It's December 2nd and I am writing this as I make my list and check it twice, for the 2012 high yield portfolio. Many will enter, few will win. There are tough credentials to get into this circle of trust, so without further ado here they are, broken down by sectors:
Business Development Companies:
Kayne Anderson Energy Dev.--(KED) is a principal investment firm specializing in energy investments. The firm prefers to invest in midstream energy companies. It seeks to invest between $10 million and $75 million. The firm typically invests in non-traded companies through equity and debt instruments. The current dividend is a stellar 7.8%, and their payout ratio is 32%. In the past years it has blown away the indexes. As of the end of August, the company's NAV was $227 million or $22 per share, they have LT investments of $300mm, and what I like is that it's broken up into 48 different companies. They are well diversified in MLPs, public and private equity and some debt securities. Though it's only $1 from its 52 week high, it's held up in a tumultuous market, so this one gets my vote for 2012.
Real Estate Investment Trusts:
Vornado Realty Trust--(VNO) is a privately owned real estate investment trust. The trust engages in investment, ownership, and management of commercial real estate. It invests in real estate markets within the United States. The trust primarily invests in office, industrial and retail properties. As you know from previous articles, I am NO fan of US based REITs, but this one is the best of breed. The company owns all or part of the following properties/entities:
- In Midtown Manhattan - 29 office properties aggregating 19.2 million square feet and 21 retail properties aggregating 1.9 million square feet (including over 800,000 square feet reported in the New York Office segment).
- In the Washington DC/Virginia area - 74 office properties containing 18.0 million square feet and seven residential properties containing 2,424 units.
- In San Francisco's financial district - a 70% controlling interest in 555 California Street, a three-building complex aggregating 1.8 million square feet known as Bank of America Center.
- 134 strip shopping centers, regional malls, and single tenant retail assets, primarily in the northeast states, California and Puerto Rico aggregating 24.3 million square feet.
- 5.7 million square feet of showroom and office space including the 3.5 million square foot Merchandise Mart in Chicago.
- A 32.4% interest in Alexander's Inc, which owns seven properties in the New York metropolitan area including 731 Lexington Avenue, the 1.3 million square foot Bloomberg headquarters building.
- The 1,700 room Hotel Pennsylvania in Manhattan.
- A 32.7% interest in Toys "R" Us, Inc.
- A 10.9% economic interest in JC Penney Company, Inc.
They have their hands in everything. The stock has gotten beaten down from $98 to $74.45 now paying around 4%. The beauty is not in the dividend, though it is attractive. The payout ratio is 66% which is attractive, and they have $600mm in cash. Latest earnings were down 22%, which is fine with me, the stock needs to be bought here. Options are a great hedge on this as well. You can be as proactive as you wish, writing monthly covered calls. The December $75 calls which expire 11 days from December 1st, pay you 1.8% and a total return of 2.5% if called away. Not terrible for 11 days. If you want to push the gain off until 2012, then write the $75's on half the position and take in 4% premium, and the other half write the March 80's and grab 1.6% premium. Either way you win if the stock runs away.
Vector Group Ltd--(VGR) through its subsidiaries, engages in the manufacture and sale of cigarettes in the United States. The company offers cigarettes in approximately 135 combinations of length, style and packaging under the PYRAMID, GRAND PRIX, LIGGETT SELECT, EVE, and USA brands, as well as under various partner and private label brands. It is also involved in the research of reduced risk cigarette products. The company's customers primarily include candy and tobacco distributors, the military and grocery chains, and drug and convenience store chains. I am not a proponent of smoking, I have never taken a puff ever, but the dividend is smoking at 9%. The stock is trading at $18 off of its high of $19.25. It seems to bounce off $19-$19.50 every time it gets there, which is fine. I don't mind earning 9% on a stock that stays in a tight trading range. Their earnings for the 9 months ending in September 2011 were $841mm versus $787mm in 2010. Operating income was $107mm versus $82mm, and net income was $67mm versus $42mm. Those are extremely attractive numbers. Adding to their financial strength is the fact that they have close to $5 a share in cash, which is good considering their payout ratio is high at 164%. In the past 2 years the stock is up around 30%, which has beaten the indexes. While it isn't the largest of the tobaccos, I like their growth prospects for the future.