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Category: Dividend Stock (Page 1 of 3)

Principal Real Estate Income Fund – Monthly Dividends

Principal Real Estate Income Fund (PTZ) is a closed-end ETF that invests in high yielding debt and equity commercial REITs. This may sound dangerous in the current environment especially with many businesses with the potential of closing or going bankrupt. However, PTZ has been a consistent dividend payer monthly and, unlike other stocks where many have suspended their dividend, Principal Real Estate Income Fund has already announced dividends to be paid for May and June.

Let’s delve deeper into the closed-end fund and see how safe the company is to continue to pay the dividend.

Principal Real Estate Income Fund is managed by the ALPS Advisors, Inc. The advising company was founded in 1985. From their website, they state that the management team has more than 23 years experience which means they have been through two of the big recessions of 2008 and 2001. It is a positive that they have experienced two major downturns in the economy. However, they still weren’t immune to the March 2020 downturn falling over 50% in stock price.

Looking at their holdings as of 4/30/2020, their biggest holding is JPMorgan Chase Commercial Mortgage Securities Trust at 5.65% of their Total Market Value followed by Goldman Sachs Mortgage Securities Trust which is 4.87% of their Total Market Value. The close-end ETF has a total of 130 holdings that consists of majority Mortgage Securities Trust, Mortgage Trusts, and equity REITs. Around 67% of the holdings are Mortgage Trusts and Mortgage Securities Trust, this does sound a bit dangerous in the current environment especially if their customers do not make their mortgage payments.

Fortunately, the Federal Government announced they would be purchasing commercial debt through their TALF 2.0 program. TALF 2.0 revives the Term Asset Backed Securities Loan Facility (TALF) that was used in the 2008 Great Recession. TALF allowed the FED to purchase commercial backed mortgage securities. TALF was successful in the 2008 Great Recession to reviving the commercial market.

The new program TALF 2.0 allocates up to $100 billion to support asset based security markets. On April 9, 2020, the Federal Reserve announced TALF would include commercial mortgage backed-securities which means the majority of Principal Real Estate Income Fund would be included in that program. However, there is plenty of highly leveraged companies that can easily force the Federal Reserve to use their max allocation of $100 billion.

Let’s look at the original TALF program that was implemented in 2008 to see how things could possibly play out in the 2020 stock market. The TALF program was originally announced in November 2008. The S&P hit a all-time low of 741 when it was announced. This was a huge drop from S&P being at 1313 in August 2008 and S&P at 1576 in October 2007. This is a 43.5% drop and 52.9% drop respectively. On February 10, 2009, the Federal Reserve announced they would expand the Term Asset-Based Securities Loan Facility. This announcement still did not prevent the stock market from dropping further as it hit a S&P low of 666.

If there was another meltdown in the credit market and the Federal Reserve ends up using the $100 billion allocation, I believe the FED will do whatever it takes to make sure the market survives as they did in 2009. In this most recent TALF 2.0, the FED did act rapidly and announced the program a week after the March lows. I believe that the FED will continue to act rapidly in response to any future downturn as well. It remains to be seen how far the commercial market can go down which puts the investment in PTZ to be a bit risky. In the long-term, as long as the Federal Reserve can make afford payments to shore up the commercial market, then PTZ should continue to pay dividends and survive any downturn.

Principal Real Estate Income Fund is currently offering a substantial yield at over 10%. It remains to be seen if they will cut or suspend the dividend like many real estate investment trusts have already done in this pandemic. I believe that the FED will do whatever its needed to shore up the commercial market including purchasing more commercial mortgage backed securities and continue purchasing corporate bonds and even start a program to purchase equities. Of course, when things do get worse, PGZ will have a dip in price which should give you ample opportunity to get purchase more. However, at the current price, PGZ does give a substantial yield so there’s no reason not to at least purchase a small allocation to diversify your portfolio. I would not recommend putting all your “eggs” into PGZ as there should be plenty of opportunities to buy in future dips as well.

