It's a huge change when you switch from saving for retirement to living off your retirement nest egg. The transition can be much easier with stocks that pay dividends monthly instead of quarterly, since that frequency is almost like collecting a paycheck.
If that sounds good, then you'll want to look at real estate investment trusts (REITs) Realty Income (NYSE:O), Broadmark Realty Capital (NYSE:BRMK), and LTC Properties (NYSE:LTC). Here's a quick primer on each and the bright futures ahead of them.
1. Quite a nickname
You know a company is dedicated to dividends when it trademarks the nickname "The Monthly Dividend Company." That's Realty Income. The core of this REIT's portfolio of nearly 6,600 properties is single-tenant net-lease retail, which makes up around 85% of its rental income. The rest is largely industrial and office. The tenants of net-lease properties are responsible for most of the operating costs of the properties they occupy, which means Realty Income basically just has to collect its rent checks. Net lease is generally considered a low-risk investment approach in the REIT sector.
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Realty Income has a great record of returning cash to investors, with 28 consecutive years of annual dividend increases under its belt. That makes it a Dividend Aristocrat, which is a very rarefied group. With plans for $3.25 billion in acquisitions in 2021, meanwhile, there's every reason to believe that the company's history of slow and steady dividend growth will continue. Its yield of around 4.5% at Wednesday morning's prices is more than twice what you'd get from an S&P 500 index fund and about middle of the road over the past decade for the REIT. So it's not a screaming buy, but it appears fairly priced and would be appropriate for conservative types willing to pay full fare for quality.
2. Taking the place of the bank
Next up is relative newcomer Broadmark Realty Capital, which is a mortgage REIT. Investors generally need to be cautious when it comes to mREITs, but this one is very different. For starters, it's what's known as a hard money lender, providing construction loans to builders. This is a business that banks walked away from after the 2007–2009 recession, but which is vital in the construction space. Broadmark stepped into that void as a private entity and then came public through a black check company in late 2019. The current yield is an attractive 7.9%.
There are a number of desirable attributes here. First, Broadmark is conservative in that it only lends around 60% of the expected value of a completed construction project. That provides a cushion in case market conditions change. Second, it doesn't make use of leverage, as do most other mREITs. Having no debt materially reduces risk.
Broadmark did cut its dividend in 2020 because of the coronavirus. However, that was because of construction delays due to the pandemic, not because the fundamentals of its business had changed. It has since started to increase the dividend again. Moreover, it ended 2020 with over $200 million in cash to put to work. That will help grow its loan portfolio and, likely, keep the dividend heading higher, too.
3. Getting older and older
The last name on this monthly pay list is LTC Properties. The LTC stands for "long-term care." The REIT's portfolio is split roughly 50-50 between nursing homes and senior-living properties. It uses the same net-lease approach as Realty Income, so it doesn't take on the risk of operating these assets (as do some of its peers). Thus, despite the pandemic headwinds, it has managed to collect the vast majority of its rents without any problems. That said, it has been working with a few of its lessees on rent concessions to help them get through this difficult time.
O Dividend Yield data by YCharts
There's a very bright future here as baby boomers continue to crest into retirement. That means there's a large demographic demand bubble ahead, and LTC is well situated to benefit. Helping its tenants muddle through today is just good business since there's material demand waiting on the other side, demographically speaking. In the meantime, investors can collect the REIT's 5.2% yield. Notably, despite owning some of the most at-risk properties, LTC didn't have to cut its dividend in 2020. That said, it hasn't increased its dividend in years, either. But if you are looking for a monthly dividend backed by a business that is needs based (and whose need is set to grow), LTC is a great option.
Time for some deep dives
Clearly, this is just a brief look at Realty Income, Broadmark, and LTC, but it should whet your appetite for these monthly paying dividend stocks. All have generous yields relative to the market, solid businesses, and good prospects for the future. If you are looking to replace your paycheck, you could find it very rewarding to do a little more research on this trio. If you do, one or more might end up in your portfolio today.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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