The Fed hiked rates, the FDIC continued to bail out depositors and select big-yield opportunities became decidedly more interesting. Specifically, many big-dividend REITs and BDCs are down big this year; and some of them are actually attractive. In this report, we share updated data on over 100 big-yield REITs and BDCs, and then conclude with information about our top 27 favorite big yielders, ranked.
Update: 40 Big-Yield BDCs, Silicon Valley Bank Warning
As mentioned in our previous note, BDCs are like banks, only riskier. Not only are BDCs facing increasing stress due to slowing economic growth and increasing interest rates (i.e. the tradeoff between higher floating rate interest payments received and higher default risk on loans), but some BDCs (such as those focused on venture capital) are dramatically over-exposed to fallout from the Silicon Valley Bank mess. In this note, we share updated data on 40 BDCs, and then dive deeper into 4 specific venture-capital-focused BDCs—and how we expect them to fare in light of the SVB mess—buyer beware!
Adobe (ADBE) Earnings Note
This highly-profitable “creative” software company announced powerful revenue and operating income on Wednesday after the close (the shares are up significantly Thursday), and it’s well-positioned to keep driving profitable growth for the decade ahead. Its products benefit from strong moats (high switching costs), increasing subscription revenue and lots of cash flow to fund growth and buy back shares. This is a business that is positioned to weather the economic cycle well, and it trades at very reasonable valuation multiples, especially considering profit margins and revenue growth guidance both remain robust.
SOFI: Fear Creates Opportunity
SoFi Technologies (SOFI) is a financial services company, focused mainly on lending (see Income Statement operating segments below). And the shares are currently getting pummeled for one main reason: Fear. Specifically, fear of the upcoming Supreme Court ruling on student loan forgiveness and fear of banks defaulting (i.e. contagion to the financial system from the recent run on Silicon Valley Bank (SIVB)). In this note, we quickly review SOFI’s business and valuation, and then conclude with our strong opinion on investing (i.e. is the recent sell off an opportunity or a warning).
Ares: 40 Big-Yield BDCs, Silicon Valley Bank Warning
Business Development Companies (“BDCs”) are like banks, only riskier. And some BDCs are heavily concentrated in the venture capital (“VC”) space, just like Silicon Valley Bank (SIVB) that just shuttered its doors as the result of a VC-led bank run. In this report, we review Ares Capital (including its investment industry exposures and risks) and then compare it to 40 other BDCs, including four in particular that are heavily concentrated in the VC space. We conclude with our strong opinion about investing in BDCs, Ares Capital and VC-focused BDCs in particular.
Update: PDI and PTY: Ugly ROC, Buyer Beware
UPDATE: Unbeknownst to many investors, PIMCO’s big-yield funds, PDI and PTY, are including a significant return of capital in their beloved big distributions (and it’s largely hidden through derivative swaps transactions). We reached out to PIMCO for comment, and found their replies (included in this report) concerning. These two big-yield PIMCO funds are simply not as good as many investors believe. Caveat emptor.
Small Cap Stock: To Benefit from IIoT, Attractive Valuation
The small cap stock we review in this report enables machines to communicate with each other and it is well positioned to benefit from vast and expanding new opportunities related to the Industrial Internet of Things (“IIoT”). It’s also being valued incorrectly because supply chain issues are being misunderstood (and they will clear up) and because it’s being valued like a traditional hardware company without proper recognition for its growing subscription revenue model (which warrants a higher multiple). In this report, we review the business, the expanding market opportunity, valuation and risks, and then conclude with our opinion on investing.
PDI and PTY: Ugly ROC, Buyer Beware
The PIMCO Dynamic Income Fund (PDI) and PIMCO Corporate & Income Opportunity Fund (PTY) are absolute favorites among many income-focused investors. They both have long track records (one decade and two decades, respectively) of successfully delivering big monthly income payments (they currently yield 13.5% and 10.6%, respectively) and because they’ve sourced all that big income over the years without the return of capital (“ROC”) that plagues so many other high-income funds. However, a look under the hood reveals that these two PIMCO trophy funds have, in fact, been using ROC to fund their distributions (despite marketing materials that suggest otherwise). In this report, we review all the important details and then conclude with our strong opinion on investing—caveat emptor!
