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Top 5 Big-Yield Low-Risk Opportunities

This week’s Blue Harbinger Weekly is a continuation our free report titled 10 Big-Yield Low-Risk Investments Worth Considering. However, this members-only report includes details on the Top 5 Investments. Without further ado, here is the list:


5. OneBeacon (Yield 6.1%)
OneBeacon (OB) is a boring, low beta, low volatility, property & casualty insurance company that offers a big safe dividend yield (6.1%). Because of the nature of its business, it is a great diversifying “widows and orphans” stock, and it that can be very valuable within the constructs of a diversified, income-focused investment portfolio. The stock is trading 11.7% off its 52-week high providing an attractive entry point. You can read our recent report on OneBeacon here.

4. M&T Bank Preferred, Series C (Yield 6.2%)
M&T Bank offers Series C preferred shares with an attractive 6.375% coupon payment (the coupon was originally 5%, but was subsequently increased with amended prospectus approval). The shares trade for slightly above par bringing the yield closer to 6.2%, however this remains attractive considering the safety of the company and the artificially low interest rates that have been set by central banks around the world. Worth noting, the dividends are eligible for preferred tax rates of 15% to 20% (depending on your tax bracket). We believe M&T bank has dramatically reduced its risk exposures since the shares were first issues (a good think for preferred investors). You can read our recent full report on M&T Bank here.

3. Phillips 66 (3.2% Yield)
Phillips 66 has recently under-performed the market because investors are too focused on the short-term crack spread impacts, rather than on the long-term growth into chemicals and midstream businesses. It is also a cash generation machine with a big growing dividend. Warren Buffett recently increased his ownership to nearly 15%. We own it in our Blue Harbinger Income Equity portfolio because we believe the dividend is safe, the dividend will grow, and the share price will eventually go much higher over the long-term. You can read our recent Phillips 66 report here.

2. EastGroup Properties (3.3% Yield)
EastGroup Properties (EGP) is a blue chip, prime location, industrial REIT with a big safe dividend yield. And as interest rates stay low for longer, we believe more income-hungry investors will “discover” EastGroup. It operates across the US sunbelt markets (including Florida, Texas, Arizona, Mississippi, and North Carolina). EastGroup competes on location (not rent), and clusters properties around a variety of transportation features. EastGroup has increased or maintained its dividend for 23 consecutive years (they’ve increased it in 20 of the last 23 years, and each of the last four years). If you are looking for lower-risk attractive dividend payments, EastGroup is worth considering. We own it in our Blue Harbinger Income Equity portfolio.

1. Omega Healthcare (6.4% Yield)
Investor fear over potential healthcare law changes have caused valuations for skilled nursing facility REITs (such as Omega Healthcare, OHI) to fall far behind the valuations of other REITs. For example, the following chart shows OHI’s Price-to-FFO ratio (funds from operations) relative healthcare REIT peers that are less exposed to skilled nursing facilities).

e believe the market is overly pessimistic, and underappreciating the enormous demographic tailwind at Omega’s back (i.e. the population is growing, as is the need for skilled nursing facilities). Omega is very profitable consistently growing its net income and trading at only 10.9 times its forward funds from operations. It also easily covers its dividend payments with an AFFO payout ratio of less than 85%, and a FAD (funds available for distribution) payout ratio of less than 90%.

With artificially low interest rates around the globe, investors have bid up the price of most lower-risk higer-dividend equities, however OHI has lagged other investments in this category due to an overly fearful investor base. We believe Omega is underappreciated, and its price will increase as investors get sick of chasing other REITs with rich valuations. We own OHI in our Income Equity portfolio.

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