Most real estate investment trusts, or REITs, pay dividends, mostly on a quarterly schedule. However, some make monthly dividend payments to investors, which can be nice for a few reasons.
For one thing, if you rely on your stock portfolio for income, monthly dividends give you a more frequent income stream. And from a long-term compounding point of view, reinvesting monthly dividends can help your REITs compound quicker than quarterly dividends.
With that in mind, three monthly dividend REITs on my radar right now are Realty Income (NYSE: O), STAG Industrial (NYSE: STAG), and EPR Properties (NYSE: EPR).
Realty Income: Built for steady, growing income
Realty Income actually has a registered trademark on its nickname, "The Monthly Dividend Company." The stock has made 601 consecutive monthly dividend payments (that's more than 50 years) and has increased its payout for the past 91 quarters in a row. And that's not all -- Realty Income has generated a 15.3% compound average annual total return for its investors since its 1994 NYSE listing, handily outperforming the S&P 500.
These stats might sound surprising since Realty Income primarily invests in retail properties, an area of commercial real estate that has struggled recently. But it's the type of retail that is the differentiator. Realty Income focuses on retail properties occupied by tenants that don't compete much with e-commerce disruptors and will thrive no matter what the economy is doing. Dollar stores are a good example, as well as convenience stores, drugstores, and warehouse clubs.
In addition, Realty Income's tenants sign long-term, 15-plus-year leases that require tenants to cover property taxes, insurance, and maintenance. And they agree to annual rent increases for the duration. All Realty Income has to do is put a tenant in place and enjoy decades of predictably growing income.
STAG Industrial: A growing type of commercial real estate
STAG Industrial is an industrial REIT that owns warehouse and distribution properties, as well as some office properties. And since it serves tenants that do much of their business through e-commerce, it's not surprising STAG has held up quite well during the pandemic.
In fact, in the second quarter of 2020, STAG's core funds from operations (FFO) actually increased by 4.4% year over year, and the company collected 98% of its billed rent for the quarter.
What's more, as e-commerce continues to expand, the demand for fulfilment and distribution space will continue to grow. E-commerce makes up less than 15% of total retail sales, so there's still a ton of runway here. And since e-commerce retail requires about three times the distribution square footage physical retail does, there could be tremendous opportunity for STAG to expand in the years ahead.
EPR Properties: A monthly dividend REIT with a big asterisk
For readers feeling a little more adventurous, it could be a good time to consider the "experiential" REIT EPR Properties. It's important to mention EPR has suspended its dividend for the time being due to COVID-related uncertainty. But it paid regular monthly dividends before and will likely restart its monthly payout once the dust settles.
EPR Properties owns a portfolio of commercial real estate occupied by tenants that sell experiences. Water parks, ski resorts, and golf attractions are three of the company's major tenant types. For the most part, these business categories have reopened and are generally doing quite well. But the biggest part of EPR's portfolio is movie theaters, which made up about 45% of EPR's rental income prior to the pandemic.
Now, EPR isn't a low-risk investment, but the risk-reward profile makes a lot of sense. Movie theaters have started to reopen in much of the U.S., with more openings planned for early September. And early indications around the world point to strong demand. Top tenant AMC Entertainment Holdings (NYSE: AMC) had said it could survive if the shutdowns lasted through Thanksgiving, so getting back to business now is certainly a good sign. Plus, AMC and EPR recently renegotiated their leases in a favorable way for both companies.
It will take some time before EPR's rent collection rebounds to pre-COVID levels, but that's OK. The company has a ton of liquidity to make it through the tough times, and quite frankly, it doesn't deserve to still be trading for less than half of its share price at the start of 2020.
The bottom line
All three of these REITs (as well as most others) are best suited for long-term investors. There's simply no way to predict what these REITs will do over the coming weeks, months, or even over the next year. But investors who measure their performance in decades or who want a steady income stream from their portfolio in the form of monthly dividends should take a closer look.