If you are an income-focused investor, it can be worthwhile to consider opportunities from across the capital structure, including preferred stocks, debt and common equity. This article is part one of a two part series that looks across the capital structure to highlight a variety of increasingly attractive high-yield opportunities. Without further ado, here are the five...
5. New Residential (NRZ), Yield: 11.4%
NRZ is the common equity of mortgage REIT New Residential Investment Corp, and if you are an income-focused investor, the shares are worth considering. The yield is big, and the total returns have been great because NRZ has been a smart, innovative, leader in the residential mortgage space since it first traded publicly in 2013.
We currently own shares of NRZ in our Blue Harbinger Income Equity portfolio (and we have since the first half of 2016), and we believe its big dividend is safe for the time being for a variety of reasons, but mainly because of its ability to invest in higher yielding mortgage-related assets where few other companies have the scale and sophistication to compete. NRZ also faces a variety of risks, but the biggest risk is related to credit spreads (specifically, what could happened if mortgage related credit spreads were to widen significantly). We view this risk as unlikely for now, but still a big risk that should be monitored. We wrote in detail about NRZ for our members two weeks ago, and we’re making that report publicly available. You can read it here:
4. CBL’s 2023 Bonds (CBL), Yield: 6.1% + Price Appreciation
CBL is a retail property REIT (shopping malls), and its value has been hotly debated by both bulls and bears, especially considering its share price performance has been absolutely terrible, and its dividend has been reduced.
We acknowledge the public equity shares of CBL could have significant price appreciation potential, but they are very high risk too. Also, we have no interest in owning the high-yield preferred shares offered by CBL (not enough potential reward for the risk). However, we do like CBL’s high-yield bonds because they’re higher than equity in the capital structure (they’ll cut the equity dividend again just to support the bonds, if need be), we believe enough of CBL’s business will easily survive to support these bonds through maturity, and they also just got cheap (i.e. they sold-off inappropriately).
We presented this investment opportunity in a detailed members-only report two weeks ago, and we’re now making that report available to non-members below. The report covers, in detail, the risks, but also the attractive qualities of CBL bonds. The report is available here…
3. Teekay LNG Fixed-to-Floating Rate Preferred Stock (TGP-B), Yield: 8.9%
If you like high yield, but you are uncomfortable with the potentially very negative impacts of rising interest rates on bond prices, then there are a variety of reasons you might want to consider these preferred shares. For example, they offer a fixed-to-floating rate clause which helps reduce interest rate risks, and these shares also trade more on company-specific idiosyncrasies than on interest rate movements in general.
Further, this business is getting better for a variety of reasons. We previously wrote in detail for our members about the attractiveness of these preferred shares, and we’re now making that report available to all readers here…
2. The Capital Appreciation Fund
High-Yield Bonds, Yield: > 10%
As many readers are aware, we also contribute extensive research to a top-performing hedge fund, which helps us keep our skills very sharp. And one of the contributors to the success of that fund has been investments in specific high-yield bonds. For example, you can view our latest month-end top holdings within that fund using the following link:
Most of the top holdings have recently been high-yield bonds. And while some investors associate high-yield bonds with high risk, we believe the risks associated with these particular high-yielders are skewed strongly in our favor.
1. BlackRock Multi-Sector Income (BIT), Yield: 8.9%
If the individual high-yield investment opportunities we’ve presented so far have been too “security-specific” for you, then you might want to consider the BlackRock Multi-Sector Income Trust (BIT). This closed-end fund ("CEF") offers a big yield, a discounted price, and a variety of additional attractive qualities such as its smart sector and style tilts which dramatically reduce “security-specific” risks while still allowing for strong performance and big monthly distribution payments to investors. You can read our full BIT report here:
5 More Attractive High Yield Opportunities from Across the Capital Structure.
If you liked the ideas presented above, consider a membership to read part 2 of this report, which includes 5 more attractive high yield opportunities, all of which we currently own. Part 2 includes bond ideas, preferred stock ideas, common equities, and more.