Investors that are looking to establish a consistent stream of income usually opt for Real Estate Investment Trusts (REITs). REITs are companies that own and operate real estate properties that generate income. They can include warehouses, office properties, hotels, and even mortgages. Some REITs, however, major in one type of real estate property, mostly apartment societies.
I personally like to have dividend stocks in my retirement strategy as they provide stable cash flow. Of course, especially in the turbulent times we’ve seen thanks in part to the pandemic, you need to keep tabs on the dividend yield as they are subject to change.
Disclosure: At the time of publishing this article I do own the following stock mentioned in today’s piece: Realty Income.
They are unique from other real estate companies since a REIT is required to purchase and improve their properties before they can manage them as their own, instead of purchasing, developing, and selling real estate.
REITs usually enjoy a tax-free standing if over 90% of their income is dispensed annually. This spells large dividend amounts and regular guidelines for investors. It is imperative that we find the best REITs to work with. That is because their high dividend rates make them a better, more attractive option for investors compared to government and company shares.
Their dividends are also invested in stock exchanges, offering a source of income and tremendous development. According to the MSCI United States REIT Index, the standard revenue for REIT investment stood at 9.28% early last year. High profits, however, do come with significant risks, the perfect example being the acute recession experienced in 2008 due to the spike in extremely risky mortgage payments.
As such, real estate demands tough skin, whether you are making important decisions on your own or leaving them to the experts. Let us look at some of the best monthly dividend REITs.
Characteristics of REITs
• More than 50% of holdings and income from real estate properties
• At least 90% of income payable to shareholders as dividends every year
• Operate as taxable companies
• Be managed by a board of managers or trustees
• Transferable shares
• A minimum of 100 shareholders after the first operational year
• At least 50% of their shares should be held by more than 6 distinct individuals after the first half of the first year.
Types of Monthly Dividend REITs
REITs have an obligation to pay no less than 90% of their income to their investors as dividends. This enables them to manage the complex tax obligations involved in managing real estate properties. Three types of REITs pay dividends monthly:
• Equity REITs
They own real estate properties like apartments, office buildings, and malls. These buildings are rented out to tenants who pay rent. They come in different forms and are excellent investment options.
• Mortgage REITs
These REITs deal with property mortgage plans. As such, they do not own any “real” properties. Mortgage REITs offer credit for mortgages to real estate property owners and can even buy existing plans as well.
Their income comes from acquiring interest on the mortgage loans they offer. Their debt leverage is quite high so that their returns remain profitable.
Mortgage REITs appear somewhat risky when it comes to investment because of the fluidity of interest rates. A change in market rates may cause a decline in income and consequently result in lower dividend payouts.
• Hybrid REITs
These are real estate trusts which are seemingly a combination of a mortgage and equity REITs. They maximize their profits by investing in both markets, which is less risky than majoring in one or the other.
Top REITs for Monthly Dividend Payouts
A lion’s share of the REITs today pay out their dividends quarterly but some specific ones pay every month. This is an especially advantageous venture for investors because the money can boost our income and even come in handy if you are looking to start reinvesting. Payments that are spaced out in short intervals are easier to grow and subsequently, take a shorter time to boost the invested principal. Below are some REITs that payout every month. Each one majors in a distinct type of real estate.
1) American Capital Agency Corporation (AGNC)
AGNC deals in high-end collateral properties that are financed by mortgages. This includes securities with a fixed income that are backed by a few assets as well as mortgages backed by collateral and guaranteed by government institutions. The company has holdings in some commercial and residential securities with mortgages from private institutions as well.
AGNC is vulnerable to the risks brought about by market changes to interest rates. As such, it hedges to manage risks and includes high-profit properties to balance its portfolio. The company had dividend profits of over 10% in April 2020 with yearly payments of $1.44.
2) Bluerock Residential Growth (BRG)
BRG majors in multi-family real estate properties in developing markets throughout the country. It is termed a small-capital trust and it has over 50 residential buildings in Nevada, North Carolina, Texas, Alabama, Florida, Tennessee, Georgia, South Carolina, Arizona, and Colorado.
The firm boasts of a high occupancy ratio with rates of over 90%. Bluerock isn’t “an island” like most REITs plan their operations. It employs the expertise of real estate owners and managers in several regions to aid in its investments.
BRG is managed by investors who are always looking to add new profitable investments to its holdings. It was a monthly dividend REIT until 2018 when it started making quarterly payments. The company paid out $0.65 annually as of May last year with profits of more than 10%.
3) Apple Hospitality (APLE)
APLE is invested in high-end hotel properties. It is one of the largest REITs in the hospitality industry. The firm manages over 230 hotels in suburban, urban and middle-class markets. These are mostly Hilton and Marriott establishments.
While most REITs manage their properties on their own, APLE uses property management firms for convenience. The firm has reinvested huge chunks of its income into its holding, leading to a stable cash flow for itself and client fulfillment for its customers.
Although APLE had payments of $1.20 in dividends, it hasn’t made a single monthly payout since May 2020.
