Monthly dividend REITs are a great way to generate income from real estate that matches an investor's expenses. While not all REITs that pay investors each month are worth buying, the sector does offer several excellent options. Three top ones to buy this July are SL Green (NYSE: SLG), STAG Industrial (NYSE: STAG), and Realty Income (NYSE: O).
Office REIT SL Green currently pays its investors $0.295 per share each month, which at the recent stock price of around $47 a share gives it an implied yield of 7.6%. That payout is on a firm foundation. While some of SL Green's tenants are struggling to pay rent due to COVID-19 (collections averaged 89.1% in April and 85.7% in May as of its latest update), the company historically only pays out a conservative 50% of its cash flow to support its dividend. That gives it lots of breathing room. On top of that, the REIT has a strong balance sheet, including $1 billion of cash that it raised this year to bolster its liquidity.
For Manhattan's largest office landlord, there are some concerns that an acceleration in work-from-home trends following the pandemic could impact SL Green's occupancy and rental rates. While that's a trend to watch, the company does boast a high-quality, long-dated, and creditworthy rent roll, as well as a healthy deal pipeline, which should help mute some of the impacts. Because of that, SL Green's monthly payout seems sustainable despite the near-term uncertainty.
Industrial REIT STAG Industrial currently pays a $0.12 per share monthly dividend. With shares currently trading at around $28 apiece, STAG yields about 5.2%. That payout is also on solid ground despite all the turmoil in the real estate sector. Overall, most of its tenants continue to pay their rent on time, with it collecting 90% of April's billings as of its first-quarter report.
While the delays in receiving some rent will impact its FFO this year, it has some cushion since it typically pays out less than 80% via the dividend. On top of that, it has an investment-grade balance sheet, backed by a low leverage ratio of 4.4 times debt-to-EBITDA ratio. That solid financial profile gives STAG the flexibility to continue expanding its industrial property portfolio while maintaining its monthly dividend.
Realty Income calls itself "The Monthly Dividend Company." It has certainly lived up to that name over the years as it has paid its investors for an impressive 600 consecutive months. Even better, it has increased its dividend for 107 straight months, with July's payment set at $0.2335 a share. That payout rate implies an annualized yield of around 4.7%, given the recent share price.
The company has been so successful in paying a monthly dividend because it maintains a rock-solid financial profile. It has A-rated credit backed by a low 5.0 times leverage ratio. It also has a conservative dividend payout ratio of 79.4%. Those factors help provide plenty of cushion during the current environment where some tenants have held back rent (it collected 82% of May's rent as of its latest update). Because of that, Realty Income should have no problem continuing to make its monthly payments.
Great options for a monthly income stream
This trio of REITs pays its investors each month, and those payouts are backed by rock-solid financial profiles. Because of that, they should survive the current challenges of the real estate market as well as future ones. That sustainability makes them great options for income-seeking REIT investors to buy this July.