Month-to-month Dividend Inventory In Focus: Modiv Inc.

Revealed on October 1st, 2024 by Felix Martinez

Actual property funding trusts, or REITs, are sometimes a well-liked funding choice for these in search of beneficiant dividend yields. REITs are required by regulation to pay out the overwhelming majority of revenue within the type of dividends.

Consequently, many REITs pay very excessive dividend yields. One instance of that is Modiv Inc. (MDV), which at the moment presents a yield in extra of 6.8%.

Some REITs, equivalent to Modiv, even pay dividends on a month-to-month schedule, versus quarterly or yearly, which may be interesting to these traders in search of extra constant cashflows.

You’ll be able to obtain our full Excel spreadsheet of all 78 month-to-month dividend shares (together with metrics that matter, like dividend yield and payout ratio) by clicking on the hyperlink under:

However traders shouldn’t focus solely on yield when assessing an funding alternative. This text will analyze the funding prospects of Modiv intimately to find out if traders ought to contemplate including the title to their portfolio.

Enterprise Overview

Modiv is an actual property funding belief that acquires owns, and actively manages single-tenant net-lease industrial, retail, and workplace properties within the U.S.

Supply: Investor Relations

Modiv has almost 43 properties in its portfolio that occupy 4.5 million sq. ft of combination leasable space.

Supply: Investor Relations

The belief had its public itemizing in 2022. Previous to this, Modiv was one of many largest non-listed REITs to lift funds solely by way of crowdfunding. The belief was the primary actual property crowdfunding platform to be solely investor-owned.

Progress Prospects

Modiv has solely been a publicly traded entity for a short while, however administration’s goal has been to amass high-quality properties that may be added to the portfolio. This has led to a spotlight totally on including industrial properties. For instance, Modiv added 4 industrial properties and one retail property to the portfolio final 12 months.

Regardless of a heavy acquisition spree, Modiv continues to be a reasonably small REIT as evident by its market capitalization of simply $180 million. Even after quite a lot of acquisitions, the full portfolio is lower than 43 properties.

It is going to take time and capital for the belief to turn into one of many bigger names in its space of actual property. REITs typically use share issuances to realize the capital wanted for acquisitions, however this comes at a value for Modiv as a result of inventory’s double-digit yield. Because of this hefty yield, the share rely has remained comparatively steady, although we do anticipate that the belief will use this avenue to assist purchase engaging properties sooner or later.

Financing debt to fund transactions is perhaps a tough approach ahead as properly as a result of Modiv being one of many smaller gamers in its trade. Collectors could require the next rate of interest. Rising rates of interest will seemingly act as a headwind as properly.

The excellent news is that Modiv’s portfolio does supply some benefits. For instance, the weighted common lease time period is 11.9 years, which ought to present the belief with predictable money flows. A number of the belief’s tenant base may be thought-about high-quality as Modiv counts 3M Firm (MMM), Costco Wholesale Corp. (COST), and Northrop Grumman Corp. (NOC) as three of its tenants.

Lastly, the properties which can be leased to tenants may be thought-about mission-critical for his or her enterprise, that means that they’re wanted for these firms to carry out their fundamental perform. This doesn’t make Modiv recession proof essentially as an financial downturn may impression the necessity for these amenities. We observe that the belief has additionally not operated underneath adversarial financial circumstances as of but.

Given the relative youth of the belief and the chance of share issuance to fund acquisitions, we imagine that AFFO will stay steady by way of 2028.

Dividend & Valuation Evaluation

The dividend is essentially the most engaging a part of Modiv from an funding angle in our view.

Modiv’s dividend at the moment yields 6.8%, which is greater than six occasions the common yield of 1.3% for the S&P 500 Index. This is among the larger yields that the inventory has traded with since Modiv went public.

Modiv has a projected payout ratio of 74% for 2024. It is a good payout ratio, even when contemplating REITs usually have loftier payout ratios. Whereas we imagine that the dividend yield is protected in the interim, we would like a lengthier monitor document of funds earlier than absolutely trusting the safety of the belief’s dividend.

Given the payout ratio, we forecast that dividends will stay flat by way of 2028 except AFFO is ready to develop at a quicker than anticipated charge.

Shares of Modiv commerce at over $16 per share, giving the inventory a price-to-AFFO ratio of slightly below 10.3. That is barely above our five-year goal valuation of 9.0 occasions AFFO. Reverting to our goal valuation would subtract barely from complete annual returns shifting ahead. Total, we venture complete annual returns of 5.4% by way of 2028, powered nearly solely by the inventory’s dividend yield.

Last Ideas

Modiv is a brand new title in actual property and has some fascinating traits. The belief is motivated to develop, with acquisitions increasing its portfolio since changing into a publicly traded firm. The inventory additionally presents one of many extra beneficiant dividend yields in our protection universe. The dividend does look protected, however short-term headwinds, equivalent to debt financing or a doable recession, may name that security into query.

Contemplating that the dividend accounts for almost all of our complete return projection, we imagine that traders are higher off in search of safer yields. Because of this, Modiv earns a maintain suggestion on the present value.

Don’t miss the sources under for extra month-to-month dividend inventory investing analysis.

And see the sources under for extra compelling funding concepts for dividend progress shares and/or high-yield funding securities.