The recent correction in the stock market has made some investors uneasy. If you focus on buying stocks at good valuations and on their income generation, you can pretty much ignore the volatility.
Here are two monthly dividend payers that are discounted.
Get monthly income from real estate
Get passive monthly income from H&R Real Estate Investment Trust (TSX: HR.UN). The diversified REIT has a large portfolio of office, retail, industrial, and residential properties.
Since 2016, H&R REIT’s funds from operations (FFO) per unit has declined modestly due to asset sales and the lag between the sales and reinvesting the proceeds. Fortunately, management has kept the payout ratio with sufficient coverage for its monthly cash distribution.
In the first nine months of the year, H&R REIT’s payout ratio was 79.4%, which was 5% higher than in the same period of 2017. In the Q3 report, management indicated that in 2019 and beyond, H&R REIT should benefit from “the full reinvestment of the sale proceeds and the enhanced growth profile, resulting in positive property operating income, FFO and net asset value growth.”
At $20.78 per unit as of writing, H&R REIT offers a 6.6% yield and trades at a 19% discount from its net asset value. The Bank of Nova Scotia analyst has a one-year target of $23.75 on the stock, which represents near-term upside potential and total returns potential of 14% and 20%, respectively.
Get juicy monthly income from this premium energy stock
Vermilion Energy (TSX: VET)(NYSE: VET) is a well-managed global oil and gas producer that enjoys premium commodity pricing for its European gas and Brent oil.
Earlier in the year, Vermilion acquired Spartan for $1.4 billion and funded almost 88% of the acquisition with equity. Spartan was clearly a great deal — it was cheap and had great assets, while Vermilion was more reasonably valued at the time. Spartan was an accretive acquisition that helped boost Vermilion’s cash flow.
In the first nine months of this year, Vermilion generated fund flows from operations of $4.46 per diluted share, which was 29% higher than in the same period in 2017.
Thomson Reuters has a mean 12-month target of $51.20 per share on Vermilion, which represents 53% near-term upside potential from $33.43 per share as of writing. You also get an 8.2% yield, while you wait for the stock to appreciate.
Vermilion’s recent operating cash flow payout ratio was 46%, while it’s normally kept between 45% and 55%. Having maintained or increased the company’s dividend since 2003, management is quite supportive of Vermilion’s monthly dividend.
Investor takeaway
H&R REIT offers a safe 6.6% yield, and there’s little volatility in the stock. So, conservative income investors should look into the idea.
Vermilion offers an 8.2% yield that should be safe, but its stock price will be much more volatile than H&R REIT due to wide swings in commodity prices. As a result of Vermilion stock’s recent correction, it’s a big-dividend stock that offers amazing upside potential.
