pays $2.00 per share once a year or $0.1667 per share 12 times a year? All else being equal, however, a more frequent dividend payer is better than a less frequent dividend payer. This is especially true if you reinvest dividends.
The Snowball Effect
If you reinvest your dividends (and compound income) you will ultimately make more money with a monthly dividend payer than an annual dividend payer. Street Authority provided an example of monthly versus annual compounding in an article in which the growth of $100,000 yielding 7% was compared with the two dividend paying options. As the chart below illustrates, the monthly paying example with reinvested dividends was valued at $4,251 more after 10 years than the annual paying example. The sooner you reinvest a dividend, the more time it has to generate compound growth.
In addition to more frequent compounding, the monthly paying companies also offer less market risk. With an annual distribution, you have just one day a year to buy additional shares via a dividend reinvestment program. That's not much time to decide if you want to sell-out or oftentimes you're forced to buy more shares when the share price is high (with little margin of safety). With a monthly dividend stock, you reinvest in shares 12 times a year, spreading out the market risk of your reinvested dividends.
Match Funding Your Lifestyle
I'm not retired and accordingly, most all of my dividend income is reinvested; however, many income investors are looking for monthly dividend payments to support their income during retirement. By investing in REITs that pay monthly, you're able to better match fund your living expenses and create a more disciplined approach to saving and investing. Many retirees (and even students) like receiving monthly rewards (in the form of dividends) as they provide flexibility of paying household bills, enjoying rounds of golf (for me its golf balls), or eating out at a favorite restaurant (The Cheesecake Factory).
Also, it's possible that a monthly dividend payment can bridge the gap when an emergency arises. What if my wife tells me that we have to shell out $5,000 for the kid's braces and all I have are stocks that pay annually. I may have to sell out of a good stock before its payoff and that could cost me precious earnings power. The point is, the more frequent the dividend, the less an impact dividends have on buy and sell decisions.
My classic reason to own monthly dividend stocks is for the power of compounding. In other words, I simply enjoy putting the money back to work - like owning a free share machine. Many pre-retirement investors want monthly dividend stocks for their IRAs for faster compounding. The longer you hold your shares, the higher the yield you will receive on your original investment and the greater the impact of the "cumulative dividend effect."
That "cumulative dividend effect" means that the longer you own your shares, the less remaining original principal you have invested in the company. These combined benefits are only available with companies that pay reliable dividends that are regularly increased over time. Many of you know that I'm authoring a book on Donald Trump and arguably he has created tremendous wealth by investing in irreplaceable real estate. However, Trump's secret extends beyond aggregating extraordinary assets, as he is also a student of the legendary business magnate, John D. Rockefeller, who built a massive investment portfolio built on the principle of compounding. Rockefeller once said,
Do you know the only thing that gives me pleasure? It's to see my dividends coming in.
Here's My List of REITs That May Give You Pleasure
As promised, I have provided a list of 16 REITs that pay monthly. As noted above, I added a few new to the list and I'm hoping to extend my coverage in the future. Over the last year I have written articles on many of these REITs and I have provided links (click the name of the company) on the most recently researched companies. The list includes: American Realty Capital Properties (ARCP), Armour Residential (NYSE:ARR), Chatham Lodging Trust (NYSE:CLDT), Chambers Street Group (NYSE:CSG), EPR Properties (NYSE:EPR), Gladstone Commercial (NASDAQ:GOOD), Gladstone Land (NASDAQ:LAND), Inland Real Estate (NYSE:IRC), LTC Properties (NYSE:LTC), Realty Income (NYSE:O), STAG Industrial (NYSE:STAG), Wheeler Real Estate (NASDAQ:WHLR), Whitestone REIT (NYSEMKT:WSR), New York REIT, United Development Funding, Independence Realty Trust (NYSEMKT:IRT), and WPT Industrial.
Here's the group ranked by market cap:
Here's the group ranked by dividend yield:
Here's the list:
Finally, we all know that ARCP has been in the media more than any other REIT today and I plan to write an article on the company this week. However, when it comes to steady and reliable income, there is just one REIT that epitomizes the "SWAN" (sleep well at night) acronym and that is Realty Income. Pound for pound, Realty Income is one of the most sought after dividend paying stocks, and because of the company's most powerful forms of differentiation, other monthly paying REITs dream to emulate the success. However, just because a REIT pays monthly does not mean that it can be compared to the stalwart champion recognized for building its successful strategies on the power of repeatability. Yes, Realty Income is a REIT but more so a brand that delivers an extraordinary competitive advantage spelled out in the company's registered trademark - "The Monthly Dividend Company®".
For more information on my REIT portfolio, check out my monthly REIT newsletter HERE.
Sources: SNL Financial and FAST Graphs.
Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.
Disclosure: The author is long O, DLR, VTR, HTA, STAG, UMH, CSG, GPT, ARCP, ROIC, HCN, OHI, LXP, KIM, WPC, DOC, UDF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.