This Top Monthly Dividend Stock is Now Yielding 8.36%
Today’s top pick for income investors is a monthly dividend stock currently yielding 8.36%.
Monthly dividend stocks are some of the best creations for investors who are living off their dividends. After all, the bills are due every month, so why wait a quarter for your dividend check?
One sector known for producing monthly dividend stocks is real estate. Today’s top pick, American Hotel Income Properties REIT LP (OTCMKTS:AHOTF), happens to be in the real estate business.
As the name suggests, American Hotel Income Properties (AHIP) specializes in hotel real estate. The partnership is headquartered in Vancouver, British Columbia, Canada, but invests in hotel real estate properties primarily in the United States. Shares of this monthly dividend stock trade on both the Toronto Stock Exchange and the OTCQX International.
Note that when AHIP went public in 2013, its distributions were paid in Canadian dollars. However, the partnership switched to paying U.S. dollar denominated dividends in April 2016. This makes sense because even though the partnership is headquartered in a Canadian city, its cash flows are generated in the U.S.
AHIP is a quite generous dividend payer. With a monthly distribution rate of $0.054 per unit, the partnership is currently yielding 8.36%.
One of the things that makes AHIP stand out among its peers is the partnership’s sizable portfolio of rail hotels. These are hotels geared towards railroad workers. AHIP’s rail portfolio currently consists of 46 “Oak Tree Inn” hotels, totaling 3,886 rooms. They are located in strategic locations in 23 states that benefit AHIP’s rail partners. Oak Tree Inn guestrooms have special light-proofing features and sound dampening materials, making them ideal for rail crew lodging.
The railroad business may not seem that exciting these days, but for this monthly dividend stock, rail crew lodging provides some unique benefits. You see, when rail companies find a place to stay for their workers, they do it through long-term contracts. In fact, these long-term contracts with rail companies guarantee 72% of AHIP’s rail portfolio’s revenue. These contracts have an average remaining term of 4.3 years.
In the hotel business, most companies have to rely on consumer demand, which can be volatile depending on overall economic conditions. With a sizable rail lodging business, AHIP has added stability to its cash flow. And having a stable cash flow through economic cycles is critical to the dividend stability of a hotel real estate partnership.
Other than rail hotels, AHIP also invests in branded hotels. The partnership’s branded hotel portfolio currently consists of 49 hotels representing 5,497 guestrooms. They are located in close proximity to transportation hubs (such as airports, highway interchanges, and railroads), large population centers, and other stable demand generators.
This Monthly Dividend Stock Has Delivered Strong Shareholder Return
If you have been following hotel real estate companies, you would know that they haven’t really been the hottest commodities in the stock market. AHIP, on the other hand, has been delivering solid shareholder returns. As the chart below shows, since the partnership’s initial public offering (IPO) in February 2013, it has consistently outperformed the S&P/TSX Capped REIT Index.
Source: “Investor Presentation,” American Hotel Income Properties REIT LP, last accessed July 10, 2017.
Of course, past performance does not guarantee future results. For investors of any high-yielding stock, a key focus going forward will be its dividend safety.
On that front, there is good news. Despite paying a much higher yield with more frequent distributions than most real estate stocks, AHIP has a conservative payout ratio. In 2016, the partnership paid just 83.4% of its adjusted funds from operations, leaving a margin of safety. (Source: “American Hotel Income Properties REIT LP Reports Fourth Quarter And Year End 2016 Financial Results,” American Hotel Income Properties REIT LP, March 7, 2017.)
Moreover, due to recently acquired hotels with higher revenue per available room, the partnership expects to generate higher cash flows during the second and third quarters of 2017. This could further lower the payout ratio of this monthly dividend stock.
Also Read:
10 Best Real Estate Stocks to Own in 2017
The 7 Top Monthly Dividend Stocks for 2017
The Bottom Line on This Monthly Dividend Stock
In today’s market, not all high-yielding stocks are safe bets for income investors. But with a stable business and solid financials, this 8.36%-yielding monthly dividend stock could be worth considering.