Have you ever wanted to build a portfolio that pays you a substantial amount of cash income each and every month?
Many investors have this goal. But sadly, few truly passive investments pay monthly. Most bonds pay semiannually. Most stocks pay quarterly. Rental properties pay monthly, but they usually require you to either do manual labour or give money to a property management firm. There’s truly no such thing as a free lunch!
Nevertheless, there are some passive investments that pay out each and every month. In fact, in the world of real estate investment trusts (REITs), monthly payouts are the norm. In this article, I explore how you can build a $100,000 REIT portfolio that pays you monthly, using a well-known apartment REIT as a case study.
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Killam Apartment
Killam Apartment REIT (TSX: KMP.UN) is a Canadian apartment REIT. It leases out residential space to tenants in Alberta, BC, Ontario, and Eastern Canada. It also has some units that it rents out nightly, similar to a hotel. KMP.UN pays a monthly distribution/dividend that yields 4.1%. By diligently saving and putting money away, you could accumulate a $100,000 position in KMP.UN. That position would pay $338 per month (see math below).
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Killam | $17.76 | 5,630 | $0.06 per month ($0.72 per year) | $337.80 per month ($4,053.60 per year) | Monthly |
Apartment REITs are among the most dependable REITs out there, as they lease a property type that will always be needed. Malls can die, hotels can lose their lustre, but people will always need places to sleep at night. It’s for this reason that apartment REITs are among the most popular REITs among long-term investors.
Recent results
The essential nature of Killam Apartment REIT’s service can be seen in its most recent quarterly earnings release. In the second quarter, KMP.UN delivered:
- $95,646 in revenue, up 5.5% year over year.
- $64.1 million in net operating income, up 8.5%.
- $705,000 in other income, up 51.6%.
- $0.32 in funds from operations (FFO) per unit, up 6.7%.
- $0.27 in adjusted funds from operations (AFFO) per unit, up 8%.
- A 97.5% portfolio occupancy rate.
Overall, it was a decent showing for Killam in the second quarter. The company’s most important earnings/cash flow metrics increased, and its occupancy rate was high. Exactly what you want to see.
Long-term performance
Killam has been performing well over the longer term as well.
While its revenue only increased 3.2% in the trailing 12-month period, its earnings increased 78%. Over the last five years, it compounded its revenue, earnings and free cash flow at 8%, 19% and 7.2%, respectively. The company had a 5.8% AFFO yield in the trailing 12-month (TTM) period.
Valuation
Last but not least, we need to look at some of Killam Apartment REIT’s valuation metrics. At today’s price, KMP.UN trades at:
- 14.5 times FFO.
- 17.2 times AFFO.
- 5.6 times sales.
- 0.67 times book value.
These multiples are generally cheap. The price/book ratio in particular indicates that this could be a real bargain (assuming the company’s financial statements are sound).
The bottom line
The bottom line on monthly income is that it is best obtained with REITs. Lots of stocks pay dividends, but only REITs tend to pay them monthly. If you diligently put money into REITs year after year, you can eventually get to a $100,000 REIT portfolio that pays you monthly. That’s much better than spending every waking hour of your life fixing the toilet at your rental house!
