Wouldn’t it be nice to receive a monthly amount without working? Many dividend stocks with monthly payouts often change their frequency and move to quarterly dividends due to inconsistency in cash flows. And the ones that pay monthly dividends do not grow them or have a low dividend yield. But this one dividend stock pays cash every month and increases the payout at an average annual rate of over 3%. And this stock is trading below its 200-day moving average.
When it comes to monthly payouts, Real Estate Investment Trusts (REITs) are the best option as they have the status of a trust. Unlike companies that have the option to pay dividends on free cash flow, a trust has to distribute a significant portion of its income to shareholders. REITs transfer their rental income to shareholders as distributions. In the worst-case scenario, REITs might cut distributions when their occupancy ratio falls to a level where rental income cannot fund the distribution.
One REIT that could sustain a recession and still maintain its distributions is Canadian Tire’s CT REIT (TSX:CRT.UN). CT REIT earns over 90% of its rental income from Canadian Tire. The REIT is gradually acquiring retail stores from Canadian Tire and leasing them to the retailer. It is also acquiring 20% of Canadian Tire stores owned by third parties. The REIT is also expanding existing stores through intensification projects. These intensifications help CT REIT earn higher rent, which it gives as distributions. Thus, it has managed to increase its distribution every year. Moreover, the retailer takes care of the occupancy.
In the high-interest rate environment, property prices fell as mortgages became expensive. Many small companies vacated or reduced their office space, leading to significant distribution cuts for office REITs. Even retail REITs are facing pressure from a slowing economy. Consequently, CT REITs’ stock price is falling as economic growth weakens. The overall weakness in the real estate industry is pulling down CT REIT’s stock price. However, its fundamentals show that the REIT can sustain an economic downturn. CT REIT has no public unsecured maturities until June 2025. Its debt maturities are staggered, with 94.8% of the debt being fixed rate. The weighted average interest rate is 3.9%, which is easily manageable.
Unlike office REITs, CT REIT did not see any dip in occupancy rate or rental income. It has also not paused further developments like other retail REITs. Even though the parent Canadian Tire feels the pressure of a weak economy, it has sufficient liquidity to meet its expenses like rent. This hints that CT REIT can sustain its current annual distribution of $0.90 per share.
With the distribution sustainable for the longer term, the current dip in the stock price has created an opportunity to lock in a yield of over 6%. In the worst-case scenario, CT REIT might pause distribution growth. But it would return to growth in a recovering economy.
Although making small monthly investments for a long time is an efficient way to build a passive income portfolio, now is a ripe time to make lump sum investments. It is like a discount sale on income stocks. If you invest $4,000 now, you can buy 277 shares, and they can start paying you $20.70 in passive income from October 15 onwards.
Moreover, you could grow your investment through stock price appreciation when the economy recovers. Instead of small monthly investments, consider making a bigger investment while the stock trades at its 52-week low.
Some passive income stocks with different payout frequencies are trading at heavy discounts. Now is a good time to focus on dividend stocks instead of growth, as regular payouts could create a financial safety net in economic weakness.
Sources:
– [Source 1]
– [Source 2]
Definitions:
– Dividend Stocks: Stocks that pay dividends, which are typically cash payments made by companies to their shareholders as a share of the company’s profits.
– Monthly Dividends: Dividends that are paid out on a monthly basis.
– REITs: Real Estate Investment Trusts, companies that own, operate, or finance income-generating real estate.
– Cash Flow: The net amount of cash generated or consumed by a company’s operations.
– Trust: A legal entity created to hold and manage assets for the benefit of others.
[Source 1]
[Source 2]
