Dear Reader,
Just a reminder, I want to send you my next stock picks, and one month’s access to all the benefits of my research service.
Click here to take me up on the offer!
This won’t be news to you. The cost of everything is up – housing, health care, food, gas… you name it.
And what’s more – while the cost of everything is up, wages are down.
I’m sure you’ve felt it.
During the decade prior to two years ago, everything was OK. Wages were growing faster than costs. All was swell.
But now look.
So where do we think to go first? Usually, it’s stocks. I mean, the stock market over time makes 10% a year, right? That’s 7% after inflation.
Well… that’s over 100 years.
And I don’t want to wait 100 years for the same scenario to play out. And you shouldn’t either.
Because all I know is that the S&P 500 fell 20% in 2022. And even though we’re up a few points this year, a recession is right around the corner – and we’ll be there before the end of the year.
The stock market is and will be pure chaos. I can guarantee that most stocks will be in the tank – which is why investors have shifted minds from the speculation of stock appreciation to the security and consistency of income.
But they’re making a fatal error.
Most Americans are drooling over 3% money market accounts – a record $5.3 trillion are now invested there – or Apple’s latest 4% bank savings account.
Nothing wrong with that – I mean, people gotta eat… and life ain’t free.
But if you’re in or nearing retirement, you can’t settle for single digits that just trickle in.
And there’s no reason to when double-digit income plays are available.
Redwood Trust Inc. (RWT)
With its long-standing presence in the mortgage market and its diversified portfolio, Redwood Trust Inc. (RWT) offers you an opportunity to participate in residential and commercial real estate across the country – in places like Georgia, Texas, Illinois, and New Jersey.
The company is a real estate investment trust (REIT) that focuses on investing in and managing residential and commercial mortgage-backed securities. They also originate and acquire residential and commercial mortgage loans, but the former is what makes it one of our top income plays.
The great point about REITs – for income hunters, specifically – is that, by law and IRS regulation, they must distribute 90% of their taxable income to shareholders. So whatever a REIT collects through rent and other sources must be distributed to you in the form of dividends (if you’re a shareholder).
And Redwood has good experience here. They’ve been operating for over 25 years and have a strong reputation as a leading player in the mortgage industry. What’s really interesting there is that they received that reputation because they were one of the first companies to issue a residential mortgage-backed security (RMBS) – which is basically like a bond on residential loans for homes.
So what you’re essentially doing here is collecting payments from people paying off their home mortgages. And with home prices falling and interest rates likely to be cut by the end of the year, we could see a real estate boom beginning as soon as next year.
The company operates through a few different business segments, but one of the most exciting is called RWT Horizons. It’s part of their investment portfolio – of which they’ve committed to over $27 million – and it’s where they allot money for futuristic real estate tech… things like blockchain, new lending infrastructure, and construction tech.
My favorite part, though, is that just recently, the entire company shifted its capital allocations – and that investment portfolio holds 87% of their total cash.
Now, I wouldn’t normally say that that’s a good turn. It’s a major management decision and probably forecasts some short-term pain in the real estate sector ahead. But they’re doing it with the goal of 15% to 20% annual portfolio returns.
That’s huge.
And I’m confident they’ll return that over the next year – and then some. Just in time for a boom to come.
Plains GP Holdings LP (PAGP)
Plains GP Holdings LP (PAGP) owns an interest in Plains All American Pipeline LP (PAA) – a leading midstream energy infrastructure company.
Right off the bat, one of the best things about them is that they aren’t a one-trick pony. They don’t focus on just oil or just natural gas – they’re involved in the transportation, storage, and marketing of crude oil, natural gas liquids, and refined products.
What’s exciting about energy right now is that it’s traded at such a steep discount. Oil prices are low, companies are overall down around 12% on the year, yet the entire industry recorded record cash ($200 billion) at the end of last year.
The energy sector is a game of “where do I put all of this cash?” as analysts and talking media heads speculate and speculate. I personally believe one of the best places for companies to deploy the cash is in Permian Basin production – and with good reason.
Plains GP Holdings operates an extensive network of pipelines and storage facilities across key North American energy-producing regions. But by far, their strongest presence is in the Permian Basin – one of the largest and most prolific oil and gas regions in the United States.
In terms of income, the company generates its own income from its ownership interest in Plains All American Pipeline. They benefit from the steady cash flow generated by the transportation and storage of energy products, and they have about $1.6 billion in free cash flow (cash leftover after expenses) and have been reducing debt and distributing a lot of it to shareholders as a result.
They sport a yield exceeding all S&P 500 sector averages.
And their growth projections on those cash payments exceed industry expectations by a long shot.
Energy Transfer LP (ET) is an energy behemoth with about 120,000 miles of pipeline and related infrastructure in 41 states – engaging in the transportation and storage of natural gas, crude oil, and refined products. So just like PAGP, they operate a vast network of pipelines and terminals across the U.S. and deal with all types of energy products.