BDCs: Financially Strong, Despite Deteriorating Market
80 Big-Yield REITs: Residential Is Ugly, Office Is Worse
Top Growth Stocks - Still Hated
In this quick note, we share updated data on top growth stocks (those with at least 20% revenue growth expectations for this year and next). You’ll notice the names with positive net margins have performed relatively better over the last year (quite the opposite of when the pandemic bubble had full momentum behind it and revenue growth was all that seemed to matter). The table also shows recent performance, short interest, margins, various valuation metrics and more. It’s hard to take a contrarian view, but that’s often a profitable approach for selective long-term investors at lower points in the market cycle (i.e. right now).
6.1% Yield Bond ETF: Matures in December
Bonds have been a disaster for many investors over the last year. As interest rates have risen, bond prices have fallen, and “safe” bond funds have delivered very negative returns (such as (BND) (HYG) and (PDI), to name a few, see chart below). In this report, we review a bond ETF that pays monthly, offers a 6.1% yield and avoids all the interest rate risk (i.e. if you hold it until maturity in December, your annualized yield to maturity will be 6.1%). We review all the important details and then conclude with our strong opinion on who should consider investing.
Quick Note: Medical Properties Trust Update
Members Mailbag: Medical Properties Trust (MPW) is a big-dividend healthcare REIT (the current yield is 10.4%) that has increased its dividend for 10 years in a row. This makes it tempting to a lot of investors. However, MPW short interest (i.e. investors betting against the shares) has also increased to a very high level (and the shares are down significantly). We previously wrote up MPW in detail here. In this quick note, we provide an update on MPW highlighting a few important things for investors to consider.
CEF: 6.9% Annual Yield, Attractive Strategy
If you are truly a long-term income-focused investor, the closed-end fund (“CEF”) we review in this report is attractive for a variety of reasons. For starters, it offers a 6.9% yield and it trades at a compelling discount to its net asset value (“NAV”). However, we particularly appreciate the fund’s flexible, low-turnover and prudently-concentrated long-term strategy (not to mention its very long-term track record of success). After reviewing these qualities, plus multiple critical risk factors, we conclude with our opinion on why this fund remains such an extremely attractive long-term opportunity for income-focused investors.
Big-Yield mREITs: P/B Data and Ratings
Top 25 Big-Yield Funds, Ranked (6.0% to 12.0%+ Yields), ETF and CEF Edition
If you like your investments to pay you high income now—this report may be right for you. We countdown our top 25 big-yield Exchange Traded Funds (“ETFs”) and Closed-End Funds (“CEFs”) with yields of 6.0% to over 12.0%, and carefully highlighting the important nuances of these two distinct investment vehicles, while also avoiding the gimmicky yield traps that sadly dupe so many unsuspecting investors. We start with some high-level advantages and disadvantages of ETFs versus CEFs, then rank our top big-yield funds, starting with #25 and counting down to our top ideas.
PFF: 40 Big-Yield Preferred Funds, Compared
Preferred Stocks are often misunderstood. They can grab the attention of income-focused investors because of their big yields, but beyond that—many investors just don’t understand how they work. In this report, we review the nuances of preferred stocks (that investors absolutely need to know), and then share data on 40 big-yield preferred stock funds, with a special focus on PFF, plus a few more in particular that are worth considering. We conclude with our opinion on who might want to invest, and how best to go about doing that.
The “High Income NOW” Portfolio
9.6% Yield BDC: Risks and Rewards Increasing
The business development company (“BDC”) we review in this report is attractive to many income-focused investors (the current yield is 9.6%, paid quarterly). However, the entire BDC industry is facing growing challenges as the benefits of rising interest rates are increasingly offset by the challenges (portfolio company defaults) caused by an economy headed towards recession. In this report, we review the company (including an overview of the business, the current market dynamics, dividend strength, valuation and risks) and then conclude with our opinion on investing.
Microsoft (MSFT) ChatGPT Note
Microsoft moved fast to recently invest $10 billion in ChatGPT (an artificial intelligence (A.I.) “chat bot” released in November), and on Tuesday MSFT shares were up as the company shared news on how it plans to use the new technology. In this note, we share some brief information and opinion on the Microsoft news.