Most stocks pay dividends on a quarterly schedule. But some investors such as retirees might desire even more frequent dividend payments. Fortunately, there are stocks that make monthly dividend payments, which can help smooth out cash flows for shareholders.
Even better, the following 3 monthly dividend stocks all have high dividend yields and are undervalued, making them cheap monthly dividend stocks worthy of consideration for income investors.
Ellington Residential Mortgage REIT (EARN)
Ellington Residential Mortgage REIT acquires, invests in, and manages residential mortgage and real estate-related assets. Ellington focuses primarily on residential mortgage-backed securities, specifically those backed by a U.S. Government agency or U.S. government-sponsored enterprise. The mortgage REIT has an agency residential mortgage-backed securities (RMBS) portfolio of $863 million and a non-agency RMBS portfolio of $12.6 million. Agency MBS are created and backed by government agencies or enterprises, while non-agency MBS are not guaranteed by the government.
On March 6th, 2023, Ellington Residential reported its fourth quarter results for the period ending December 31st, 2022. The company generated net income of $11.7 million, or $0.88 per share. The company renamed what was previously called core earnings to adjusted distributable earnings starting in 2022. Ellington achieved adjusted distributable earnings of $3.3 million in the quarter, leading to adjusted earnings of $0.25 per share, which covers the dividend paid in the period.
The corporation has a few avenues of growth, which all revolve around optimizing their MBS portfolio. Capitalizing on opportunities driven by market volatility and uncertainty could yield results, as well as continuing to rotate capital to non-Agency RMBS. Additionally, Ellington will protect their book value and manage volatility through interest rate hedges and liquidity management.
Ellington’s P/E ratio has hovered around 8.0 times core earnings since 2013. The average P/E ratio has grown slightly recently, with the 5-year average P/E of 9.2. Today, EARN trades at less than 7 times earnings, below its historical valuation. The current 13.8% yield is in excess of its historic average of 11.6%.
Banco Bradesco S.A. (BBD)
Banco Bradesco offers various banking products and financial services to individuals, corporations, and businesses in Brazil and internationally. The company’s two main segments are banking and insurance, including checking and savings accounts, demand deposits, time deposits, as well as accident and property insurance products and investment products. The company generates around $16 billion in annual revenues and is headquartered in Osasco, Brazil.
On February 10th, 2023, Banco Bradesco reported its Q4 and full-year results for the period ending December 31st, 2022. The banking segment’s net interest income came in at $3.20 billion for the quarter, representing a 1.7% decline year-over-year. Income from insurance grew by 21.9% to $824.5 million. The significant increase in insurance income was favored by the expansion of revenue in all lines of business and by the increase in financial income.
EPS for the year came in at $0.37, down from $0.39 in fiscal 2021. We are forecasting FY2023 EPS of $0.38, assuming higher net interest income due to rising interest rates.
Banco Bradesco’s historical P/E has remained quite consistent over the past decade, hovering in the mid-teens, averaging 12.4. With a forward P/E around 7, the stock seems undervalued. The company’s modest growth and monthly payouts yielding nearly 7%, could point towards a valuation expansion. Rising interest rates should boost its interest income as well.
ARMOUR Residential REIT (ARR)
ARMOUR Residential is a mortgage REIT that invests primarily in residential mortgage-backed securities that are guaranteed or issued by a United States government entity including Fannie Mae, Freddie Mac and Ginnie Mae.
ARMOUR reported Q4 results on February 15th, 2023. It generated comprehensive income available to common stockholders of $39.5 million or $0.27 per common share. Net interest income of $11.6 million and net interest margin of 2.59% were up 38 basis points from the prior quarter. Distributable Earnings available to common stockholders was $38.8 million, which represents $0.27 per common share.
Shares trade for a 2023 P/E of roughly 5. We have set fair value at 7 times cash flow. The company’s current price to cash flow is considered significantly undervalued due to the weakness in the share price. Given that shares trade at a steep discount based on expectation for this year’s cash flow per share, we expect multiple expansion over the coming years, providing a tailwind to total returns.
The stock also has a high dividend yield of 18%.
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.
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