Preferred Stocks that Pay Monthly Dividends

Summary

  • Many income investors prefer to receive monthly income over quarterly payments.
  • Out of more than 640 preferred and ETD securities in the IPI data base, there are only 30 issues that pay monthly distributions.
  • Introducing 3 preferred stocks that pay monthly dividends with yields above 6%

This article was written by Rich Hill

“I Prefer Income!” maintains a Preferred stock & ETD database program with over 640 preferred stocks & ETD (exchange traded debt securities).  The list is updated daily and contains more than just a simple list of names.  There are 37 fields of information, including demographics and important financial metrics to help the member dig a little deeper when doing research on individual issues.  The metrics include earnings, payout ratios, debt ratios, dividend metrics and Credit Ratings from Moody’s and S&P on the individual preferred stocks and ETD securities.

The stock market appeared to feel better about the economy this past week; and as a result, prices bounced back and looks like it is headed higher in the short term.  The trend in lower interest rates has not changed.  With the fed poised to lower rates again, it does provide motivation to buy now before yields drop further.  The result is that it continues to be a challenge to find good buys below par.  Yes, good stocks and yields are there, but investors need to be able to do the research to make sure the metrics are in good shape.  IPI has the financial metrics to really help each investor determine if the company is reasonably safe and is able to pay the dividend on a reliable and sustainable basis.  Hope you can take advantage of the information that is available.  Be sure to view the video lessons that are now available on both the REIT and Preferred & ETD programs.

The IPI BLOGs provide information on various preferred stocks and ETDs that might be of interest to our members and other interested visitors.  This BLOG is written to provide information about the companies that have issued preferred stocks that pay monthly distributions.  There are 16 companies with 30 securities that pay monthly distributions.  The 16 parent companies include:

ARR BPOP CSSE ECC FBP GAIN GLAD GOOD
LAND LTS MTBC OCCI OFG OXLC TRGP VER

Out of the 30 issues, I have selected 3 preferred stocks that pay monthly dividends that are priced below $25.50 with yields above 6%.  In addition, they all have stock dividend payout ratio below .80, and preferred stock dividend payout below .20.   All of the preferred stocks issue 1099 tax forms and all have call dates in the past so they can all be called at any time.

As is my practice, I analyze the securities by first reviewing 5 important financial areas: Earnings, Payout Ratios, Debt Ratios, Dividend Metrics and Credit Ratings.  These metrics are grouped and highlighted with different colors.  This gives me a great first review of the issues and lays the foundation for further analysis.  My goal is to uncover solid choices that meet my requirements for safety and reliable / sustainable income.  The 3 picks are located in the table below.

Preferred Stocks

(Source, I Prefer Income. Click on image to enlarge)

To read the table properly, the parent company is located in the top row with grey background.  Each of the preferred stock issues are located directly underneath the parent row.  All metrics are on the parent as they are responsible for the preferred stock.  However, the credit ratings are on the preferred stock.   Here is information on each parent and issue.

First BanCorp (FBP) operates as the bank holding company for FirstBank Puerto Rico that provides a range of financial products and services to retail, commercial, and institutional clients.  FBPRL is a “non-cumulative” preferred stock with a price of $24.99 and a yield of 7%. FBPRL pays out a monthly dividend of 0.14583 per share.

At first glance the metrics are generally favorable.  GAAP Earnings show 5 profitable years and quarters with no losses. See table 2 that shows the earnings history over the last 5 years and quarters.   In addition, payout ratios are good for both common stock and preferred stock payout ratios. Debt to equity is also low.  Banks do not generate EBITDA so ratios are not available.  One negative is that Moody’s and S&P report NR / NF.  Dividend metrics are lacking.  However, when we look deeper using table 2a, we see that that the company did not pay a dividend until the end of 2018.  This raises a few red flags, so I decided to continue digging.

I note that First BanCorp is located and operating in Puerto Rico.  That clouds the picture as Puerto Rico went through a devastating hurricane in 2016 and Dorian is currently active and may cause problems.  I reviewed  QuantumOnline and discovered that FBP did discontinue common and preferred stock dividends back in 2009 and only re-instated them in either 2016 or 2017.  Since this preferred stock is non-cumulative, it means that they did not have to pay the skipped dividends.  That is not good news.  This is one reason why investors are so wary of Non-cum issues.

Until there is more clarity on all these issues, I would not recommend investing at this time.

Table 2. Source, I Prefer Income)

(Table 2a. Source, I Prefer Income)


Gladstone Investment  (GAIN)  is a BDC (Business Development Co) that focuses on investing in buyouts of lower middle market businesses in the United States. Gladstone Investment makes debt and equity investments in established private businesses in the U.S. Debt investments primarily come in the form of three types of loans: senior term loans, senior subordinated loans and junior subordinated debt.  GAIN has 2 preferred stocks. GAINM has a coupon rate of 6.25% and is priced at $25.49 with a yield of 6.1%.  GAINM pays monthly dividends of .130208 per share.

The metrics for GAIN are mixed.  Earnings show a record of 4 years of GAAP profits and 5 quarters of profits.   See table 3 for earnings history.  Payout ratios are good on a TTM basis, but the last quarters show a decline in earnings so last 2 quarters now show earnings below dividends.  Preferred dividend payout is good at .13.  Debt ratios show Debt-to-equity of a low .2.   Credit ratings are NF / NF.   Dividend metrics show a small amount of growth over the last 3 years.  However, the good news is that GAIN is designated as a Dividend Diamond as they have increased dividends every year for the last 7 years.  Besides the normal monthly dividend, they also pay out an additional semi-annual dividend from capital gains.

