These 2 Anti-Inflation Stocks Pay Monthly Dividends
Rising food and energy prices sent the consumer price index jumping 9.1% year over year in June, the fastest increase since November 1981. The rise prices weighs on consumers and businesses.
The good news is that durable assets like real estate tend to hold up well in inflationary environments. This is because rising construction and financing costs are making it more expensive to build new properties, increasing the value and demand for existing commercial real estate. With that in mind, let’s look at two monthly dividend-paying real estate investment trusts (REITs) that pay dividends monthly and offer high-demand properties that can help your own portfolio offset the brunt of inflation.
1. Real estate income
Real estate incomeit is (O 1.09%) Its market capitalization of $42 billion places it among the largest REITs in the world. Due to the strength of its business model, the REIT owns more than 11,200 individual single-unit properties in the United States, Puerto Rico and Western Europe.
Realty Income offers potential clients a way to leverage the equity in their real estate. Proceeds from the sale of real estate to Realty Income can provide businesses with the capital needed to expand their business or pay down debt. The REIT’s weighted average lease term is just under nine years. In the United States, the annual indexations of Realty Income leases are above 2%, and in Europe, they are linked to inflation. This has contributed to a compound annual growth rate in adjusted funds from operations (AFFO) per share of 5.1% since 1995.
Operating in a $12 trillion commercial real estate market that spans the United States and Europe, Realty Income should have no problem closing lucrative real estate acquisitions in the years to come. Indeed, the company’s superior credit ratings give it one of the lowest costs of capital in its industry. This allows the company to target the highest quality properties with low cap rates, which are not economically viable for most of its other peers to acquire. The company’s dividend distribution rate of 75.6% should also enable it to continue building up its real estate portfolio. A conservative payout ratio such as Realty Income’s is essential for two reasons. First, it gives the REIT a buffer to maintain its dividend in the event of a temporary drop in profitability. Second, it allows the company to retain enough capital to fund future real estate acquisitions to increase AFFO per share.
Income investors can grab shares of Realty Income and its market-leading 4.3% dividend yield at a forward price/AFFO per share ratio of 17.9. That’s barely a premium valuation for a company of Realty Income’s quality.
2. Industrial Deer
industrial deer (STAG 0.16%) is a pure industrial REIT with 110.1 million square feet of industrial properties located in 40 US states. That said, Stag Industrial is a very diverse business: the company’s top 10 tenants only account for 10.8% of its annualized base rent (ABR). And no market represents more than 8% of Stag Industrial’s ABR.
The REIT offers both financing and debt repayment to businesses that hold equity in valuable real estate that they would like to operate. In return for this capital, Stag Industrial tenants pay all expenses associated with the leased properties and a base rent check to the REIT each month.
The company forecasts between 4% and 4.5% same-store sales growth for 2022, which would be the strongest growth in company history. Given that 40% of Stag Industrial’s portfolio handles e-commerce business, expect domestic warehouse demand to remain robust in the coming years.
Along with the $1 billion to $1.2 billion in real estate acquisitions the company is targeting for 2022, this should boost Stag Industrial’s base FFO per share going forward. The company currently holds a 0.7% share of the over $1 trillion US industrial market, giving the company a long avenue for growth. Stag Industrial doesn’t seem to want to stop growing anytime soon.
Yield-oriented investors can take advantage of Stag Industrial’s 4.7% monthly dividend yield at a trailing twelve-month base FFO per share ratio of 14.7.
Kody Kester holds positions in Realty Income. The Motley Fool fills positions and recommends Stag Industrial. The Motley Fool has a disclosure policy.