Can You Count on This Monthly Dividend Stock? (It Pays 10.5%)
High-Yield Monthly Dividend Stock
To income investors, few things are better than getting a dividend check in the mail every single month. Therefore, when you come across a monthly dividend stock with a double-digit yield, it’s time to take a serious look.
The company I’m looking at today is Global Net Lease Inc (NYSE:GNL), a real estate investment trust (REIT) headquartered in New York City.
As the name suggests, GNL is in the net lease business. That means the tenants, rather than the landlord, have to pay some or all of the property expenses. These can include property taxes, insurance premiums, maintenance costs, and more.
By operating through net lease agreements, Global Net Lease can keep more of its rental income, which can then be distributed to shareholders.
Also in the company’s name is the word “Global,” and that’s because unlike most U.S.-listed REITs that just focus on owning real estate within the U.S., GNL has a truly global presence.
The U.S. is still the company’s largest exposure, as it generates 53% of its rental income from properties in the country. However, GNL also earns rental income from properties in the U.K. (20%), Germany (eight percent), the Netherlands (six percent), Finland (six percent), France (five percent), and Luxembourg (two percent). (Source: “Third Quarter Investor Presentation,” Global Net Lease Inc, last accessed November 30, 2018.)
Other than diversifying geographically, Global Net Lease also diversifies across industries. As of September 30, 2018, the company’s portfolio consists of 336 properties. They were leased to 106 tenants coming from 42 different industries.
Furthermore, GNL owns more than just one type of property. On a pro forma basis (which includes properties in the acquisition pipeline), the company earns 53% of its rental income from office buildings, 38% from industrial and distribution properties, and nine percent from retail properties.
Generous Dividend Policy
If you’ve been following this column, you’d know that REITs are some of our favorite monthly dividend stocks.
The reason is simple: because most tenants have to pay rent on a monthly basis, property REITs, which are essentially landlords, can generate a stable stream of monthly cash flow. That cash flow can in turn be used to fund the dividend payments.
At Global Net Lease Inc, the company currently has a monthly dividend rate of $0.1775 per share. With shares of GNL stock trading at $20.19 apiece, that monthly dividend rate comes out to an annual yield of 10.5%.
Given that the average S&P 500 company pays less than two percent right now, a double-digit dividend yield makes GNL stock stand out in this market.
Think about it like this: if you invest $100,000 in a company that pays two percent, you would get $2,000 in dividends a year, or $500.00 per quarter.
If you invest the same $100,000 in GNL stock, which pays 10.5%, you would get $10,500 in dividends a year. That’s $2,625 per quarter, or $875.00 every month.
In other words, with GNL stock, investors can earn substantially more cash in a month than what the average S&P 500 company pays in a quarter.
Global Net Lease Inc: Is the Dividend Safe?
Business has been going quite well at this real estate company. In the third quarter of 2018, Global Net Lease grew its revenue by 11% year-over-year to $72.0 million. Adjusted earnings before interest, tax, depreciation, and amortization increased 16% from a year ago to $56.6 million. (Source: “Global Net Lease Announces Operating Results For Third Quarter 2018,” Global Net Lease Inc, November 7, 2018.)
Operating metrics looked pretty solid. At the end of September, Global Net Lease’s portfolio was 99.5% leased with a weighted average remaining lease term of 8.6 years.
The company also boasted a high-quality tenant base, as 77.1% of the tenants were either investment-grade-rated or of implied investment-grade.
Of course, for a real estate investment trust like GNL, the key performance metric is funds from operations. By comparing this metric to its dividends in a given reporting period, investors can see whether the company generated enough money to cover its payout.
In the third quarter, Global Net Lease generated core funds from operations of $0.54 per share, representing a 12.5% increase from the year-ago period. The amount covered the company’s three monthly dividend payments during the quarter, which totaled $0.5325 per share. However, I should point out that there wasn’t much room left for error.
Looking a bit further back, we see that Global Net Lease’s core funds from operations totaled $1.64 per share in the first nine months of this year. Again, while that amount provided sufficient coverage for the nine monthly dividends totaling $1.5975 per share the company declared and paid during this period, it did not leave a wide enough margin of safety.
As a risk-averse income investor, I would like to see a lower payout ratio. This way, even if business slows down, there would still be a good chance for the company to cover its payout.
The Bottom Line on GNL Stock
When investors are shopping for monthly dividend stocks, they are looking to get paid not just for a month or two, but indefinitely into the future. Global Net Lease has a solid business model in place and offers a yield that dwarfs its peers. If the company can improve its dividend coverage, GNL stock could be a solid income opportunity.