Granite Point Mortgage Trust – Strong Buy!

Granite Point Mortgage Trust (GPMT) is a mortgage reit that purchases floating-rate mortgage loans. From the initial outlook, especially at this time, purchasing commercial loans is risky. That means their loans are not backed federally like agency debt. To remedy this concern, they do use less leverage than other mortgage reits. At 63% loan-to-value, they are more conservative in the other players in this space.

However, even with a 63% loan-to-value, there is still lots of risk for default. However, their earnings report showed from a couple weeks ago that their is plenty of upside in this stock. First, their book value was a very high $17.43. At their current stock price of $5, the stock is trading at a very discounted value that is more than 70% off. This is the most discounted mortgage reit out of all the stocks that invest in commercial loans.

Digging deeper into the earnings report, they reported that only one of their commercial loans did not make the payment for the quarter. That means 123 out of 124 of their mortgage loans are current. This shows that the management is experienced to handle this recession and are conservative to make the company can survive.

You might wonder why their price is so cheap compared to their competitors. One of the main issues is they suspended their dividend. Their competitors continued to pay a dividend which kept their stock price higher. The should be a positive for investors wishing to get into GPMT.

You get in at a very affordable price for a stock that will pay a strong yield over 10% when they put the dividend back in place. There was a sell-off when the dividend was suspended. Many expected that GPMT might go bankrupt or get “margin called” on their portfolio. However, none of this was true. The company was just acting conservatively and making sure they have enough reserves to handle the situation.

At the current price of $5, there is plenty of upside in the stock in both price appreciation and dividend yield. Their most recent dividend was $0.42 which was recorded on December 31, 2019. If that dividend gets reinstated on the 2nd half of 2020, you can expect a dividend yield of 33.6% at a purchase price at $5. I would be more conservative and expect them to put the yield at 10% though. Either way, the stock is really cheap and you have plenty of upside from here.

Expect More Downside and More Bargains

This has been the most rapid drop in the stock market EVER! The closest one to do this dramatic drop was in 1987 with the oil crisis. We are now facing an oil crisis but that is in small part of the major issue with the Covid-19 virus shock which is a global epidemic that will affect substantially affect the economy. The government has just started the stimulus plan early to keep the economy and banks going. The House has just passed the $2 trillion stimulus plan which was recently signed by Senate and President Trump. In 2009-2009 in the Great Recession, the stimulus plan came later in the recession which meant a major mess for the economy and affected many households and businesses.

This expected stimulus plan will bring money for big businesses, small businesses, wall street, and families almost immediately. The form of this stimulus is planned to come quickly without major paperwork to help Americans as quick as possible. In addition, the Fed Chairman Jerome Powell also planned earlier this week to provide Unlimited QE, purchasing of Mortgage-backed Securities and stocks, and possibly even supporting the stock market by purchasing ETFs. The government even has given a contract to BlackRock to stimulate the economy by purchasing in the bond market.

There will be plenty of bargains moving forward but a couple recent ones that come to mind are in the mortgage-backed securities market. There are two stocks AGNC Investment Corp (AGNC) and Annaly Capital Management (NLY) that invest in primarily Agency securities. These Agency securities are backed the government which means they are insured by the government. These are the safest of the mortgage reits and will perform well in the long term. The short-term will have plenty of volatility and can definitely go down further in the market.

On the closing of March 27, 2020, Annaly Capital Management (NLY) closed at $6.13 with a yield of 16.3%. AGNC Investment Corp (AGNC) closed at $13.15 with a yield of 14.6%. These dividend yields are absurdely high and most likely will drop as book value goes down with the economy recession. However, there stock prices are very cheap and for the long-term investor will bring massive returns.

For the more conservative investor, I recommend the preferred shares which all earn a substantial return over 10%: NLY-PD returns 8.9%, NLY-PG returns 8.3%, AGNCN returns 7.8%.

