In praise of dividends

I’m a big fan of monthly dividend stocks.

Modern life is built around the idea of the monthly billing cycle: the mortgage payment, car payment, health insurance premiums, electricity, water and phone bills.

Bonds usually pay their coupon payments semiannually, and stocks generally pay their dividends quarterly. For retired investors living off of their portfolio income, this creates a mismatch in my opinion.


Expenses are regular, yet income is lumpy.

Now, some obvious, common-sense caveats apply here. I believe you should never buy a stock because its dividend is paid monthly. The health of the underlying business, growth prospects, the quality of management and the stock’s valuation are all vastly more important than its dividend calendar in my opinion.

But if I were hypothetically looking at two otherwise identical stocks, I’d clearly choose the stock with a monthly payout over the one with a quarterly payout.

In my opinion, here are seven dividend stocks that are worth a serious look.

Dividend Stocks: Realty Income (O)

Dividend Yield: 4.6%

I can’t make a list of monthly dividend stocks without including “The Monthly Dividend Company” itself, Realty Income Corp (O). Realty Income owns close to 5,000 properties leased to 250 scattered across 49 states and Puerto Rico. And all of its properties are leased under triple-net arrangements, meaning the tenant is responsible for all maintenance, taxes and insurance.

As I write this, Realty Income has paid 562 consecutive monthly dividends and has raised its payout for 78 consecutive quarters. And at current prices, it yields a respectable 4.6%.

I own some shares of Realty Income that I expect will pay a good chunk of my retirement expenses a good 20-25 years from now when I actually retire.

For now, I’m reinvesting the monthly dividends and watching my share count grow.

Dividend Stocks: Global Net Lease (GNL)

Dividend Yield: 9.5%

Along the same lines, we have Global Net Lease Inc (GNL). GNL is well diversified, with about 59% of its portfolio invested in office buildings, with another 18%, 13% and 10% invested in industrial, distribution and retail properties, respectively.

I believe Global Net Lease’s tenants are also well diversified. Financial services — the largest tenant industry — make up only 13% of the total. But perhaps the biggest selling point here is the country diversity.

Global Net Lease has about half of its portfolio in American properties with the rest in Europe. The U.K. is largest European allocation, at 22% of the portfolio, but Germany, France and the Netherlands are well represented.

Global Net Lease pays a 18% monthly dividend, which works out to a yield of 9.5% at current prices.

I should note that Global Net Lease’s dividend should be considered riskier than that of, say, Realty Income, as Global Net Lease has a very high dividend payout ratio (96% of adjusted funds from operations).

But if you don’t mind a little risk, GNL is worth a look in my opinion.

Dividend Stocks: EPR Properties (EPR)

Dividend Yield: 5.5%

One of my very favorite monthly dividend stocks is EPR Properties (EPR). EPR is a quirky REIT with properties mainly focusing on the entertainment industry, such as movie theaters, golf courses and ski resorts.

But more than a fifth of EPR’s portfolio is in public and private schools and early childhood education centers.

These non-traditional property types are generally shunned by most investors, as they lack the specialized expertise to manage them properly.

The nightmare of every landlord would be to get stuck holding the bag on a vacated specialty property that is hard to repurpose. But this is EPR’s niche, and they’ve been doing it for nearly 20 years.

Dividend Stocks: AGNC Investment (AGNC)

Dividend Yield: 9.8%

I’ll give you one last REIT before moving on, mortgage REIT AGNC Investment Corp (AGNC). AGNC is a lot different than the other REITs on this list. Rather than own physical properties, AGNC invests in mortgage bonds and collateralized mortgage obligations.

Importantly, all of AGNC’s investments are guaranteed by the U.S. government or by a government-sponsored entity, so credit risk is essentially nil.

But while credit risk isn’t an issue for AGNC, this REIT is certainly not risk-free. Mortgage REITs borrow at cheap short-term rates, using leverage to boost their returns.

This can be a problem when the Federal Reserve is raising rates, as they are today, as it narrows the spread between the REIT’s borrowing rate and its lending rate.

The ideal time to buy a mortgage rate is when longer-term rates are relatively high and the Fed is just starting to lower rates. In that kind of market, mortgage REITs practically have a license to print money.

Well, that’s not today. So you might want to put AGNC on your watch list rather than buy it today. But then again, AGNC’s 10.1% monthly dividend is pretty hard to pass up.

Photo Credit: Pictures of Money via Flickr Creative Commons

Charles Lewis Sizemore, CFA, is the principal ofSizemore Capital Management. As of this writing, he was long O, EPR.

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