During the earnings call transcript, Gladstone Investment’s President, David Dullum made the following comments.  “I’m pleased to report very solid operating earnings and results for this quarter ended June 30, 2019 which is the first quarter of course, of our fiscal year, which ends 03/31/2020. Our adjusted net investment income for the quarter was $0.25 per share, up from $0.23 per share last quarter and which was greater than our quarterly dividend of $0.20 per share. And based on the mix of our current portfolio, sustainability and the income generating potential, I’m encouraged for the outlook of the balance of the fiscal year ending 03/31/2020.”

“Also in June, we made one new buyout investment for about $39 million and exited two buyout investments in April. So with these exits and since inception for this fund in 2005, we have actually exited 18 portfolio companies and generated approximately 4.2x cash-on-cash return on the equity portion of those investments. Same time while we continue to grow total assets, increase our monthly distributions to shareholders.”

“We maintained our monthly distributions at an annual rate of $0.82 per common share and reflecting our good results in the capital gain realization area. we made a $0.09 per common share distribution in June as the first of our semi-annual supplemental distributions program for the calendar year 2019. This is an increase actually from the $0.06 per share that we made in December 2018 as the second semi-annual supplemental for calendar 2018.”

“Our Board also recently approved a one-time additional supplemental distribution of $0.03 per common share which is to be paid in September.”

(Table 3, Source, I Prefer Income)

(Table 3a.  Source, I Prefer Income)


Vereit, Inc. (VER) are owners and operators of a large and diversified single-tenant real estate portfolio.  VER is a REIT that owns and actively manages a diversified portfolio of retail, restaurant, office and industrial real estate assets subject to long-term net leases with high credit quality tenants. VER has 1 preferred stock.  VER-F has a coupon rate of 6.7% and is priced at $25.42 with a yield of 6.6%.  They pay a monthly dividend of .139583 per share on the preferred stock.

The metrics for VER are mixed.  GAAP earnings show that the last 5 years have produced 5 years of losses.  However, the last 5 quarters do show improvement with the last 2 quarters showing profits.  The good news is that VER also reports Non-GAAP metrics of AFFO (adjusted funds from operations) that are completely different than the GAAP EPS earnings.  Table 4 below shows the comparison between EPS and AFFO.  One concern for AFFO is that the earnings have been declining since 2015.   Payout ratios for common and preferred are in good shape.    Debt to Equity is high at 6.6.   Credit ratings are NR / NR.   Dividend metrics show 0 dividend growth over the last 3 years.

After reporting the 2nd quarter earnings, Glenn J. Rufrano, Chief Executive Officer, stated, “VEREIT continues to focus on three objectives:  lowering our debt levels, refreshing and diversifying our portfolio through reinvestment, and maintaining an experienced execution team.  We have reduced net debt to normalized EBITDA from 5.9x to 5.3x year-to-date, strengthened the portfolio through the recycling of capital, and retained a seasoned real estate team with Company tenure of more than eight years.”

(Table 4, Source, I Prefer Income)

 


In summary, all 3 preferreds stocks in this BLOG provide the investor with monthly dividends with yields over 6%.  All 3 companies are from different industries and generate 3 sets of metrics that are completely different from each other.  There are only 16 companies that pay out monthly dividends on their 30 preferred stocks; however, there were approximately 6 preferreds that made this list and I picked these 3 because they appeared to be the best reasonable choices.

Once I started reviewing them, I realized that First BanCorp has issues that would keep most investors at arm’s length for a-while.  I decided to keep FBP on the list to show how important it is to do research beyond what you see on the surface.  Metrics are great, but they are based on the past.  If there are red flags, dig deeper.  At least read the latest quarterly earnings report and check Seeking Alpha’s page to see if any recent articles that can be read to gain clarity.

GAIN and VER are the other 2 companies that provide monthly dividends.  GAIN is a BDC with mixed metrics; although there are enough positive metrics to warrant further research.  I do like the fact that they are a Dividend Diamond with 7 years of ever-increasing dividends, have good payout ratios and their president David Gladstone appears to feel good about the future.

VER is the 3rd company on the list.  They are a REIT and have mixed metrics; however, they do have enough positive metrics to warrant further research.   Remember that investors should be looking at Non-GAAP earnings of AFFO rather than GAAP earnings.  That puts a favorable light on their earnings.  Payout ratios are good, but debt ratio needs improvement.  The president appears to feel the same way and puts lowering their debt levels in the top of his focus list of objectives.

As interest rates continue downward and the market heads higher, the search for yields will only become more challenging.  Waiting for better days might not result in more opportunities.

I Prefer Income now has a database program for over 600 preferred stocks / ETD securities and a second program for 150 REITS in 16 industry categories.  We will also be adding a third program this coming week for companies that have increased dividends every year for the last 25+ years.  We call it “Dividend Diamonds 25+”.  I invite everyone to join to see just how helpful each of the programs can be.  All 3 programs are FREE.

To register for free membership, go to:  http://portal.ipreferincome.com/Account/Register

To visit the I Prefer Income! website, go to:   https://ipreferincome.com/

Thanks for reading.

Rich Hill
I Prefer Income!

Disclosure.  I own VER-F.