Social Security pays retirement income every month, and so do many company benefit plans. Why not dividends?
Credit card bills and housing and insurance costs are due every month, and financial professionals agree that managing cash flow is a big challenge. As a result, investors might want to consider these top stocks that pay dividends each month.
Here are seven.
1. Chatham Lodging Trust (CLDT)
The company owns 38 hotels with an aggregate of 5,678 rooms located in 15 states and the District of Columbia. As of the end of last year, the company held a number of minority interests and was party to agreements to acquire a total of 97 hotels containing more than 12,000 rooms.
Chatham Lodging Trust, founded in 2009 is a relatively young real estate investment trust undergoing a phase of rapid growth that includes investing through joint ventures and acquisitions.
Like other REITs, Chatham Lodging Trust isn't subject to federal income tax, so long as it distributes at least 90% of net taxable income to its shareholders. Thus far, investing activities have translated into rapid growth in revenue that has compounded at a 61.2% annual average over the past five years.
Long-term debt is just 47% of total capital, which leaves Chatham Lodging Trust lots of room for further investment acquisitions.
However, the immediate focus of the company is on improvements in profitability.
Operating margins of 16% are well below other REITs. Return on invested capital last year was just 3%.
If Chatham Lodging Trust is successful in reaching even one-half the levels of other real estate REITs over the next five years, funds from operations will more than double.
The $1.32-a-share payout offers investors a generous 5.6% yield. Over the past five years, dividends have compounded at a rapid 27.9% annual rate and 29% just this past year.
The company may have a somewhat shorter dividend history than other monthly dividend paying companies, but it is clearly one of the fastest-growing.
2. EPR Properties (EPR)
This Kansas City, Mo.-based REIT, founded in 1997, operates in both Canada and the U.S. The company develops, owns, leases and finances properties in market segments related to education (43%), entertainment (17%), recreation (38%) and other (2%).
The company seeks to be involved in long-term triple net leases. This way, the tenants are required to pay substantially all costs associated with the operation and maintenance of the property.
This is a conservative approach providing insulation during bear markets.
Principal entertainment properties include 131 mega-plex theaters and nine entertainment retail centers. Education includes 70 public-charter schools, 18 early-education schools and three private schools.
Recreation consists of 19 golf courses, 10 metro ski parks and five water parks.
Operating margins have been between 59.4% and 68.5% in recent years. This is favorable for cash flow and dividends.
The reason these ratios are so favorable is strong operating management. The average occupancy ratio is well over 90%, and by using triple net leasing, EPR Properties' management overhead is kept very low.
The $3.84-a-share dividend payout offers investors an above-average yield of 4.7%. Dividend growth over the past decade has averaged 3.8% a year, stepping up to 6.9% annual growth over the past five years.
Based on the consensus forecast for earnings, dividend growth will likely be maintained in the next few years.
3. LTC Properties (LTC)
This health care REIT was founded in 1992 in Westlake Village, Calif.
To date, investments have been exclusively in the U.S. focusing on senior housing and long-term health-care properties. Investments include 102 assisted-living properties, 89 skilled-nursing properties, 14 senior housing properties and several miscellaneous properties.
Investments are made primarily through a combination of mortgage loans and property lease transactions.
Health care and senior housing properties are managed and conducted as a single operating segment accounting for 92.5% of investments and 94.6% of revenue.
LTC Properties has investments in 10 of the nation's largest operators of senior living including Brookdale Senior Living, Senior Care Centers and Senior Lifestyle. Collectively, these three account for 36.4% of revenue.
The REIT is highly profitable and only modestly leveraged.
Operating margins have ranged between 51.9% and 65.8% over the past five years, while long-term-debt-to-capital is 46%. This suggests that present operations are generating considerable operating cash flow for present dividends and that the balance sheet isn't overly leveraged, leaving room for investments to grow.
The annual dividend payout of $2.16 a share offers investors a 4.1% yield. Over the next five years, consensus forecasters see a 5% to 7% annual earnings growth rate.
However, should LTC Properties find appropriate property acquisition opportunities, dividend growth could be higher.
4. Main Street Capital (MAIN)
The company, which was founded in 1997 and is based in Houston, is a regulated investment company for federal income tax purposes. As a result, Main Street Capital generally won't pay corporate-level federal income taxes on any net ordinary income or capital gains that it distributes to its stockholders.
Unlike a REIT, regulated investment companies don't have a required minimum payout ratio. However, for all practical purposes, a very high payout is the norm.
