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Tags: monthly dividends | sl green | ltc properties | agnc investment
OPINION

Bob Ciura: 3 Impressive Monthly Dividend Stocks

Bob Ciura: 3 Impressive Monthly Dividend Stocks
(AP)

Bob Ciura By Tuesday, 13 June 2023 10:27 AM EDT Current | Bio | Archive

Monthly dividend stocks distribute their dividends on a monthly basis instead of a quarterly or annual basis. They thus offer a smoother income stream to their shareholders while they also enhance the benefit from the reinvestment of dividends.

In addition, most monthly dividend stocks offer above average yields. Thanks to these characteristics, monthly dividend stocks are attractive candidates for the portfolios of income-oriented investors.

Of course, investors should always perform their due diligence before purchasing stocks of this category. In this article, we will discuss the prospects of three monthly dividend stocks that appear attractive right now, namely SL Green Realty (SLG), LTC Properties (LTC) and AGNC Investment Corporation (AGNC).

SL Green Realty

SL Green Realty is the largest office landlord in Manhattan, with 60 buildings that have a total leasable area of 33 million square feet. The real estate investment trust (REIT) has a 43-year history and is focused on acquiring and managing commercial properties in Manhattan.

SL Green Realty is currently facing strong headwinds in its business. First of all, the work-from-home trend, which resulted from the coronavirus crisis has greatly affected the performance of the REIT. While the pandemic has subsided, the work-from-home trend has persisted much more than initially anticipated. Consequently, office occupancy in most metropolitan areas, including Manhattan, remains near historically low levels. This situation has shaped an unprecedented tenant-friendly environment, which has forced SL Green Realty to offer concessions of several months to its tenants.

The other strong headwind facing SL Green Realty is the adverse environment of multi-year high interest rates. Due to the aggressive interest rate hikes executed by the Fed in response to the surge of inflation, the interest expense of the REIT has more than doubled in the last 12 months. As a result, interest expense currently exceeds operating income and hence SL Green Realty has posted operating losses in each of the last two quarters.

It is also remarkable that the revenue of SL Green Realty has decreased for six consecutive years and is currently slightly less than half of the revenue of the trust in 2017. In addition, the surge of interest rates has taken its toll on the valuation of all REITs, as it has significantly reduced the present value of future cash flows. To cut a long story short, SL Green Realty is facing a perfect storm right now. This helps explain the slump of the stock to a 10-year low this year.

On the other hand, SL Green Realty seems to have been sold off to the extreme. The stock is currently trading at a 10-year low price-to-FFO ratio of 4.5, which is much lower than the 4-year average FFO multiple of 9.9 of the stock.

In addition, the stock is offering an all-time high dividend yield of 13.9%, with a reasonable payout ratio of 59%. The dividend is not safe but the REIT will keep offering an above average yield even if it reduces its dividend.

Overall, whenever the occupancy of office space in Manhattan begins to recover and interest rates begin to normalize, SL Green Realty is likely to offer excessive returns to its unitholders thanks to its depressed valuation level.

LTC Properties

LTC Properties is a REIT that invests in senior housing and skilled nursing properties. Its portfolio consists of approximately 50% senior housing and 50% skilled nursing properties. The REIT owns 215 investments in 29 states with 31 operating partners.

LTC Properties was hurt by the pandemic, which led some tenants to postpone their payments. Moreover, the REIT has been affected by the economic slowdown, which has resulted from the aggressive interest rate hikes implemented by the Fed. Furthermore, just like SL Green Realty, LTC Properties is adversely affected by high interest rates, which have increased the interest expense of the trust by 50% in the last 12 months.

Due to all these headwinds, LTC Properties posted FFO per unit of $2.56 in 2022, essentially the same FFO per unit that it posted in 2014. This helps explain the plunge of the stock to a fresh 10-year low this year.

On the other hand, the current headwinds are likely to abate in the upcoming years. The Fed is doing its best to restore inflation to normal levels and thus inflation has subsided every single months since it peaked about a year ago. When inflation reverts close to the target level of the central bank, the latter is likely to begin reducing interest rates. It will thus provide a strong tailwind to the performance of LTC Properties.

Moreover, LTC Properties benefits from a secular trend, namely the high growth of the population that is above 80 years old. This growth results from the aging of the baby boomers’ generation and the steady rise of life expectancy that results from the progress in medical sciences.

LTC Properties is currently offering a 10-year high dividend yield of 7.0%. Its payout ratio is high, at 84%, and hence the dividend is not safe. The REIT has been paying the same dividend for 7 consecutive years, thus indicating that it is struggling to maintain its generous payout. On the other hand, thanks to its low price-to-FFO ratio (12.3), LTC Properties is likely to offer attractive returns whenever interest rates revert towards normal levels and the economy regains steam.

AGNC Investment Corporation

AGNC Investment Corporation is a mortgage REIT that was formed in 2008 and invests primarily in agency mortgage-backed securities (MBS) on a leveraged basis. The asset portfolio of the REIT consists of residential mortgage pass-through securities, collateralized mortgage obligations (CMO) and non-agency MBS. Most of the investments of AGNC Investment are fixed-rate agency MBS, with a 30-year maturity period.

AGNC Investment has been hurt by the surge of interest rates to multi-year highs but for a different reason from the other REITs.

The unprecedented pace of interest rate hikes of the Fed has resulted in an inverted yield curve, i.e., short-term interest rates have exceeded long-term interest rates for several months in a row.

This is a negative factor for AGNC Investment, which borrows funds based on short-term interest rates and uses these funds to purchase long-term securities. Due to this headwind, the REIT is likely to incur a decrease in its earnings per share in excess of 20% this year.

While AGNC Investment is facing an adverse economic environment, its stock seems to have been beaten to the extreme. It is now trading at a price-to-earnings ratio of 4.0 and is offering a 15.2% dividend yield. While the payout ratio is decent, at 60%, the dividend is not safe due to the vulnerable business model of the company. Nevertheless, even if the company slashes its dividend, it will probably continue offering an above average yield.

Moreover, the worse seems to be behind AGNC Investment with respect to interest rates, as the Fed is likely to soon end its cycle of rising interest rates. Whenever the central bank begins to lower interest rates, the stock of AGNC Investment is likely to offer generous returns to its unitholders thanks to its depressed valuation.

Final Thoughts

The above three monthly dividend stocks have been beaten to the extreme, primarily due to the impact of multi-year high interest rates on their business performance and their valuation.

Due to their sell-off, these stocks are offering exceptionally high dividend yields, though investors should be aware that these dividends are not safe.

Whenever interest rates begin to normalize, these stocks are likely to offer excessive returns thanks to their cheap valuation levels. On the other hand, great patience may be required and hence these stocks are suitable only for the investors who can wait patiently for economic conditions to improve.

_______________
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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BobCiura
Monthly dividend stocks distribute their dividends on a monthly basis instead of a quarterly or annual basis. They thus offer a smoother income stream to their shareholders while they also enhance the benefit from the reinvestment of dividends.
monthly dividends, sl green, ltc properties, agnc investment
1325
2023-27-13
Tuesday, 13 June 2023 10:27 AM
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