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

Printed on March thirteenth, 2023 by Nathan Parsh

Actual property funding trusts, or REITs, are sometimes a preferred funding possibility for these on the lookout for beneficiant dividend yields. REITs are required by regulation to pay out the overwhelming majority of earnings within the type of dividends.

Because of this, many REITs pay very excessive dividend yields. One instance of that is Modiv Inc. (MDV), which at the moment provides a yield in extra of 10%.

Some REITs, equivalent to Modiv, even pay dividends on a month-to-month schedule, versus quarterly or yearly, which could be interesting to these buyers on the lookout for extra constant cashflows.

You possibly can obtain our full Excel spreadsheet of all 86 month-to-month dividend shares (together with metrics that matter, like dividend yield and payout ratio) by clicking on the hyperlink beneath:

However buyers 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 buyers ought to take into account 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 50 properties in its portfolio that occupy 3.2 million sq. ft of combination leasable space.

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

Modiv reported fourth-quarter outcomes on February twenty third, 2023. Adjusted funds-from-operation (AFFO) totaled $6.9 million, or $0.68 per share, simply topping the prior 12 months’s outcomes of AFFO of $2.4 million, or $0.27 per share. Income grew 63% to $14.4 million.

Nonetheless, an early termination price paid by a tenant for a California property positively impacted outcomes. Excluding this, income would have elevated 20% to $10.6 million. AFFO additionally benefited from the termination price and full 12 months AFFO of $2.22 per share was effectively forward of the $1.52 produced in 2021. The corporate has not supplied steerage for 2023, however we imagine that AFFO will normalize to $1.25 for the present 12 months absent any additional one-off advantages.

Progress Prospects

Modiv has solely been a publicly traded entity for a short while, however administration’s purpose 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 $84 million. Even after a lot of acquisitions, the full portfolio is lower than 50 properties.

It’s going to take time and capital for the belief to change into one of many bigger names in its space of actual property. REITs usually use share issuances to realize the capital wanted for acquisitions, however this comes at a price for Modiv as a result of inventory’s double-digit yield. As a result of this hefty yield, the share depend has remained comparatively secure, 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 troublesome manner ahead as effectively on account of Modiv being one of many smaller gamers in its business. Collectors could require the next rate of interest. Rising rates of interest will probably act as a headwind as effectively.

The excellent news is that Modiv’s portfolio does provide 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 few of the belief’s tenant base could be thought of 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 are leased to tenants could be thought of mission-critical for his or her enterprise, which 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 influence the necessity for these amenities. We be aware that the belief has additionally not operated below adversarial financial situations as of but.

Given the relative youth of the belief and the probability of share issuance to fund acquisitions, we imagine that AFFO will stay secure by means of 2028.

Dividend & Valuation Evaluation

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

Supply: Investor Relations

Modiv’s dividend at the moment yields 10.3%, which is greater than six occasions the common yield of 1.7% for the S&P 500 Index. This is likely one of the greater yields that the inventory has traded with since Modiv went public.

Modiv has a projected payout ratio of 92% for 2023. This can be a excessive payout ratio, even when contemplating REITs sometimes have loftier payout ratios. Whereas we imagine that the dividend yield is protected in the meanwhile, we would like a lengthier monitor report of funds earlier than totally trusting the safety of the belief’s dividend.

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

Shares of Modiv commerce at over $11 per share, giving the inventory a price-to-AFFO ratio of just below 9.0. That is barely beneath our five-year goal valuation of 9.0 occasions AFFO. Reverting to our goal valuation would add barely to complete annual returns shifting ahead. General, we mission complete annual returns of 8.7% by means of 2028, powered virtually totally by the inventory’s dividend yield.

Last Ideas

Modiv is a brand new title in actual property and has some attention-grabbing traits. The belief is motivated to develop, with acquisitions increasing its portfolio since changing into a publicly traded firm. The inventory additionally provides 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 attainable recession, may name that security into query.

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

In case you are concerned with discovering extra high-quality dividend development shares appropriate for long-term funding, the next Positive Dividend databases might be helpful:

The key home inventory market indices are one other strong useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: