Dividend investing has always been popular, and for good reason. Dividend stocks offer a wide range of advantages for return-minded investors, but two of the most significant are a reliable income stream and an inflation-beating yield. Taken together, these advantages can form the base of a truly sound portfolio.
The majority of dividend stocks pay out on a quarterly basis, but turning towards those with a monthly payment schedule allows investors to better plan their income streams to meet their needs. When it comes to yields, they are still calculated based on the annualized rate of the dividend, so even a small monthly payment, multiplied by 12, can result in a high annual yield.
But not all dividend stocks are created equal, and some offer better opportunities than others. This is where Wall Street’s analysts come into play.
Diving into the TipRanks database, we have homed in on two monthly-payment dividend stocks that not only boast a market-beating dividend yield of at least 9% but also qualify as Buys according to the analyst consensus. Let’s take a closer look.
Modiv Industrial (MDV)
We’ll start with a real estate investment trust, a REIT, with a couple of twists. First, Modiv focuses on long-term net-lease properties in the industrial and manufacturing sector. Now, REITs normally generate their income through the ownership and management of various forms of real property, or through ownership, origination, and equity in various mortgage loans and related financial instruments. Modiv takes a slightly different approach. The company’s long-term net-lease approach allows Modiv to own the land under a manufacturing facility and to collect the monthly rents; the tenant gets the security of a long-term lease, and takes on responsibility for the taxes, insurance, maintenance, and other expenses. It’s a model with benefits for all parties, allowing the owner to sit back and collect rent while the tenant firm manages the property as it sees fit.
The model has worked well for Modiv. The company’s portfolio holds over $614 million in gross real estate value, and Modiv collects $41.1 million in annual base rent. The weighted average lease term is 14.3 years, giving stability to both sides of the agreements, and Modiv is able to realize approximately 2.5% in average annual rent increases. And this brings us to the second ‘twist’ on this REIT, one that feeds directly into its name.
Modiv named itself after ‘MOnthly DIVidends,’ its preferred form of returning capital to investors. The company collects its rents on a monthly basis, so it makes sense to pay out capital returns on the same schedule. Rent collection makes up the company’s main income stream, and in its last reported quarter, 2Q23, Modiv had a top line of $11.8 million, up 16.7% year-over-year and $540,000 better than had been expected. The solid revenue number reflected 16 industrial manufacturing sites acquired since June of last year. The firm’s adjusted funds from operations, AFFO, a key metric of cash flow, came to 31 cents per diluted share based on $3.3 million.
On the dividend, last declared in June of this year, Modiv set the monthly payment for common shareholders at 9.583 cents per share. This gives an annualized payment of nearly $1.15 per common share, and a yield of 9.11%.
Among the bulls is Colliers analyst Barry Oxford who is impressed by Modiv’s successful business model, and the company’s ability to expand its portfolio. He writes, “We like the focus on manufactured industrial and the selling of the retail and office properties which has now mostly occurred. The assets are weighted to California and the Sunbelt region where net migration is occurring. Our Buy rating is based on these well-located unique assets and the attractive valuation. The company has slightly elevated leverage but does have plenty of liquidity to continue to acquire assets in order to grow the company.”
Along with that Buy rating, Oxford’s $15 price target implies a one-year potential gain of ~19%. Based on the current dividend yield and the expected price appreciation, the stock has ~28% potential total return profile. (To watch Oxford’s track record, click here)
Overall, Modiv has a total of 4 recent analyst reviews on file and they are all positive – giving the stock its Strong Buy consensus rating. The shares are priced at $12.62 and the average price target of $16, suggests an upside potential of ~27% in the next 12 months. (See Modiv stock forecast)
Gladstone Commercial (GOOD)
Let’s now turn our attention to another REIT, Gladstone Commercial. This company focuses on commercial properties, including industrial and office sites, and prefers to buy properties with proven strong tenants. The company’s holdings are located mainly in the Midwest, the Southeast, and the Southwest – the states of Florida and Texas are especially represented among Gladstone’s portfolio holdings.
For investors, two particularly attractive features of Gladstone’s business are the extent of the portfolio and its high occupancy rate. As of this past June, Gladstone owned 136 properties in 27 states, and had 110 different tenants on the books. Site occupancy stands at 96%, and the company boasts that its occupancy rate has never dipped below 95%. Since going public in 2003, Gladstone has expanded its portfolio by 18% annually.
The most recent acquisition came just last month, when Gladstone announced the purchase of two properties in the Dallas-Fort Worth metro region. The first asset, which came with a ten-year net lease to a national behavior analysis therapeutic firm, was purchased for $2.85 million and totaled over 7,700 square feet. The second was an industrial facility of 100,000 square feet, purchased for $9.075 million.
Gladstone has the income to afford these purchases. The company realized $38.66 million in top-line revenue during 2Q23, its most recent quarterly release, a figure that beat the estimates by almost $1.7 million and was up 6% y/y. The firm recorded a net loss on earnings, however, of 19 cents per share, missing the forecast by 17 cents per share. On the other hand, another key metric, the core funds from operations, or FFO, came in at 41 cents per diluted common share, up from 37 cents in the previous quarter, whist beating expectations by 5 cents. This should interest dividend investors, as FFO is frequently seen as supporting the dividend.
Speaking of dividends, Gladstone declared its monthly dividend payments for 3Q23 in July, setting them at 10 cents per common share, or 30 cents for the quarter. With an annualized common share dividend of $1.20, this translates to an attractive yield of 9.4%.
Taking a look at Wall Street, B. Riley analyst Craig Kucera provides several compelling reasons to consider investing in GOOD shares.
“We are raising our 2023E earnings estimates for Gladstone Commercial as management is waiving its incentive fee for the remainder of 2023 as GOOD contends with a slower transaction environment and higher interest rates as interest rate caps expire in mid-2023… While acquisition volume remained relatively subdued for GOOD in 2Q23, cap rates have expanded significantly in 2023, while cash flow upside remains from the potential lease-up and/or sale of GOOD’s remaining vacancy in its Austin office assets and management is accelerating the disposition of office assets. We find shares attractive, yielding ~9% while trading at 80% of our $17.29 NAV estimate,” the 5-star analyst opined.
To this end, Kucera rates Gladstone shares a Buy, along with a $15 price target to indicate his confidence in a 17% one-year upside. (To watch Kucera’s track record, click here)
Overall, this stock has a Moderate Buy rating from the Street’s analysts, based on 3 recent analyst reviews that include 2 Buys and 1 Hold. The stock is currently selling for $12.81 and its $15.67 average price target implies it will appreciate 22% over the next year. (See Gladstone stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