Main Street Capital is a principal investment firm focused on providing customized debt and equity financing to lower-middle-market companies and debt capital to middle-market companies. Its objective is to maximize return by generating income from debt investments and capital appreciation from equity and equity-related investments, including warrants, convertible securities and other rights.
Portfolio investments are typically made to support management buyouts, recapitalizations, growth financings, refinancing and acquisitions of companies that operate in diverse industry sectors. Main Street Capital invests in traditional or basic businesses primarily in companies based in the South Central, South and South.
It invests between $2 million and $75 million in companies with revenue of between $5 million and $300 million.
Main Street Capital's operations are highly profitable.
Operating margins have been between 59.3% and 65.1% in recent years. The annual payout of $2.16 a share offers a generous 6.5% yield, with dividends having grown 12.1% a year over the past five years and 15.4% a year over the past three.
However, revenue growth has moderated in recent years. Balance sheet leverage has decreased.
Long-term debt is now just 17% of total capital. Considering the high level of operating efficiency, slowing revenue growth and low debt leverage, Main Street Capital has a variety of options to provide monthly dividend investors with a steady stream of income.
5. Realty Income (O)
This REIT invests in commercial properties in 49 U.S. states and Puerto Rico.
Realty Income pays dividends every month and has been doing this for a very long time. When it comes to stable and predictable dividend growth, Realty Income is one of best.
The REIT has a giant $12.6 billion portfolio that is diversified, not simply by geography but by business sector as well. Realty Income has long-term leases with 243 tenants spanning 47 different industries.
Realty Income has a dividend growth streak of more than 20 years, indicating the level of consistency management's investment performance. The annual payout of $2.39 a share offers an above-average yield of 3.4%.
Over the past decade, dividends have grown 5.4% a year and 5.8% a year over the past five.
6. Shaw Communications (SJR)
Warren E. Buffett's portfolio of high-yield dividend stocks include several telecommunication businesses, which makes Shaw Communications worth reviewing.
The company, which was founded in 1966, is a Canadian provider of diversified communication services. The company is organized into four segments: consumer, offering cable and satellite-TV services, Internet, phone, and Wi-Fi (67%); media, which involves TV programming content in Canada (19.3%); business network services, which includes cable, fleet-tracking services and satellite (9.3%); and business infrastructure services, which includes cloud technology, data center and co-location, and managed information technology solutions (4.4%).
Shaw Communications serves 3.2 million customers throughout Canada. Putting this in perspective, this is about 9% of the entire country's population.
More than 90% of the company's revenue comes from customers in Canada. In 2014, Shaw Communications expanded its U.S. presence with the acquisition of Denver-based ViaWest, now known as Shaw Business Infrastructure Services.
The annual payout of 92 cents a share offers investors an above-average 4.6% yield. The company's payout ratio is 43% of earnings and 61% of free cash flow, providing a reasonable cushion to continue paying and increasing monthly dividends.
Consensus estimates place the company's earnings about even in the coming years. Low growth would require only maintenance levels of capital expenditures, providing management with increased flexibility to increase the dividend.
7. STAG Industrial (STAG)
This Boston-based REIT, which was founded in 2010, invests in and manages properties exclusively inside the U.S.
STAG Industrial's efforts are focused on the acquisition and operation of single-tenant industrial properties. It owns 291 buildings in 38 states with about 54.7 million rentable square feet, consisting of 223 warehouse/distribution buildings, 47 light manufacturing buildings and 21 flex/office buildings.
Management has developed proprietary risk assessment software to find relative value investments. The company then seeks to operate each property to maximize revenue and cost efficiency.
A recent check shows buildings were 95.6% leased to 266 tenants with no single tenant accounting for more than 3.3% and no single industry more than 12.2%. This diversification helps provide for a steady and predictable income stream for STAG Industrial.
The annual dividend payout of $1.39 a share offers a well-above-average 5.7% yield. Over the past three years dividend growth has compounded at 8.6%.
Compared with other REITs, this growth is below average, but things can change.
Like other relatively young REIT's, STAG Industrial has yet to reach average levels of operating efficiency. Operating margins at STAG Industrial are 10% compared with 50% to 65% in other cases.
Since STAG Industrial's inception, the mantra has been growth, but the pace has moderated considerably. The company has been lowering long-term debt from 100%-plus of total capital during the 2010 start-up phase to 41%.
The focus is on improving and harvesting these investments.
Management's success will set the pace for FFO growth over the next few years. As this plays out, dividend growth could outmatch STAG Industrial's historic 8.6% average annual growth.