The stock market is down so far this year; despite a rally since mid-June, the S&P is still down 15% year-to-date and the NASDAQ is down 23%. Share price drops like these get investors thinking about portfolio defense, and that naturally brings them around to dividend stocks.
Companies can pay out dividends annually, quarterly, or monthly. Quarterly payments are the most common, but for truly defensive investors, monthly payments offer some advantages. Chief among those is the rapid and regular payout, allowing income investors a high degree of consistency in receiving cash payments.
With this in mind, we delved into the TipRanks database and homed in on two monthly-payment dividend stocks that fit a particular profile; a Strong Buy rating from Wall Street’s analysts, and market beating dividend yield of at least 7%. Let’s take a closer look.
Gladstone Commercial (GOOD)
The first stock we’ll look at is Gladstone Commercial, a real estate investment trust (REIT). This class of stocks is well known for reliable, high-yield dividends, for two reasons. First, these companies typically derive much of their income from rents or loan payments, and so have a steady cash flow available for capital return, and second, tax regulations require them to return up to 90% of their profits directly to investors. Gladstone, which holds a portfolio of 131 commercial properties, office and industrial locations, across 27 states, leased out to some 110 tenants. The current occupancy is 97%, and the company boasts that its occupancy has never fallen below 95%.
Gladstone’s portfolio has a high occupancy rate, and in addition, it also has long lease terms, in some cases up to 15 years. This provides a high level stability, reducing churn and assuring dividend investors of a steady income.
The company’s monthly dividend is currently set at 12.54 cents per common share, and on July 12 Gladstone declared the payments for July, August, and September at that rate. The declaration marked the 210 consecutive monthly dividend payments, providing a long history of reliability to give confidence in the payments. The dividend annualizes to $1.50, an yields a robust 7.7%.
The dividend is supported by Gladstone’s revenue, which came in at $35.5 million in 1Q22. Revenues have been highly consistent over the past two years, remaining in the range of $32.8 million to $35.5 million. Gladstone boasted a 100% rent collection rate in Q1.
Analyst Brian Hollenden, of Aegis Capital, is impressed by this REIT, especially by it operating strategy, writing: “The company is focused on tenant quality, it only owns properties that are strategically important to the tenant, as a result GOOD’s portfolio occupancy has never slipped below 95%. Meanwhile, by turning more of its attention to the booming subsector of industrial properties, GOOD is poised to benefit from strong industry demand combined with its own disciplined tenant underwriting.”
Hollenden’s positive stance backs up his Buy rating, and his $26 price target implies a 12-month upside potential of ~33% for these shares. Based on the current dividend yield and the expected price appreciation, the stock has ~42% potential total return profile. (To watch Hollenden’s track record, click here)
Small-cap REIT’s don’t always gather lots of analyst reviews – but Gladstone’s quality has garnered it 5 positive ratings in recent weeks, for a unanimous Strong Buy consensus rating. The stock is selling for $19.64 and its $23.60 average price target suggest an upside of ~20% for the coming year. (See Gladstone stock forecast on TipRanks)
Dynex Capital (DX)
The second dividend stock we’re looking at, Dynex, is another REIT, this one with a portfolio focus on mortgage-backed securities rather than directly on real properties. Dynex follows a series of basic rules in developing its portfolio strategy: a focus on capital preservation, discipline in capital allocation, and stable long-term returns.
Dynex has just this week announced its 2Q22 results, and a 7% increase in shareholder equity, to a total of $842.4 million. At the bottom line, the company had a net income of 70 cents per common share. While solid, this income still compares unfavorably to the $3.14 reported in Q1. At the same time, the current quarter income was more than enough to cover the 39 cents per common share paid out in dividends during the quarter.
That’s an important point, as Dynex has a long history – some 9 years, going back to 2013 – of keeping up reliable dividend payments. The company pays out monthly, at a rate of 13 cents per common share, and has kept that payment rate steady since June of 2020. At its current rate, the monthly dividend annualizes to $1.56 and yields an impressive 9.4%. The yield actually beats inflation by 0.3 points, giving a real rate of return.
And on that subject, the Federal Reserve bumped interest rates up this week by another 0.75%, in its latest move to fight inflation. BTIG analyst Eric Hagen, in his coverage of Dynex, believes that the Fed’s move would be a key consideration on this stock going forward.
“The futures market is currently pricing Fed Funds to peak around 3.40% early next year, followed by a gradual reduction. Against that backdrop, we still consider Dynex the somewhat lower-risk Agency REIT to own here, considering MBS spreads are still hanging near +140 bps over Treasuries, and the company has preserved its relatively seamless portfolio configuration aimed at supporting liquidity and flexibility on both sides of the balance sheet,” Hagen explained.
“We like staying long, especially if there’s an opportunity to pick up stock below 0.95x NAV,” the analyst summed up.
Hagen adds a Buy rating to his commentary, and his price target, currently standing at $17.50, suggests the stock has room for a modest 6% upside on the one-year time frame. The relatively low upside is common in div stocks, especially the higher-yielding ones. (To watch Hagen’s track record, click here)
Over the past few weeks, Dynex has picked up 3 analyst reviews, and they are unanimously positive – for a Strong Buy consensus rating on the stock. DX is trading for $16.81 and its $18.42 average price target implies a gain of ~10% for the 12 months that lie ahead. (See Dynex stock forecast on TipRanks)
To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