I recommend watching these and purchasing them at a LOWER price as the bear market continues. There will be plenty of bargains for the long-term investor.

Invest in Energy with LPs

I’ve been looking at Energy stocks as I think the quarter will be bullish for them as oil prices go up. As I further my search, I noticed that the smaller companies do pay a substantial dividend. These companies usually have a higher deviation and move up and down more violently which puts bigger risk as well.

On April 18, USA Compression Partners, LP (USAC) announced a dividend of $0.525 for shareholders on record on April 29, 2019. This is a substantial dividend of over 13% per year from their market price. Stifel Nicolaus also gave a price target of $18 a few weeks ago which the stock is close to hitting soon. Also, the past year, six other brokerage companies gave a price target ranging from $18-22 which bodes well for future growth while collecting the dividend.

USAC only has a small market cap of 1.68B. This is much smaller than other LP companies and this gives them substantial chance of being bought out if they can succeed moving forward. Energy Transfer, LP (ET) owns 39.7 million shares of USAC which gives them 23% ownership of the company. You can bet that ET will increase their ownership on success and most likely lead to a buyout.

There are definitely other energy stocks that have potential for success. For example, Energy Transfers has a substantial dividend almost at 8%. I believe the Energy sector will perform this quarter and possibly the next but having a nice 13% dividend gives you some assurance that if things get worse you have a bit of a hedge. You also have the opportunity to invest in some growth with this smaller unknown LP.

REITs with BIG Dividend

CBL & Associates Properties Inc (CBL) and Washington Prime Group (WPG) are both mall REITs that pay a substantial dividend since their stock price has plummetted over the past year. As this time, WPG offers a 16.5% dividend while CBL is offering 18.45% dividend.  Both stocks were able to beat and surpass the earnings guidance for the past quarter.  This is the first time they have done it in the past couple years so their stock prices have appreciated in the past month.

Out of the two, CBL & Associates Properties Inc (CBL) is valued lower in the two because the CEO last year mentioned that they would need to cut the dividend which caused a big price drop.  Therefore, on a stock price basis, CBL is the cheaper of the bunch.  Both invest in malls throughout the United States and both carry substantial risk but if you feel the retail apocalypse is over then it should be a good time to pick either stock up.

Mall REITs still a Good Buy

As I mentioned in the previous post, mall REITs continue to be a good buy.  First it was JCPenney that had a bad quarter.  Then, Foot Locker also showed a bad quarter that also caused a drop in retail stocks and mall REITs.  WPG, Washington Prime Group, had plenty of cash flow to cover these retail shops revenue drop.  This includes paying the dividend to investors.  There is always the challenge in playing defensive in this space.  I believe playing defensive means making sure you have the cash flow to back up any investment that you take in.  This is especially true in this cycle in the stock market where things are all overvalued.  You want to find industries that are weak where there is an opportune time to purchase and that you know in the long-term will be valued correctly.

This is why Mall REITs are a good investment but the reason I recommend WPG is that it pays a strong dividend that is over 10%.  It also is a small mall REIT that are mostly based outdoors and have a strong diverse base of retail restaurants and shops that will be able to take on the downturn that some of the retail stores that will affect its sales.  It also is taking steps to transition stores like Sears, JcPenney, and Foot Locker to more stable tenants.  I believe the dividend will keep you protected in the long run as well.

Outside the mall REITs, Target had a good quarter recently.  It is a bigger player and a challenger to Amazon.  It isn’t without the risk but it does pay a nice 4% dividend.  Having been able to turn a nice quarter in a dismal retail quarter for most companies shows that Target is able to withstand the market issues and handle the situation.

I recommend investors look at both WPG and TGT for long-term buy and hold plays.  I do own both in a retirement account.

