A lot of people don’t understand preferred stocks, yet they can be quite attractive sources of income. And with interest rates near all-time lows, and market volatility and fear elevated, now is an outstanding time to consider select preferred share investments. In this report, we countdown our top 7 big-dividend preferred stocks, starting with number 7 and finishing with our top idea.
LNG Shipper: 9.6% Yield Common, 9.3% Yield Preferreds
This LNG shipping business has been improving, and there are reasons to believe the common units have significant price appreciation ahead. However, if you prefer a similar high yield without as much risk, you might also consider the preferred shares (they too offer price appreciation potential, just not as much). In particular, and despite the highly cyclical LNG shipping industry, this company has an impressive history and opportunity for consistency in the quarters and years ahead, stemming from its fully-fixed fleet for the remainder of this year and 94% fixed for 2021 (thereby largely insulating it from the current weak short-term LNG shipping market). In this article, we review the health of the business, cash flow position, balance sheet flexibility, valuation, risks, dividend safety, and conclude with our opinion about why company is worth considering if you are a long-term income-focused investor.
Mortgage REIT Preferred Shares: Attractive 8.4% Yield, Discounted Price
The common shares of this once beloved mortgage REIT suffered significant equity erosion earlier this year (and it was forced to cut its dividend by 90%) as it was hit with margin calls and forced to liquidate assets at depressed prices during the market-wide Covid-19 sell-off. Since then, the company has been limping its way back towards better health, albeit with a significantly less valuable book of business. Furthermore, the company’s three series of preferred shares still trade at attractively discounted prices and offer compelling high yields (they are also insulated, from some risks, by the company’s common shares). In this article, we review the business, the shares (common and preferred), and then conclude with our opinion on investing.
Annaly Preferred Shares: Big Yield, Discounted Price, A Few Risks to Consider
Annaly Capital is a mortgage REIT (the company basically borrows money against its book value to buy mortgage related assets, mainly agency RMBS), and it often captures the eye of income-focused investors because it offers a high yield. Mortgage REITs have been through a lot this year as liquidity challenges caused heightened volatility. However, not all mortgage REITs are created equally. In this article we review Annaly Capital, with a particular focus on the preferred shares. The preferreds offer compelling high yields, price appreciation potential and they are safer than the common. We consider Annaly’s current balance sheet and liquidity, credit spreads, share price action, valuation and the big risks. We conclude with our opinion on investing.
This 9.4% Yield Bond CEF Is Worth Considering
We currently own this 9.4% yield BlackRock Closed-End Fund (CEF) for its many attractive qualities. We last wrote about the compelling bond CEF opportunity in late March when the markets were falling apart due to covid fears (for example here and here), and as you can see in the following chart, shares have since rebounded strongly. However, we believe the price remains attractive, and in this article we review the compelling qualities and important risks (buying opportunities) to watch. Worth mentioning, despite volatility, it has never stopped paying (or even reduced) its big Monthly dividend payments to investors.
This Healthcare Diagnosis Stock: +50% Upside in 6 to 12 months
This particular company is a rapidly growing leader in cancer prevention and diagnosis, with high margins and a large total addressable market. However, the shares have recently sold off based on short-term fear (COVID-19 has temporarily slowed screening, but will ultimately accelerate adoption) and shortsightedness related to profitability. As a result, the valuation is now quite attractive relative to the long-term opportunity. In this article, we review the business, the growth opportunities, recent performance and valuation, risks and conclude with our opinion on investing.
Why This Tiny Digital Advertiser's Shares Could Soar
The COVID-19 pandemic has created tremendous challenges and opportunities. And in the case of this tiny digital advertising firm, the opportunity has been magnified not only by the pandemic, but also by the firm’s own specific challenges and now recent merger. In fact, advertisers have significantly reduced digital ad spend in the short-term (which has magnified pressure on these shares), but as we head into 2021, digital ad spend is expected to resume rapidly, and it could slingshot these shares higher, especially considering the improved long-term business model and enormous market opportunity.
Tsakos Preferreds: Despite Risks, Attractive +10% Dividend Yield, Capital Appreciation Potential
If you are an income-focused investor, these preferred shares are worth considering. Despite the risks (such as a high debt load, a growing amount of preferred share dividend payments, significant fleet depreciation and the first decrease in oil demand since 2009), there are reasons to believe this investment opportunity is very attractive. For example, the company has historically navigated through many crisis situations, thanks in large part to its fixed-rate chartering policy. Further, the company has a diversified fleet and a consistently improving debt profile (albeit with growing preferreds). Further still, efforts to improve the common stock’s price (via a reverse stock split), the expected recovery in charter rates (from an anticipated oil demand rebound in 2021) and a possible tanker supply imbalance (created by the implementation of IMO regulations), all bode well. Overall, we like the deeply discounted price on the preferred shares, especially considering the big stable dividend payments to investors.
Top 10 Big-Dividend REITs
Over the last six months, Real Estate (XLRE) has been one of the worst performing sectors of the market, but that could be about to change. With the amazing growth stock rally starting to wobble, select REITs are looking particularly attractive as the world begins to get a better grip on covid. Obviously, the pandemic challenges are great and in many cases they add to the struggles of a secular demise in some brick-and-mortar commercial real estate. Nonetheless, select REITs are particularly attractive, and this report ranks our top 10 big-dividend REITs (5% yields and above), counting down from #10 to #1.
