Reader Mailbag: More Payouts Every Year

Two weeks ago, Robert left a comment that asked me to name my five favorite dividend stocks that pay monthly. I can easily rattle off my five favorite dividend stocks right now, but none of them pay out monthly.

Two monthly payers that come to mind are both above my target buy-up-to price. And one of them recently switched from monthly to quarterly payouts—STAG Industrial (STAG).

I’m not against monthly payers, it’s just that they are harder to find. You tend to find them in some REITs, some BDCS, royalty trusts, and closed-end funds (CEFs).

But I totally get why some income investors want to own them.

If you need the dividend income to support yourself, it can be easier to budget your money and pay your monthly bills when you also have money coming in every month.

An alternative to monthly payers is to use stocks that pay quarterly and stagger their payment months. One stock would pay in months 1-4-7-10, a second in months 2-5-8-11, and a third in months 3-6-9-12. Three stocks giving you monthly income. But now you’re watching three stocks instead of only one.  

If you don’t need the income now and instead reinvest the money into more shares, monthly payouts will compound your wealth faster.

I generally don’t care about the payout frequency and focus on the annualized yield and the company behind it. Getting back to Robert’s request, I headed out to find a few new favorites and I wasn’t disappointed.

Too Much Stuff

First up is SmartStop Self Storage REIT (SMA) with an annualized dividend yield of 4.7%. It has a portfolio of 460 properties across 36 states, DC, and four Canadian provinces. It’s the largest owner and operator of self-storage facilities in Toronto.

I’m perpetually bullish on self-storage. Most people simply have too much stuff. At any point in time, roughly one third of Americans have a self-storage unit for a variety of reasons. What makes SmartStop even more interesting is its Canadian footprint.

The Canadian market is expected to grow at a 7.4% CAGR through 2033. Public Storage recently announced it will be acquiring Public Storage Canada back under its umbrella. Everyone wants a piece of this market and SMA is already positioned as a leader.

SMA reported second-quarter earnings last week. Same store revenues increased 1.3% while expenses fell 3.4%. Funds from operations (FFO) were $29.3 million, up $4.9 million year over year. The company pays $1.60 annually, or $0.134 monthly, give or take.

Get Out and Make Some Memories

Next up is EPR Properties (EPR). This experiential real estate investment trust (REIT) is focused on getting people out of their homes for leisure and recreation experiences.

EPR’s portfolio includes properties such as movie theaters, family entertainment centers, casinos, and ski resorts. Earlier this year it acquired seven regional amusement parks from Six Flags Entertainment.

EPR reported second-quarter revenue of $196 million, up 10% year over year, and FFO per share of $1.43, up 12.7%. Management raised its full-year guidance for FFO per share and investment spending.

Consumers increasingly want to spend money on making memories rather than accumulating more stuff (their storage units are full!). This is driven by a paradox of desires: they want to spend less time on screens and want to post pictures of these experiences on social media.

EPR pays $0.31 monthly for an annualized yield of 6.1%.

Outside My Comfort Zone

Lastly, I looked at several oil & gas royalty trusts. A royalty trust holds the title to a natural resources property or a net profits interest (NPI) in the property.

The trust itself employs no staff and does no actual exploration or mining. Instead, a third party manages the extraction, sells the resource, and pays a royalty to the trust.

I’m familiar with these industries and comfortable with the idea that natural resources are finite. I know production declines over time and that US royalty trusts cannot acquire new properties to offset that fact. But that’s not what is outside my comfort zone.

It’s the unpredictability of the distributions (dividends). Mine production and commodity prices fluctuate, and when they do, the monthly distribution will also fluctuate. This can be a problem if you need reliable monthly income to pay your bills.

However, there are some double-digit annualized yields available for resource trusts right now. Just remember that these are not a set-it-and-forget-it investment.

For more income, now and in the future,

Kelly Green