What makes them an incredible income play here is that about 90% of their cash flow comes through the transportation fees charged for moving energy products through their pipeline network. They also benefit from the storage and processing of natural gas and other commodities.
This is going to be a buy-and-hold income play for a long time to come.
There are three reasons for that.
First, they’ve been around since 1996 – which ultimately doesn’t sound like a long period, but the expansion has been dramatic… having acquired 18 companies over that time. They’ve been an “overnight” success. And have no plans of slowing down.
Second, they have investment-grade ratings from the big three credit agencies (S&P, Moody’s, and Fitch). Receiving funding in issuing debt and expanding business in a higher-interest rate environment shouldn’t be a problem for them.
Third, 20% of the electricity purchased by the company comes from renewables, so they aren’t wholly reliant on oil and traditional energy.
Stable, consistent payouts and growing cash is what I – and you will – love out of any income play in today’s market.
* Please Note: Taxes can be different with MLPs, so you will receive a K1 instead of Form 1099. Contact your broker to find out what this means for your personal investment plan.
Ares Capital Corp. (ARCC)
Ares Capital Corp. (ARCC) was the first publicly traded business development company (BDC) to list on the Nasdaq, so they – in a way – pioneered the entire BDC movement.
A BDC is similar to a REIT in that they must distribute 90% of their taxable income to shareholders through dividends.
Where they differ is that BDCs typically have a portfolio of private equity companies they invest in and often provide financial solutions for. In a sense, investing in a BDC is a way to benefit from private equity dividends and returns.
And in all, Ares Capital has a massive portfolio of 395 companies.
They have a strong track record of supporting middle-market businesses through various economic cycles. They have a seasoned management team with extensive experience in evaluating and structuring investment opportunities. Most management comes from Apollo, an asset manager with over half a trillion dollars in assets under management.
Most BDC management teams have under 60 investment professionals – while Ares has 150. And whereas the BDC industry average executive investment experience is seven years, Ares’s is 17.
What’s more, they’ve generated a 13.5% annualized total return since their IPO in 2004 against the S&P 500’s 10.4% since then.
Ares is a firm whose executive team gives me the confidence your money will be safe with them – and the consistent cash they’ll distribute is the icing on the cake.
AGNC Investment Corp. (AGNC)
AGNC Investment Corp. (AGNC) is a REIT specializing in investing in RMBS and other mortgage-related assets. So like Redwood, it’s like collecting parts of the loan payments homeowners are paying off.
And safety is the name of AGNC’s game.
You’ll be able to sleep well at night knowing that your money with AGNC is constantly watched over by risk-averse managers.
The prime example there is that their primary focus is what makes this investment supremely attractive for steady and consistent: agency mortgage-backed securities.
Those are essentially guaranteed by government-sponsored enterprises like Fannie Mae and Freddie Mac, which provides an iron level of credit support and security.
They employ a disciplined investment strategy focused on managing interest rate risk and generating attractive risk-adjusted returns. They utilize hedging techniques to mitigate potential volatility in interest rates, which makes them perfect in environments with fluctuating and uncertainty in future interest rate levels… like those today.
The company generates income through the interest payments received from their mortgage-backed securities. And they’ve done it well. Take a look.
And for whatever comes tomorrow, I have confidence they’ll do the same. At under $10 per share, that’s about all you can ask for right now.
Starwood Property Trust Inc. (STWD)
Starwood Property Trust Inc. (STWD) is one of the largest REITs focusing on commercial real estate finance in the U.S.
I know what you’re thinking – “commercial real estate” is a scary phrase in today’s popular lexicon.
But I wouldn’t worry too much. Of their $28.5 billion portfolio, 59% are commercial loans – but only 10% of that is U.S. office. It has little exposure to the mess that many lenders are in right now.
They originate, acquire, and manage a diversified portfolio of commercial mortgage loans, mortgage-backed securities, and other real estate-related debt investments.
They have a global reach and invest in various commercial real estate sectors including office, industrial, retail, and residential properties.
So with this one, you’re collecting rent from homes, offices, and vacation spots in places like the United Kingdom, Los Angeles, the Bahamas, Italy, Tampa, Philadelphia, and Baltimore. Diversification and breadth are key when searching for yield from REITs, and Starwood is probably the most diversified in that regard out of the group here.
They haven’t missed a dividend payment since inception 14 years ago, so I consider your money safe with this one.
Medical Properties Trust Inc. (MPW)
Medical Properties Trust Inc. (MPW) is a REIT that focuses on investing in health-care real estate. They own and lease hospitals, medical office buildings, and other health-care related facilities in the United States and select international markets.
This is important because health care is a massive industry. Health-care spending accounts for around 18% of total U.S. GDP, which is roughly $4.14 trillion.
