This week’s Weekly provides an update and outlook for seven of our existing Blue Harbinger holdings. Specifically, we remain bullish on our healthcare REIT holding, we’ve seen big gains on our industrial stock purchase from last summer (and believe there are more gains ahead), we remain comfortable with our commercial real estate position (despite signs the industry may soon slow), and finally, our four recent closed-end fund purchases have seen their discounts to NAV decrease (a good thing), they continue to pay very large distributions, and we remain very bullish on their strategies.
1. Omega Healthcare Investors (OHI)
Omega is a big dividend (7.9%) healthcare REIT we own in our Blue Harbinger Income Equity strategy, and it had a volatile week. OHI announced earnings on Wednesday, and the stock was down 5% on Thursday. It recovered slightly on Friday and finished the week down 3.0%. Earnings was positive, but the market did NOT like flat AFFO (adjusted funds from operations) guidance for 2017.
We’ve written about OHI multiple times recently (see article links below), and we remain bullish on the stock going forward mainly because it has demographics on its side (an aging population) and because we believe the market is overly pessimistic about potential changes to the Affordable Care Act under President Trump and the Republican controlled House and Senate.
Omega Healthcare: Big Dividend, 3 Big Risks (27-Nov-16)
Top 3 Big-Dividend REITS Worth Considering (26-Jun-16)
We’re NOT buying more shares on this decline because OHI remains a decent size (percentage) within our diversified Income Equity portfolio (we believe strongly in not putting all your eggs in one basket), but we do believe strongly in this big-dividend payer over the long-term, and if you don’t already own it, now may be a good time to consider it.
2. Emerson Electric (EMR)
Emerson Electric has experienced nice gains since we added it to our Disciplined Growth portfolio on August 26, 2016 (its price is up 18%, and that doesn’t even count the dividend payments, the current dividend yield is 3.0%). Importantly, we believe this stock has continued upside ahead.
Emerson announced earnings this past week, and they were better than expected. According to Chairman and Chief Executive Officer, David N. Farr:
"Our strong first quarter results, which surpassed expectations, represent a solid start to the fiscal year and reflect an improving overall economic environment… The benefits from our restructuring actions during the past two years played a critical role in our ability to deliver higher margins across many of our businesses. Considering the improving demand conditions during the quarter, particularly in the automation markets, we are increasing our 2017 full-year EPS guidance by 12 cents at both the top and bottom end of the range, including the 7 cent income tax benefit in the first quarter."
Two things worth noting about Emerson are that it’s a “dividend aristocrat” (meaning it’s increased its dividend every year for more than 25 years in a row), and it’s the type of company President Trump likes (i.e. it’s headquartered in Missouri, a pro-Trump state, and EMR builds products- a theme that theoretically fits the President’s “USA first” theme).
We continue to own EMR (in our Disciplined Growt Portfolio) for its above average, safe and growing dividend, and because we believe the stock has more upside ahead. You can read our previous EMR write-up here.
3. EastGroup Properties (EGP):
EastGroup Properties is an industrial property REIT, it pays a big 3.5% dividend, and we own it in our Income Equity Portfolio. Despite its strong gains over the last year, we continue to like it because of its prime property locations. There are growing concerns that commercial real estate in general may be overheating (for example, the SIOR Commercial Real Estate Property Index is registering high levels), but we continue to believe EGP is in better shape than many of its commercial (particularly industrial) REIT peers because of its prime locations and conservative dividend policies.
A couple of our previous write-ups on EGP are available here…
Our Recent Closed-End-Fund (CEF) Purchases (THW, ADX, RMT, RVT)...
4. Tekla World Healthcare Fund (THW):
We are happy with the four CEFs we purchased at the beginning of 2017. They have all experienced declines in their discounts versus net asset values (NAV) since we bought them (a very good thing), and we remain bullish on their strategies. In particular, we are bullish on the healthcare sector from a contrarian standpoint, and the Tekla World Healthcare CEF (THW) is a great way to play the sector because it offers diversified active exposure, it still trades at an attractive discount to its NAV, and it distribution yield is very big and attractive. You can read our write-up on THW here…
5 & 6. Royce Value- and Micro-Cap Trusts (RVT and RMT):
Similarly, we continue to be very happy with the performance and prospects of the two small cap CEFs we purchased in January (RVT and RMT), both of which are managed by Royce Funds. Royce is a highly regarded name in the small cap space, the management team is top-notch, the track record is stellar, the fees are very low for a CEF, and the distribution payments are very attractive for income-focused investors. They’ve both started to experience a shrinking discount to NAV (a good thing) and we like the active small cap space going forward. You can read our write-up on these two funds here…
7. Adams Diversified Equity Fund (ADX):
Finally, we are very happy with our January purchase of the Adams Diversified Equity Fund (ADX). This is the fund that’s been paying distributions for over 80 years. It’s conservatively managed to deliver big distribution payments and growth of capital, and its discount to NAV has decreased since we bought it (a good thing). ADX still trads at a large discount to its NAV, which makes for an attractive entry point for new investors in our view. You can read our January write-up on ADX here…
Lastly, and very important to note, each of these seven big-dividend payers should be just one position within an overall diversified investment portfolio. In addition to identifying attractive investments, diversification is a critical part of prudent long-term investing. You can view our diversified Blue Harbinger investment portfolios here.