Brookfield Property REIT: 11.5% Yield, Higher Risk
Brookfield Property REIT (BPYU) offers an 11.5% dividend yield that is hard to ignore. While clearly there are concerns given its exposure to malls and retail, we believe the backing of parent, Brookfield Asset Management (BAM), will help it weather the storm. BAM’s decision to fund BPYU’s tender offer is a vote of confidence in the business, and it also signals to investors that the current valuation may be a bargain. If you have a higher tolerance for volatility and risk in your portfolio, you may want to consider adding shares. This article reviews the health of the business, valuation, risks, dividend safety, and concludes with our opinion about investing.
Microsoft: Growth, Cash Flow and Perhaps TikTok
Microsoft (MSFT) has experienced an impressive turnaround over the last few years. The company’s top-line growth has been fueled by its cloud computing solutions. Demand for cloud computing has been on the rise and has seen acceleration post COVID-19 due to a global push for business digitalization. More recently, Microsoft has been in the news after announcing that it (along with Walmart (WMT)) is in talks with ByteDance to acquire social media app TikTok’s business in certain countries including the US. In this report, we analyze Microsoft’s business model, its market opportunities including the potential TikTok transaction, competitive positioning, valuations, risks, and finally conclude with whether an investment in the company’s stock offers an attractive balance between risks and rewards.
Simon Property Group: 8% Yield, Discounted Price, Real Risks
Retail REITs have been among the hardest hit stocks during COVID19 lockdowns, and blue-chip Simon Property Group (SPG) has not been spared. Its dividend has been reduced significantly and its share price has fallen dramatically. Furthermore, its former Taubman Centers (TCO) deal, recent retailer buying spree and rumors of a deal with Amazon (AMZN), complicate matters further. In this article, we review the health of the business, valuation, risks, dividend safety, and conclude with our opinion about whether SPG is worth considering if you are a long-term income-focused investor.
Portfolio and Tracker Tool Updates
We do not trade often at Blue Harbinger, but we have just made significant updates to both our Income Equity and Disciplined Growth portfolios. This report provides an overview of the changes, as well as details on why we made the changes. We also highlight some updates to the website, such as the new home page and the new portfolio tracker tool (both are designed to be more useful to readers).
Verizon: 4.2% Dividend Yield, Oasis or Mirage?
Compared to high-flying tech stocks, dividend stocks have fared poorly since the onset of the pandemic, and some investors are left wondering if this trend is permanent. Verizon (VZ) is one such stock that investors have grown to trust (14 consecutive years of dividend increases), but just how safe is its business model? In particular, will its recurring subscription revenue stream (mainly from its wireless business) keep cash flowing? This article reviews the health of the business, valuation, risks, dividend safety, and concludes with our opinion on whether Verizon is worth considering if you are a long-term income-focused investor.
Income via Growth Stock: Time to Sell Put Options?
This powerful consumer internet company operates a leading digital entertainment business as well as an e-commerce platform and a digital financial services operation in Southeast Asia. The company operates in some of the fastest growing economies in the world. And it is benefiting from the tailwinds of global “Stay-at-home” orders. Not surprisingly, the stock has rallied over 200% since the start of the year. In this report, we analyze the business model, competitive strengths, financial position and finally conclude with our opinion on the stock’s risk-reward (as well as an interesting options trade idea that generates attractive upfront premium income).
Federal Realty: A Dividend Aristocrat Among REITs
Despite having just increased its dividend for the 53rd consecutive year, retail REIT Federal Realty Investment Trust (FRT) has been hit hard by the current pandemic. Conditions have started to improve (e.g. more tenants are re-opening and cash collections are increasing), but in order to succeed FRT will need to make smart capital allocation decisions and manage its liquidity carefully (its dividend payout ratio is near the high end of its historical range). This article reviews the health of the business, valuation, risks, dividend safety, and concludes with our opinion on whether FRT is worth considering if you are a long-term income-focused investor.
Income Via Growth: A Post-Pandemic Cybersecurity Winner
From time to time, we like to share highly attractive “income-via-growth” opportunities, and this is one of those times. This article is about a stock that pays zero dividend, but can provide a lot of spending cash to investors through long-term price appreciation. We believe it’s a good idea to sprinkle a few of these types of stocks into your portfolio, but if you are looking strictly for high dividend stocks, this article is not for you.
AT&T's +7% Dividend Yield: It's a Pandemic!
AT&T’s (T) share price has declined dramatically this year (due to the global Covid-19 pandemic), similar to declines when the Tech Bubble burst (early 2000’s) and during the Financial Crisis (2008-2009). However, AT&T’s dividend has continued to steadily rise for over 36 consecutive years (it’s a dividend aristocrat), and the current yield (over 7%) is the highest it’s been during the past two decades. This article reviews the health of the business, valuation, risks, dividend safety, and concludes with our opinion about investing in AT&T.
Income Via Growth Stock: Bringing Much Needed Innovation to Healthcare
It can make a lot of sense for income-focused investors to generate some of their income from something other than dividends. And in this article we review an outstanding opportunity to generate attractive income through price appreciation. Specifically, this particular stock has a SaaS-style business model with predictable cash flows, a first-mover advantage, a large and growing addressable market, improving profitability, and a strong financial position. Yet even though its premium valuation is understandable, some investors may choose to only nibble at this opportunity now while hoping for a pullback to load up on more shares later.
Undervalued BDC: Big Climbing Dividend (9.4% Yield)
This BDC’s decision to defer its dividend led to a sharp decline in share price. We believe fears are overblown given its solid portfolio, liquidity and track record of outperformance. Even after the most recent partial reinstatement of the dividend, the stock is trading at nearly 30% discount to NAV, and we believe it offers an attractive entry point for investors with a little appetite for risk. We do caution that a prolonged and severe downturn remains a risk to our thesis. This article reviews the health of the business, valuation, risks, dividend safety, and concludes with our opinion on investing.