By 2028, that number could reach $6.2 trillion as health-care tech accelerates, personalized medicine becomes more prevalent, and the aging population grows wider.
Medical Properties Trust is perfectly positioned here. They have a specialized niche in the health-care sector and benefits from the increasing demand for medical services. Over 90% of their operator total revenue is accounted for by hospitals.
It counts Steward Health Care System, The Priory Group, Prospect Medical Holdings, and Springstone among the biggest holdings within its roster.
Take a look.
Blackstone Secured Lending Fund (BXSL) is, well, Blackstone… the single-most profitable private capital firm in the industry. They offer a range of alternative investment products and services as a result, and they operate across various asset classes – including private equity, real estate, credit, and hedge funds.
In all, the entire company has $880 billion of assets under management.
The Secured Lending Fund in particular is a BDC within that – primarily investing in the debt of private equity companies (so you and I can’t access these on the open market). That amounts to 97.9% of its $9.6 billion portfolio.
What’s worth noting here is that the stock is under $30 per share, and it’s been growing its dividend over the past few years. During 2020 and early 2021, they paid out 50 cents per year for every share, brought that up to 53 cents in late 2021 into 2022, increased to 60 cents in the latter half of last year, and announced an even bigger bump to 70 cents in Q1.
I fully expect that growth to continue well into the future.
Virtus InfraCap U.S. Preferred Stock ETF (PFFA)
Virtus InfraCap U.S. Preferred Stock ETF (PFFA) is an exchange-traded fund (ETF) that seeks to track the performance of the InfraCap U.S. Preferred Stock Index. The ETF primarily invests in preferred securities issued by U.S. companies.
When we speak about shares and buying stock, it’s actually a little more complicated than that. Companies issue both preferred and common stock, and the differentiation is that more shareholder rights are usually granted to preferred holders (hence the name). They receive higher dividend payments and a higher claim to assets in the event of bankruptcy or other liquidation. (Common stockholders are usually the bottom of the feeding chain.)
Berkshire Hathaway (BRK), for example, has A shares and B shares. B are common, and A are preferred. Most companies do this.
And most Main Street investors don’t have easy access to the preferred shares. (BRK A shares cost $500,000 per share.)
What PFFA does is provides investors with exposure to the preferred stock market, which offers a blend of income and potential capital appreciation.
So it’s not difficult to understand that PFFA generates income through the dividends paid on the preferred securities held in its portfolio.
What’s most interesting about this fund and what makes me call it one of the best ETFs on the market is the chief investment officer (CIO), Jay Hatfield. He’s been there for about five years, and he’s a world-class manager.
He’s constantly stockpiling capital gains on the preferred stocks through credit cycles, moving companies in and out, and collecting their dividend payments on top of that. He owns a lot of energy, real estate, and debt instruments right now.
It helps that he’s more bullish than most money managers right now, so his optimism is shining through its dividend distribution.
The kicker here is that the payments are monthly, so you wouldn’t have to wait each quarter to receive your cash.
Gladstone Commercial Corp. (GOOD)
Gladstone Commercial Corp. (GOOD) is a REIT focusing on acquiring, owning, and managing commercial real estate properties. They primarily target single-tenant and anchored multi-tenant net lease properties in the U.S.
Now, like we spoke about earlier… commercial real estate has a lot of publicity right now. And not in a good way. But the entire lending sector won’t just… fail. That’s ridiculous. What will happen is the good will fall and come back, while the bad will fall and stay down.
I count Gladstone among the former.
They own 17.2 million square feet of industrial and office real estate in 137 properties in 27 states.
They have approximately 111 different tenants in 19 different industries.
What’s key here is that most property owners and REITs for commercial real estate will move lower because their tenants’ leases end soon. And because interest rates are higher now than when those tenants took on those leases, rent increases. And so they leave. That puts pressure on the lenders, and the whole cycle collapses.
But with Gladstone, their average remaining lease term is 6.9 years. So they’ll be here to weather out the storm, collect rent, and then distribute 90% of that taxable income to shareholders. Plus, they have 96% portfolio occupancy. And of those, 100% of their rent was collected.
Gladstone, to me, then, is a diamond in the rough.
And because of that, their dividend yield is tripling the market median.
I consider these 10 companies to be best in class in the world of income.
And that’s especially important – both best in class and income – in as uncertain a world as we’re experiencing right now.
That’s why I’d like to do something extra for you – call it a gift.
In my e-letter, Total Wealth – delivered via email five times per week – I’m kicking off the week with an income opportunity; be it a new strategy, a relevant strategy because of market conditions, or a new dividend stock that caught my attention… I’ll send it directly to you.
Click here to navigate over to the website now.
Keep an eye on your inbox.
It WILL pay off.
I’ll talk to you soon,
Shah Gilani
Chief Investment Strategist, Money Morning
