If there’s one thing that Canadian investors continue to beg for these days from their investments, it’s income. And monthly dividend stocks provide the answer. Yet there are so many options out there, and many can seem quite risky. That’s why today we’re going to look at two dividend stocks offering monthly payouts with a balanced approach for moderate risk investors. So let’s get right into why investors may want to add Dream Industrial REIT (TSX: DIR.UN) and Allied Properties REIT (TSX: AP.UN) to their watchlists.
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Make it count
First off, investors will want to make these investments count, especially from monthly income. That means putting your investment in a tax-free or tax-deferred portfolio like a Tax-Free Savings Account (TFSA). The TFSA is perfect as it shelters distributions and capital gains from Canadian real estate investment trusts (REIT) like these from tax. Therefore, monthly payouts and price appreciation compound, all tax-free.
In this case, both of these dividend stocks are strong options. While AP is more of a speculative play with its high yield, it could boost TFSA returns if management executes well. Meanwhile, DIR is a strong core holding, one you can use to reinvest distributions and see returns creep up quarter after quarter.
AP
So now, let’s get into the stocks. AP offers a huge 8.6% dividend yield as of writing, though its most recent quarter wasn’t the best it has had. The dividend stock reported negative net income with a huge payout ratio. It also holds low cash and heavy debt.
That being said, its occupancy and leased areas remain stable, with management selling non-core assets to improve its balance sheet. If AP successfully sells these non-core assets at good prices, cuts its leverage and FFO/AFFO (funds from operations/adjusted funds from operations) stabilizes, this dividend stock could really rally. Plus, its high yield might be sustainable as well.
In fact, if you were to take $7,000 and put it in AP at today’s prices, here’s what that might work out to every year.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| AP.UN | $21.18 | 330 | $1.80 | $594 | Quarterly | $6,989 |
DIR
Then there’s DIR, which is more of a mid-high yield at 5.6% but with solid operational results. The dividend stock has seen rising FFO and strong occupancy at around 96%. It holds large rental spreads and positive NOI/FFO (net operating income/funds from operations) growth with a reasonable 69% payout ratio.
With its net asset value (NAV) also improving and disciplined capital recycling, it now looks quite possible to cover its debts. Overall, DIR may not have a super yield, but has the sustainability and steady monthly income that investors can look forward to month after month, and year after year.
For this “core” TFSA holding, you could certainly do well by investing $7,000 in DIR. In fact, here’s what that might look like based on prices at writing.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| DIR.UN | $12.35 | 567 | $0.70 | $397 | Monthly | $7,005 |
Bottom line
Investors wanting to make the most from monthly income would do well to consider these two monthly dividend stocks. You’ll want to limit your exposure to AP for some high income and use DIR as a larger core holding. From there, auto-reinvest if possible inside a TFSA to maximize tax-free compounding. Furthermore, make sure to monitor every quarter as reports come out to make sure debt comes down and cash comes up.
