It’s nice to get monthly income from your investments as a part of your income stream, say, alongside your job’s income. Not many dividend stocks pay monthly, though. If your goal is to target monthly income, one of the first places to explore is Canadian real estate investment trusts (REIT). So, our first idea for monthly income is RioCan REIT (TSX: REI.UN).
RioCan REIT
RioCan REIT cut its cash distribution by a third in January 2021. Along with rising interest rates since 2022, this triggered a downtrend in the stock. It seems like all the bad news has come out.
The retail REIT started increasing its cash distribution in February 2022. Although its cash distribution is still not back at pre-cut levels, it is about 15% higher than when it cut the cash distribution in 2021.
Adding that the retail REIT stock trades at a low valuation compared to its historical levels, it now offers a juicy cash distribution yield of close to 6.5% at $17.17 per unit at writing. At this price, it trades at about 9.7 times funds from operations (FFO), whereas historically, it had traded over a multiple of 14. That said, it could take interest rates to fall meaningfully to drive substantial valuation expansion in the stock.
For this article, our focus is on the monthly income. The REIT’s cash distribution seems safe based on an FFO payout ratio of approximately 63% this year. Furthermore, it also earns an investment-grade S&P credit rating of BBB.
On a side note, the Canadian REIT pays out cash distributions that are income-like dividends, but the distributions are taxed differently in non-registered accounts, depending on its constituents. The return of capital portion of the distribution reduces the cost base. The return of capital is tax deferred until unitholders sell or their adjusted cost base turns negative. REIT distributions can also contain other income, capital gains, and foreign non-business income. Other income and foreign non-business income are taxed at your marginal tax rate, as are 50% of the distributions that are marked as capital gains.
Exchange Income
Exchange Income (TSX: EIF) pays out monthly dividends that equate to a yield of 5.8% at $45.26 per share at writing. The company acquires businesses in aviation services and aerospace, and manufacturing that offer essential products and services to niche markets.
From this diversified portfolio of subsidiaries, it earns cash flows and has been paying out a reliable monthly dividend. Its dividend is 56% higher than 2014 levels. For your reference, its last dividend hike was 4.8% in November.
The monthly income stock appears to be a good buy now, as analysts believe it’s trading at a good discount of almost 27%.
Savaria
Savaria (TSX: SIS) is a small-cap stock that pays a monthly dividend. It’s a global leader in the accessibility industry. It designs, manufactures, distributes, and installs accessibility equipment, such as stairlifts for straight and curved stairs, vertical and inclined wheelchair lifts, and elevators for home and commercial use.
In addition, Savaria manufactures and markets a selection of pressure management products for the medical market, medical beds for the long-term care market, and medical equipment and solutions for the safe handling of patients, including ceiling lifts and slings.
Over the last 10 years, Savaria stock has more than doubled its dividend. That said, dividend growth has slowed in recent years. Other than the tailwinds of a growing aging population, notably, the company also utilizes a mergers and acquisitions (M&A) approach to grow the business, targeting to integrate and improve businesses it acquires to create value from an acquisition over a five-year period. Since 2005, it has made eight meaningful acquisitions, including Handicare in 2021 and Ultron in 2022. This M&A approach could lead to lumpy growth.
Management currently expects revenue to grow to $1 billion by 2025, which would be a 9.3% growth rate from the 2023 level. At the recent price of $17.92 per share, Savaria yields 2.9%, which is not a big dividend. So, investors should consider it more as a potential growth investment that pays monthly income. Currently, analysts believe the stock trades at a decent discount of 20%, which represents 12-month upside potential of 25%.