4) EPR Properties (EPR)
EPR is considered a small capital REIT that specializes in a unique choice of real estate properties. The company invests in recreational and entertainment properties like casinos and theme parks. However, it is also heavily invested in education properties, especially early childhood education institutions, and private schools.
It has holdings in 41 states in the United States and has expanded to Ontario, Canada. EPR also rents out its buildings with the triple net lease arrangements which have been seen to be quite profitable for investors.
One may consider its choice of investment properties quite unpopular but it’s these holdings that saw it shine in the MSCI US REIT Index for 2019. The company paid out dividends of $4.59 in may last year with profits of 15.2 %, the highest the index has seen in a long while.
5) Stag Industrial (STAG)
STAG invests in real estate properties for industrial activities such as factories and warehouses. It mostly specializes in facilities used for the distribution of goods but has been seen to deal in warehouses and manufacturing factories as well. STAG’s portfolio includes approximately 450 real estate properties in 38 states.
STAG rents out its properties to individual lessees instead of the tenant groups most office and shopping property companies deal with. The company boasts of long-term tenant retention rates of over 705 with its standard leases operating for at least five years.
May last year saw STAG pay out annual dividends at $1.44 with profits of 5.7%.
6) LTC Properties (LTC)
LTC operates senior living and lifetime care holdings which are characterized by assisted living, nursing, memory care, and independent living estates. The company holds more than 170 real estate properties in up to 28 states presently.
LTC invests in mortgage loans and generates income from applying triple-NET leases. These are lease agreements where the one leasing or renting agrees to take care of maintenance, building insurance, and property taxes, together with the standard fees that apply to the agreement.
The company is doing significantly well. In fact, it had payments of 6.33% and annual shares of $2.28 in May 2020.
7) Realty Income
Any dividend investor worth their salt has probably heard of Realty Income. It offers about 4.5% of profits in annual dividends and has seen a rise in its payouts over the past twenty-five years.
This investment trust operates on what we call a net lease. The tenants or lessees are expected to handle a majority of the cost of managing a particular property. This is considered the least risky approach when it comes to property investments.
Realty Income has holdings amounting to more than 6,500 real estate properties. It specializes in buildings for retail use with about 85% of its investments in that sector. However, the company also invests in agricultural, corporate, and industrial rental properties.
8) Broadmark Realty Capital
This is a mortgage REIT that offers short-term credit to property builders. The company enjoys almost no debt whatsoever. That means that the firm maintains a healthy cash flow, covers a wide range of high-end assets, and does so with very little leverage.
The firm first offered its shares to the public in 2019 and as such, doesn’t have a lot of resources that speak to its status as a public company. It currently enjoys dividend profits of 6.9%.
Broadmark does not lend to just anyone. It considers the potential selling price of a property and only lends to the tune of 60% of that amount. This strategy helps the company to safeguard itself against the risks involved in mortgage investments.
Why Monthly Dividends Are Beneficial
REITs that pay out monthly provide some sort of salary which could be exactly what you need if you are approaching or considering retirement. However, you would have to analyze the market keenly before you decide which REIT offers the most attractive and reliable dividends. Choose companies with a verifiable history of success and low investment risk.
The money can help you employ the services of a property management company or even expand your investment portfolio by compounding those dividends to form a larger sum. This way, you maintain your stream of income from existing holdings while venturing into new, potentially profitable ones.
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Downsides of REITs that Pay Out Monthly
The frequent payments offered by monthly paying REITs are very attractive but they may not be the best investment route for every investor. Consider the following REIT factors before you commit your funds to an investment that may not turn out to be what you envisioned it to be.
• Is the dividend payout percentage stable?
The company to be able to make payouts every year irrespective of whatever changes it may experience in cash flow. You can calculate a REIT’s dividend payout ratio by predicting the long-term income of the company.
• Does it have a clean balance sheet?
Companies that have a clean balance sheet do not have any existing debt and if they do, it is minimal. Such a REIT company can handle abrupt expenses, meet its financial responsibilities, and still be able to fund its activities without affecting the dividend profits.
The balance sheet shows the holdings of a company, its debts, and the amount put in by investors. Before investing your money in a company, ensure that it satisfies the factors below:
a) Easy to analyze
c) No stagnant or underperforming holdings
d) High-quality assets
e) Ability to set off existing debts without the need for sources of capital
f) Modest debt leverage
• Does it own significant properties in developing markets?
We need to be sure that a REIT can maintain its payouts. The best way to do this is by analyzing its holdings. Companies with high-risk investments like mortgaged properties and have no hedges in place are a no-go zone. You can never go wrong with a REIT that invests in high-profit properties in markets that are continually growing and giving good returns.
I also urge you to check out my latest post on the current list of best dividend stocks.
Real estate investment is a very lucrative venture if you know what properties to invest in. You can get a steady source of income from a REIT that pays monthly. Feel free to browse our inventory for more insight on the best REITs to boost your investment portfolio earnings.