Most investors still wait four long quarters for a dividend check, then wonder why their monthly budgets refuse to cooperate. Moreover, the small dividend yield of 1-3% will compound slowly if you reinvest and is unlikely to cover your expenses if you are already retired.
The best idea is to balance your dividend portfolio using a barbell strategy. Have a few high-yield dividend payers in your portfolio, not too high to be unsustainable, but high enough to truly make a difference in the long run. You can balance that risk by also holding solid blue-chip dividend stocks.
The following three dividend stocks get you a 7% yield that is paid monthly, a very rare characteristic in today’s market.
Modiv Industrial (MDV)
Modiv Industrial (NYSE:MDV) invests in industrial manufacturing facilities through long-term leases. The focus is exclusively on tenants aligned with the U.S. economy and its supply chain. Clients are in the aerospace/defense, infrastructure, and automotive industries.
The long-term nearshoring and onshoring trend, plus the tariffs, are a solid plus for this company. Tenants handle most operating expenses, and this translates into stable income for the REIT.
Free cash flow has consistently been above the cash spent on dividends. Q2 FCF was $18 million, $15 million being spent on dividends. The gap between available cash and dividend payouts has narrowed with time, but the dividends are unlikely to be cut, and the bottom line is stable enough to sustain it for a long time.
If you look at funds from operations (FFO), the dividend looks even more sustainable. The forward FFO is $1.42, vs the $1.17% dividend rate.
MDV stock comes with an 8.11% dividend yield.
Freehold Royalties (FRHLF)
Freehold Royalties (OTCMKTS:FRHLF) is an energy royalty company that buys and manages royalty interests in crude oil and natural gas. Instead of drilling wells itself, the company buys a slice of existing or future production by paying the operator upfront.
It collects a percentage of every barrel or cubic foot of natural gas. The company has no obligation to fund drilling or operating costs, but it gets the cash. The breakeven price is far lower than that of a traditional producer, and its dividend has historically survived periods when many other oil companies have slashed or eliminated payouts.
Growth has also been great for a royalty company, with revenue growing 10% annually over the past 3 years. Analysts expect 12% revenue growth this year.
The dividends are well-covered by earnings, with funds from operations at $57 million, or $0.35 per share. In the same period, Freehold Royalties paid $44 million in dividends, or $0.27 per share.
The forward dividend yield is 7.91%. The icing on the cake is that the 5-year dividend growth rate (CAGR) is 20.57%.
Ellington Financial (EFC)
Ellington Financial (NYSE:EFC) buys and manages a variety of financial assets in the U.S. In very simple terms, the company buys pools of loans. It then pockets the difference between the interest it collects on those loans and the (lower) interest it pays on the short-term money it borrows to fund them. It repeats the process by constantly refinancing the short-term debt so the spread keeps coming in every month.
The forward dividend yield is in the double digits at 11.5% with a payout ratio of 91.23%.
The difference is tight, but the company is on solid financial footing and can keep rewarding shareholders with a generous yield that it pays monthly. Plus, to maintain their tax-advantaged status, REITs are required to distribute at least 90% of their taxable income to shareholders as dividends annually.
Analysts expect the company to keep posting modest revenue growth and earnings. And while the near-term upside potential isn’t great, interest rate cuts can make the fat yield a lot more attractive as Treasuries lose their luster.
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