Monthly dividend stocks are securities that pay a dividend every month instead of quarterly or annually. More frequent dividend payments mean a smoother income stream for investors, notes Ben Reynolds; the editor of Sure Dividend and contributor to provides a countdown of his 5 top monthly dividend payers.

These five stocks were selected based on their projected total annual returns over the next five years, but also based on a qualitative assessment of business model strength, future growth potential, and dividend sustainability.

Number five on our list is STAG Industrial (STAG), an owner and operator of industrial real estate. It is focused on single-tenant industrial properties and has ~450 buildings across 38 states in the United States.

STAG Industrial went public in 2011 and has a market capitalization of $4.0 billion. The focus of this REIT on single-tenant properties might create higher risk compared to multi-tenant properties, as the former are either fully occupied or completely vacant.

However, STAG Industrial executes a deep quantitative and qualitative analysis on its tenants. As a result, it has incurred credit losses that have been less than 0.1% of its revenues since its IPO. As per the latest data, 55% of the tenants are publicly rated and 31% of the tenants are rated “investment grade.” The company typically does business with established tenants to reduce risk.

STAG has an added advantage due to the company’s exposure to e-commerce properties, which gives it access to a key growth segment in real estate.

In early May, STAG Industrial reported (5/1/20) financial results for the first quarter of fiscal 2020. The report was very similar to the previous three reports. Core FFO grew 33% over last year’s quarter thanks to the strength of the industrial market.

However, core FFO per share rose only 4% due to extensive issuance of new units. Net operating income grew 25% over last year’s quarter. During the quarter, the REIT achieved an occupancy rate of 96.2%.

STAG Industrial is now facing a headwind due to the recession caused by the coronavirus. However, the effect of the pandemic on the REIT has been limited so far thanks to the high credit profile of its tenants.

STAG collected 99% of its rental income in March and 90% of its rental income in April. It also expects to collect an additional 7% in April rental income in the near future.

STAG Industrial has grown its FFO at a 5.7% average annual rate in the last seven years. We expect 5% annual FFO-per-share growth over the next five years, as it operates in a large and growing market. It still has a market share that is less than 1% of its target market. Therefore, it has ample room to continue to grow in the years to come.

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STAG shares trade for a price-to-FFO ratio of 15.1, virtually on par with our fair value estimate of 15. We do not expect meaningful returns from an expanding P/FFO multiple. Still, we expect 6% annual FFO-per-share growth, and the stock has a high yield of 5.3%. Total returns are expected to exceed 11% per year through 2025.

Main Street Capital Corporation (MAIN) is number 4 on our list. Main Street is a business development company (BDC) that provides long-term debt and equity capital to lower middle market companies and debt capital to middle market companies.

Main Street defines lower middle market companies as generally having annual revenues between $10 million and $150 million. The company’s investments typically support management buyouts, recapitalizations, growth financings, refinancing and acquisitions.

As of the end of fiscal 2019, Main Street had an interest in 69 lower middle market companies, 51 middle market companies and 65 private loan investments. The company has a market capitalization of $1.42 billion and generated $157 million in net investment income last year.

Main Street has a diversified investment portfolio. On May 7th, the company reported first-quarter 2020 results. Distributable net investment income fell 6% year-over-year. On a per-share basis, distributable NII fell 10% to $0.61 per share, although this exceeded the $0.57 per share expected by analysts.

Net asset value per share of $20.73 at March 31, 2020 compares with $23.91 at the end of 2019. The coronavirus and low interest rates weighed on the company, but Main Street performed better than expectations last quarter.

Main Street has put together a solid record in the past decade. From 2010 through 2019, Main Street was able to grow net investment income by an average compound rate of 8.9% per year.

The company has (for now) maintained its monthly dividend at a rate of $0.205 per share, which works out to $2.46 annually. Main Street has an attractive yield of 7.7%.

In addition, we expect 2% annual distributable net investment income growth. Based on expected NII-per-share of $2, Main Street trades for a price-to-NII ratio of 16. This is slightly above our fair value estimate of 13.5. If the stock reaches a price-to-NII ratio of 13.5 in five years, it would result in an annualized drag of -3.3% on annual returns.

Overall, we see the potential for 6%-7% annual returns over the next five years for Main Street stock. Over-valuation makes the stock somewhat less appealing at the current price in terms of total return, although the high dividend yield of 7.7% is particularly attractive for income investors.

Third on our countdown is Shaw Communications (SJR), which was founded in 1966 as the Capital Cable Television Company. It has since grown to become Western Canada’s leading content and network provider, catering to both consumers and businesses. The company produces about $4.1 billion USD in annual revenue.

Shaw reported second quarter results on April 9thand reported consolidated revenue increased by 3.7% to $0.97 billion USD. Adjusted EBITDA increased 9.5% year-over-year to $427 million USD. The company added 54,000 customers to the Freedom Mobile segment.

