There are several things you have to take into account when you are creating a passive-income stream with dividend stocks. You have to look into the core merits of dividend stocks, like yield, consistency, probability (and pace) of payout growth, and payout ratio. But for passive income, there is one more variable you need to consider: frequency of distribution.
You can leverage quarterly dividends to create a monthly income as well (by arranging the payouts by months) or by pooling quarterly dividends for fixed monthly payments. But it’s much easier to create a portfolio of monthly dividend payers. However, you shouldn’t compromise on the primary strengths of dividend stocks just to lock in a comfortable distribution frequency.
If you are looking for monthly dividends, consider these three REITs for a good combination of your desired frequency and decent yields.
An industrial REIT
Dream Industrial REIT (TSX:DIR.UN) has a portfolio of about 177 properties in three regions: Canada, Europe, and the United States. It boasts a committed occupancy rate of 95.6%, which is quite decent, considering the condition of the economy. The industrial properties in this REIT’s portfolio can be divided into three major categories — light industrial, distributions, and urban logistics — making it well-poised for an e-commerce boom.
It has a solid balance sheet and a healthy income statement, especially for the last two years. The revenues didn’t drop during 2020, which can probably be chalked up to long-term tenancy contracts. It has been consistently growing for the last 12 months and currently offers a juicy yield of 5.14% at a stable payout ratio of 59.29%.
A commercial REIT
Even though Choice Properties REIT (TSX:CHP.UN) is a commercial REIT, it does have a tiny proportion of its portfolio dedicated to residential assets (1%). The bulk of its portfolio comprises retail properties (79%), and the remaining 20% is divided between industrial and office properties. The good news is that most of its retail NOIs are tied up to very stable tenants.
It has a total of 731 properties and a 97.1% occupancy rate, which might be the reason why the company’s revenue didn’t take a significant dip in 2020. It offers a desirable dividend yield of 5.4%, which is backed up by a very stable payout ratio of 53.6%.
Another commercial REIT
If you are looking to combine your monthly dividend frequency with a powerful yield, you might consider adding True North Commercial REIT (TSX:TNT.UN) to your portfolio. The REIT offers a mouthwatering 8.6% yield, and even though the payout ratio of 129% is not really ideal, it has been in that territory for three out of the last six years.
The company has a portfolio of 47 commercial properties in five provinces. Total assets are worth $1.4 billion, and 75% of the rent comes from government or credit-related tenants, making the “capital” behind dividends significantly safer. The 98% occupancy rate and 4.7 years of average lease term also make the portfolio relatively secure.
If you invest $15,000 in each of the three companies and place them in your TFSA, you can start a monthly dividend income of roughly $239. A lot of REITs slashed their dividends either in 2020 or 2021, but not these three. And if they managed to sustain their dividends through the pandemic-laden market, they might be able to maintain or even grow them in the future.
Speaking of three REITs you can buy for monthly dividends...
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends DREAM INDUSTRIAL REIT.