Dividend Stock with over 10% Interest

Washington Prime Group (WPG) was once a dividend darling at 12% dividend.  It still sports a high dividend but that is expected to become lower as the price of the stock continues to appreciate.  This stock is an REIT that was hit hard when Macy’s couldn’t hit quarterly numbers including the numerous other mall stores that missed target as well.  These bad earning reports included store closures that affected REITs.  In May, Washington Prime Group hit an stock low below $7.50 which would have given you a nice 13% dividend.

Since May, this stock has had a steady appreciation with it recently going over $9.  Washington Prime Group is a unique REIT that caters to smaller retail plazas that are mostly in outdoor settings.  The Fairholme Fund run by billionaire Bruce Berkowitz invested millions in WPG recently.

For someone that has an IRA, 401k, and another tax-deferred stock account, this stock makes for a nice play.  As much as Amazon has taken so much market share in the retail space, Amazon (AMZN) has also proven that they need to be in brick-and-mortar when they announced that they are purchasing Whole Foods Market (WFM) for $13 billion.

There are other REITS in the similar mall industry that should continue to grow as the fallout disappears and investors see the true value of these mall REITs.  This stock should be a part of an investors’ portfolio for long-term growth in dividend and appreciation.

I plan to purchase shares in any dips in price but I do not own any at this time.

Short-Term Bottom on Omega Healthcare

With almost a 8% dividend (7.8% at the time of this writing), Omega Healthcare (OHI) makes a nice stock to own in your retirement portfolio.  It recently hit a short-term bottom at $32 and has been slowly moving back up.  There is plenty of noise about buyers trying to get in at $28 which would be a great level but highly unlikely to get to that point.  Yellen has mentioned that she plans to raise rates in September which should be a tiny raise and should not affect the pricing of this stock.  Remember, the baby boomer generate is continuing to retire and move into senior housing which will benefit this stock.

Best Company to Own in Oil Stocks

The oil stocks have all made a nice bullish rise in the past year.  Part of the reason was the election of Donald Trump and adding the previously CEO of Exxon to his cabinet staff.  This gives investors a more bullish outlet on the oil sector and their oil investments.

This also made huge gains in Exxon Mobile (XOM) and Chevron (CVX) stock price in the past few months.  British Petroleum (BP) also went up but it didn’t have the same appreciation gain.  BP also still wields at 6.7% dividend at the current stock price.  Exxon Mobile and Chevron hold less than a 4% dividend at their current stock price.

You should remember that British Petroleum has finalized the settlement with the government.  They have already sold the necessary assets to make the payments.  They are actually quite conservative compared to the other oil companies which I believe is a good thing as it is challenging to forsee the oil prices going forward.

You might have remembered an earlier blog post that I said BP follows a Plan B strategy.  This means the company believes that oil prices will remain stagnant so they are strategizing their oil investments for low oil prices.  This is counter to Exxon and Chevron which are building their portfolio to account for higher oil prices.

With a nice dividend and a undervalued outlook, British Petroleum (BP) should be on your radar for a nice oil company.  I do believe Exxon Mobile and Chevron (CVX) are a bit overvalued at their current price as well.  I am a holder in Chevron but I will be looking for a time in the immediate future to move some of those holdings to BP where I see much better chance at appreciation in the future.

Dividend Stocks Have Dropped!

As expected, with the rate hike yesterday, dividend stocks have took a drop in prices.  The two REITs that I mentioned earlier are both discounted for and you should briefly have some time today to take advantage.  You can get Omega Healthcare Investors (OHI) for less than $30 a share.  New Senior Investment Group (SNR) also is going for less than $10 a share.

I would recommend the Omega Healthcare Investors (OHI) as the market cap of $5.7B is much bigger than SNR’s market cap as less than $1B.  It could be argued that New Senior Investment Group has more potential to go appreciate but I also like knowing that there are multiple hedge funds already in OHI and I’ve already seen it start its move back up in the technical front.  SNR has continued to go down since I first started looking at it which makes me rather wait on that one until I see a bottoming pattern.

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