Wireless service revenue increased 19.6% as the customer base grows to over 1.8 million customers. Second-quarter average billing per unit (“ABPU”) grew by 6.8%. Postpaid churn increased for the quarter to 1.6%, primarily attributed to the intensity of aggressive competitive and promotional offers.

Free cash flow increased 20.1% to $136 million USD, due to higher adjusted EBITDA and lower cash taxes and interest. Net income was up 8.4% from last year to $119 million USD for the second quarter of 2020.

Diluted earnings per share were higher this year by 6.7% to $0.23 USD. The company had a leverage ratio of 2.5x after the quarter, which is at the low end of its target range of 2.5x-3.0x.

Shaw withdrew its full-year guidance after reporting second-quarter earnings, but importantly the company maintained its monthly dividend. The company is raising cash to get it through the coronavirus crisis, including a debt raise of $500 million in Canadian dollars.

Shaw currently pays an annualized dividend payout of $1.182 per share in Canadian dollars; in U.S. dollars, the stock has a current annual dividend payout of $0.84 per share. Shaw has a current yield of nearly 5%.

Shaw also has a sustainable dividend payout. Shaw has a defensive business model which should continue to generate sufficient cash flow to pay its dividend, even in a recession, as consumers will still use their wireless and cable service.

Our second favorite idea among monthly dividend payers is TransAlta Renewables (Toronto: RNW) (OTC (TRSWF). Its history in renewable power generation goes back more than 100 years. In 2013, the company was spun off from TransAlta, who remains a major shareholder in the alternative power generation company.

The company has maintained or increased its dividend every year since 2014, by an average of 4% growth per year. Its portfolio consists of ~44 facilities powered by wind, natural gas, hydro, or solar. It generates about 43% of cash flow from natural gas (half from Canada and half from Australia) and 51% from wind.

TransAlta earns a place on the list of top monthly dividend stocks, not just because of its high yield, but also because of its future growth potential. TransAlta stands on the forefront of a major growth theme–renewable energy.

2019 was another year of growth for the company. Full year Comparable EBITDA increased $8 million, to $438 million for 2019, mainly due to the inclusion of a full year of results from the Lakeswind wind farm and the Mass Solar facility. Future growth is likely due to the addition of new projects. For example, TransAlta announced that the Big Level and the Antrim wind farms began commercial operation in December 2019.

The company also has performed well to start 2020, especially given the difficult business conditions due to coronavirus. Adjusted funds from operations of $94 million was in line with 2019. The company’s U.S. wind and solar operations outperformed during the quarter. On a per-share basis, adjusted FFO and cash available for distributions each dropped 3% year-over-year.

TransAlta pays a monthly dividend of $0.0783 per share in Canadian dollars. In terms of U.S. dollars, the annualized dividend payout of $0.67 per share represents a strong yield of 6.3%. TransAlta is therefore an appealing mix of dividend yield and future growth potential. The dividend appears secure, as the company has a strong financial position.

Concluding this countdown, our favorite monthly dividend payer is Realty Income (O), a retail-focused REIT that owns more than 4,000 properties. Realty Income owns retail properties that are not part of a wider retail development (such as a mall), but instead are standalone properties.

This means that the properties are viable for many different tenants, including government services, healthcare services, and entertainment. Realty Income leaps to the top spot on the list, because of its highly impressive dividend history, which is unmatched among the other monthly dividend stocks.

Realty Income has declared 598 consecutive monthly dividend payments without interruption, and has increased its dividend 106 times since its initial public offering in 1994. Realty Income is a member of the Dividend Arisocrats.

Previously, Realty Income stock did not make our list of top monthly dividend stocks due to its persistently high valuation. But in times of crisis, when so many companies are cutting or suspending their dividends, Realty Income’s relative safety becomes even more important.

And, as Realty Income stock has declined 37% year-to-date, this has had the effect of lowering its valuation multiple to an attractive level, and also pushing up the dividend yield to over 6%.

Realty Income announced its first-quarter earnings results on May 4. The trust reported revenues of $414 million during the quarter, up 17% year-over-year. Revenue growth was due to a combination of rental increases at existing properties, as well as contributions from new properties.

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Funds-from-operations increased 7% year-over-year. It appears Realty Income is handling the coronavirus crisis relatively well, as its rent collection during April and May both exceeded 80%.

We currently expect Realty Income to generate adjusted FFO-per-share of $3.50 for 2020. Although this forecast may change given the recent closure of many retail locations across the country, the stock trades for a P/FFO ratio of 16.3 based on this.

Our fair value estimate is a P/FFO ratio of 18, which means valuation multiple expansion could boost annual returns by 2.0% per year through 2025. In addition, expected FFO-per-share growth of 4.0% and the current dividend yield of 4.9% lead to total expected returns of 10.9% per year over the next five years.

Realty Income is the top REIT pick, not just because of a high rate of expected return, but also a uniquely high level of dividend safety among the monthly dividend stocks.

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