Rack Up Monthly Dividends With This Attractive REIT

Investors looking for steady dividend income should consider investing in real estate investment trusts, or REITs for short. REITs are appealing for income investors because they typically have higher yields than the broader market index. Many REITs have been under pressure in 2020, due to the coronavirus pandemic, which has had a negative impact on many areas of real estate such as malls, restaurants, and retailers. But there are high-quality REITs with dependable dividends, and positive growth tailwinds as well. One of the biggest growth themes right now is e-commerce. Investors can capitalize on the e-commerce boom by investing in industrial REITs such as STAG Industrial . STAG is a monthly dividend stock with a high yield of 4.5%, and a long-term growth tailwind from exposure to industrial properties and e-commerce activity. Business Overview & Recent Events STAG Industrial is an owner and operator of industrial real estate. It is focused on single-tenant industrial properties and has 457 buildings across 38 states in the United States. STAG Industrial went public in 2011 and currently has a market capitalization of $4.8 billion. STAG benefits from a diversified portfolio. Its largest individual market exposure is less than 9% of its annualized base rent. Furthermore, its largest individual tenant represents less than 3% of ABR. Therefore, STAG is not overly exposed to any individual tenant. STAG's high-quality property portfolio and exposure to growth tailwinds has helped it report resilient financial results to begin 2020. In the most recent quarter, core FFO grew 24% over the previous year's quarter thanks to the sustained strength of the tenants of the REIT. Core FFO per share rose 4% year over year as net operating income grew 25% over last year's quarter. STAG achieved a very strong occupancy rate of 97.0% for the quarter. The effect of the pandemic on the REIT has been limited so far, thanks to the high credit profile of its tenants. STAG collected 98% of its rental income in the second quarter, indicating limited damage from the pandemic. Going forward, STAG expects to continue growing FFO, both internally and externally. Organic growth will be fueled by value-add projects and price increases. The company expects to generate cash same-store net operating income growth of 2%-3% per year over the next five years from these initiatives. Separately, STAG will generate external growth through property acquisitions. In the past five years, STAG invested an average of $675 million per year in acquisitions. Over the next five years, the company anticipates total acquisition volume of $800 million to $1 billion. Acquisitions were paused in March due to the coronavirus pandemic, but STAG expects to ramp up acquisition activity toward the end of 2020 and early 2021. Focus on Industrial Properties Pays Dividends STAG's future growth prospects are promising, due to the e-commerce boom. As consumers shift their shopping habits from physical bricks-and-mortar stores to shopping over the Internet, demand for industrial properties such as warehouses is growing at a high rate. STAG has stated that 43% of its property portfolio handles e-commerce activity, a trend that shows no signs of slowing down. E-commerce as a percentage of U.S. retail sales has climbed to 11.8%, more than double 5.2% in 2012. With so much room left to expand further, the REIT is adequately exposed to this growth tailwind. In fact, Amazon is STAG's largest individual tenant, at 2.5% of annualized base rent. The focus of this REIT on single-tenant properties might create higher risk compared to multi-tenant properties, as the former are either fully occupied or completely vacant. However, STAG Industrial executes a deep quantitative and qualitative analysis on its tenants. As a result, it has incurred credit losses that have been less than 0.1% of its revenues since its IPO. According to the company, 54%of the tenants are publicly rated and 31% of the tenants are rated investment-grade. The company typically does business with established tenants to reduce risk. Another important factor for STAG is its healthy balance sheet. Based on the company's most recent investor presentation, STAG has a net debt-to-adjusted EBITDA ratio of 4.3x, which is a manageable level of debt and compares to 5.9x at the company's IPO. STAG Industrial also has a laddered lease maturity schedule, with a weighted average lease term of 5.2 years and about half of the leases maturing after the end of 2023. Thus, the cash flows of the REIT can be considered fairly reliable under normal business conditions. Thanks to reliable cash flows, STAG Industrial is one of the few REITs that pay dividends on a monthly (instead of a quarterly) basis -- a valuable characteristic for income investors. Income investors should also note that STAG Industrial currently offers a generous 4.5% yield and has never cut its dividend throughout its short history. Moreover, while its payout ratio rose to high levels during 2014-2016, it has fallen to healthy levels in the last two years. With expected FFO per share of $1.90, we estimate STAG's dividend payout ratio to be around 76% for 2020, indicating a secure dividend. Final Thoughts 2020 has proven to be a very difficult year for real estate, especially in the specific industries that have been hard hit by the coronavirus pandemic. In times of uncertainty, investors should be more selective by focusing on quality REITs that can still generate growth even in a difficult climate. STAG has a strong and diversified property portfolio with many tenants, such as Amazon, that are booming due to the e-commerce trend. This will fuel STAG's continued growth for many years. And as a publicly traded REIT, it offers a way to invest in real estate with property diversification without a sizeable upfront payment. In the meantime, STAG offers investors a mix of growth as well as dividends. The stock has a 4.5% dividend yield, and pays its dividend every month. Therefore, STAG is an attractive REIT for income investors.

Rack Up Monthly Dividends With This Attractive REIT

Thanks to reliable cash flows, STAG is one of the few REITs that pay dividends on a monthly basis.

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