Most investors are in a quandary today, as they wonder whether or not to take profits on their tech gains and rotate into monthly dividend stocks. And looking at the market, it is becoming more and more enticing to invest in monthly payers like Realty Income (NYSE:O | O Price Prediction), Phillips Edison & Co (NASDAQ:PECO), and LTC Properties (NYSE:LTC).
Both the Invesco QQQ Trust (NASDAQ:QQQ) and the Roundhill Magnificent Seven ETF (BATS:MAGS) have risen just 1.3% over the past month. Can this morph into yet another leg up? Perhaps, but there’s a noticeable decline in stamina across the board. Tech companies are still beating earnings estimates, but not by larger and larger margins like they used to.
All that revenue growth may slow down if hyperscalers abruptly scale back their AI buildout plans. Meta Platforms (NASDAQ:META), for example, carried more debt on its balance sheet than cash in Q2 due to the aggressive AI expenditure. In Q4 2024, it had a net cash position of almost $22 billion. This is being called “Big Tech’s debt boom” as the cash flow is not enough to fund data center development.
Not to mention, it has been almost 3 years since the release of ChatGPT on November 30, 2022. Many on Wall Street want to see AI’s results on the bottom line, not just the top line.
The following monthly dividend stocks have the profitability Wall Street is starting to crave.
Realty Income (O)
Realty Income almost always tops the list if you’re trying to buy a monthly dividend stock that has both defensive characteristics and great upside potential. On top of that, O stock comes with a great yield.
Realty Income is a real estate investment trust that mainly has retail firms as its primary tenants. These retail companies are quite recession-resistant themselves, and Realty Income has managed to maintain very high occupancy rates through recessions. Even in 2008, the occupancy rate was 97%, and the current occupancy rate is 98.7%.
O stock gets you a 5.71% yield today and is still trading at a discount compared to pre-pandemic peaks near $80. I believe it is only a matter of time before it recovers to that level, especially as interest rates come down. You can sit on the rising monthly yield as it does.
LTC Properties (LTC)
LTC Properties is a REIT that finances and invests in senior housing and healthcare properties. Its niche is in assisted living, skilled nursing, and memory care.
All of these facilities are in high demand today and are set to be even more in demand in the coming decades. The U.S. is already facing a senior care facility shortage, expected to worsen even more with time. Estimates say anywhere from 564,000 to 609,000 senior housing units are needed. Only 191,000 will be added at current development rates. The gap is almost impossible to close in less than five years.
The oldest of the baby boomers will be turning 80 next year. Baby boomers are a large demographic group, as they were born during the post-WW2 baby boom. One can assume a similar “boom” in senior care can take place as the cohort ages past 80.
As a bonus, you get a 6.37% dividend yield. LTC stock has remained rangebound in the past five years, but I expect the tailwinds in the senior care market plus rate cuts to lead to 60-70% upside in the next 24 months. Even a 50% gain from here would only take it back to 2019 peak levels.
Phillips Edison & Company (PECO)
Phillips Edison is another REIT that operates shopping centers. The shopping center sector may look choppy, but PECO actually owns grocery-anchored properties. The foot traffic around these properties remains enduring, no matter the economic climate, so it is very defensive.
PECO stock has been on a long-term uptrend, but it is down 11% over the past year. This business is operationally strong and is already likely bottoming out. Q3 revenue growth was 10.4% and beat analyst estimates by 3.16%.
You get a 3.5% dividend yield, but the dividends are growing fast. The forward dividend yield is 3.74% and is well-covered by funds from operations (FFO). The forward dividend rate is $1.3, covered by $2.59 in forward FFO.
PECO stock can deliver 15% to 20% upside in the next year, along with those dividends, as it recovers.
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