This Magnificent High-Yielding Monthly Dividend Stock Is Down 39%. Buy It Before It Sets a New All-Time High.

EPR Properties (NYSE: EPR) does a magnificent job generating passive income for its investors. The real estate investment trust (REIT) pays a high-yielding 6.9% dividend, much higher than the S&P 500's 1.3% Furthermore, unlike most stocks, it pays dividends each month instead of the typical quarterly schedule. That combination of yield and frequency makes it a great passive income investment.

EPR Properties' yield is so high because it trades nearly 40% below its all-time high. However, the stock has been rallying, up nearly 25% over the past year, and should continue heading higher. Here's why dividend investors will want to scoop up shares of this REIT before it hits another all-time high.

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The REIT's headwinds are fading

Two factors have weighed on shares of EPR Properties in recent years: pandemic-related tenant issues and higher interest rates. The pandemic had an outsize impact on EPR Properties because it owns experiential real estate such as movie theaters, attractions, and other entertainment properties. Its tenants had to close their doors during the pandemic, which significantly affected their ability to pay rent, forcing EPR to temporarily suspend its dividend. One of its theater tenants ultimately filed for bankruptcy protection.

However, with the pandemic in the past, most of the REIT's tenants are in much stronger financial positions. It has collected all the rent it deferred and renegotiated its lease with the theater tenant. These improvements enabled EPR to reinstate a dividend. While it reset the payment at a lower rate than it had been paying, the payout has steadily increased.

Rising interest rates are another factor that has affected EPR Properties in recent years. Interest rates and commercial real estate values tend to move in opposite directions. So as rates have risen, the value of the REIT's portfolio has fallen, taking its stock price down as well. That has increased EPR Properties' cost of capital, making it more difficult to fund new investments by selling stock and issuing new debt.

This headwind has also started to fade over the past year as the Federal Reserve has reduced interest rates. That's a big reason its stock price has been on the rise.

Dual catalysts could push EPR Properties to a new peak

EPR Properties' headwinds have slowed its ability to grow. The REIT hasn't been able to issue more stock to fund accretive new investments. Instead, it has had to rely on a combination of post-dividend free cash flow, non-core property sales, and its balance sheet flexibility to fund new investments.

Those capital sources were enough to fund $263.9 million of new investments last year. Meanwhile, it expects to make between $200 million and $300 million of new investments this year. That investment rate is enough to increase its funds from operations (FFO) by about 3% to 4% per share each year. It can also support a similar annual dividend growth rate. EPR raised its payout by 3.5% earlier this year and 3.6% last year.

However, as interest rates continue to fall, EPR Properties' cost of capital should improve to the point where it can make additional accretive investments that it can fund by issuing new stock. Those investments would enable the REIT to grow even faster.

Faster growth should further bolster the REIT's valuation because investors tend to pay more for faster-growing companies. EPR Properties currently trades at a little more than 10 times its FFO estimate for this year. That's cheaper than other REITs. For example, Vici Properties, which owns casinos and other experiential real estate, trades at nearly 14 times its 2025 FFO estimate.

That potential combination of accelerating earnings growth and valuation expansion could push EPR's stock price back toward its all-time high.

An attractive investment opportunity

EPR Properties is down sharply from its all-time high because of pandemic-related issues and higher interest rates. However, with those headwinds fading, the REIT should be able to ramp up its investment rate, which should help further bolster its valuation. In the meantime, investors can lock in an attractive yield on this excellent income stock while it continues its recovery.

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Matt DiLallo has positions in EPR Properties and Vici Properties. The Motley Fool recommends EPR Properties and Vici Properties. The Motley Fool has a disclosure policy.