My 18 High-Yield Money Making Income Generators: Equity REIT And BDC Portfolio Update

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Includes: ARCC, CCP, CLDT, DLR, HCN, HCP, HTGC, LXP, MAIN, NHI, O, OHI, PNNT, STAG, STWD, UBA, VTR, WPC, WPG
by: RoseNose

Summary

I now own 14 mostly equity REITs and 4 BDCs, up from February when I had 11 and 3.

I reveal how they are experiencing improved performance by value and income.

These are measured and perform differently than normal dividend paying stocks.

I discuss my NEW holdings: ARCC, STWD, UBA and WPG.

My portfolio consists of 79 stocks now and my most recent article lists 76 of them all, here.

I have invested about 20% by portfolio value in REITs and BDCs and they are held in my Roth accounts.

In the chart below, P means Portfolio.

Sector P Value P Income
REITs (14) 17.10% 22.30%
BDC (4) 3.30% 9.20%
Total 20.40% 31.50%
Click to enlarge

As you can see, it is easy to get income from these type of investments. About 1/5th of the portfolio value (20.4%) generates almost 1/3rd (31.5%) of the income. Therefore, a little can go a long way to get that income. The good news is that the equity REITs also will have growth in the dividend. I have found BDCs generally do not grow the dividend, at least not as fast, if at all. They are income generators, pure and simple. It takes time to realize that and to honor that. It is a lesson I have learned and realize that is the reason they offer amazing high yields.

They also must be followed closely, having volatility, especially with interest rate changes, and thus should be considered speculative. Quarter to quarter the metrics can change and do, so I follow them closely.

I owned 11 REITs and 3 BDCs at the time of my last article here written in February 2016.

I wanted more diversify, as I owned mostly in the healthcare sector. In March I sold the healthcare REIT (NYSE:CCP) Care Capital, which was a spin-off from Ventas (NYSE:VTR). I bought (NYSE:CLDT) Chatham lodging residing in the hospitality sector. My reasoning is further discussed in an article here.

Since then, I have been busy looking for a good price and more diversity into other sectors. My search has been successful and I believe I have found some pretty steady income generating interesting stocks.

I am providing articles by some of my favorite contributors, that explain why I decided to venture into these new stocks. That information will follow these charts.

Here is a chart of my holdings using Google Finance for the numbers.

Curr Price = Current Price on May 13 th, 2016. and curr yield is the current Yield using the yearly dividend shown (dividend/yr.).

I also reveal MY cost /share and the date/year I started buying them. I continue to add even into 2016.

The last column shows my gain or loss in VALUE for that particular stock.

Name

Curr Price

Curr Yield

dividend /yr.

My cost/sh

1st Buy

My Gain/Loss%

Value

Chatham Lodging

21.7

6.08%

1.32

20.92

Mar2016

3.8

Digital Realty

(NYSE:DLR)

94.4

3.73%

3.52

55.83

2013

69.1

Welltower

(NYSE:HCN)

71.77

4.79%

3.44

60.89

Feb2016

17.9

HCP

(NYSE:HCP)

34.2

6.73%

2.30

37.96

2014

-9.9

Lexington

(NYSE:LXP)

9.41

7.23%

0.68

7.63

2015

23.3

National Health

(NYSE:NHI)

69.23

5.20%

3.60

60.24

Nov2015

14.9

Realty O

(NYSE:O)

63.66

3.75%

2.39

31.11

2012

104

Omega

(NYSE:OHI)

32.68

7.10%

2.32

33.71

2012

-3.1

Stag Industrial

(NYSE:STAG)

21.27

6.54%

1.39

16.88

2015

26

Starwood Property

(NYSE:STWD)

20.2

9.50%

1.92

20.39

May2016

-0.9

Urstadt Biddle

(NYSE:UBA)

20.96

4.96%

1.04

20.77

Apr2016

0.8

Ventas

66.76

4.37%

2.92

59.26

May2015

12.7

WP Carey

(NYSE:WPC)

63.34

6.16%

3.90

64.67

Feb2015

-2.1

WP Glimcher

(NYSE:WPG)

10.26

9.75%

1.00

10.11

Apr2016

1.5

Ares

(NASDAQ:ARCC)

15.26

9.96%

1.52

15.21

May2016

0.3

Hercules

(NYSE:HTGC)

12.12

10.23%

1.24

12.74

2014

-4.9

Main Street

(NYSE:MAIN)

31.76

6.80%

2.16

28.78

2012

10.4

Pennant Park

(NASDAQ:PNNT)

6.36

17.61%

1.12

9.76

2014

-35.6

Click to enlarge

I wrote an article in February here about my gains and loss of portfolio Value, however, not much @ 0.6%.

I am doing better these days. Both sectors are Rising and I am now in positive territory for the group.

Sector Feb results May results
REITs (11) 3.50%
REITs (14) 13.50%
BDCs (3) -18.90%
BDC (4) -8.15%
Total -0.60% 9.80%
Click to enlarge

As I am new to evaluating these type investments, I didn't really address Income in that February article. This basket of holdings, on total has a 6.7% Income YOC (Yield on Cost) calculated as of this Friday, May 13 th, 2016. I can actually say, all of the equity REIT holdings have increased the dividends from last year. The BDCs are the only ones, right now, to have frozen dividends. Therefore, I want to say a bit more about what to expect from BDCs.

BDCs

Yes, they are a ride, an adventure. If you are ready and understand that, it can be rewarding collecting the income. Portfolio value in general will rise and fall over the years of holding, if done in that manner. A generous high yield and volatility come with these investments. I have learned this perhaps the hard way and I admit to still learning. The higher the yield, and many of mine are not considered all that high, will give you more of an adventure. You NEED to know when to buy, when to sell, when to add on or when to trim and have a plan. If it sounds like work, it can be. There are some very excellent writers on SA that own and write about these investments. I am not one of them, as I just read their articles and hope I understand. I am out there riding and learning with each purchase. (I have lost money, I admit to that, but not recently).

PNNT is from 2014 and now my own personal bizarre speculation of learning how not to buy, or not learning when to sell out, or just not knowing the full aspects of the investment. Most likely many reasons as it also has the disadvantage of having loans tied up in the gas/oil sector, about 16%. Management recently gave up 16% of it's fees to continue the dividend.

It generates 36.6% my BDC income. It along with HTGC, ARCC, and STWD ( a blended BDC) currently have frozen dividends. Remember, only 9.2% of my total Income comes from those 4 BDCs. The only BDC I own, that has been increasing the dividend and pays special dividends 2x per year is MAIN. It yields 9.4% for me on cost and thankfully generates 41.8% of my BDC income on 50.6% of value. It has been actually a pleasure thus far to own.

I still continued to venture down the BDC road, as I love adventure. As the photo shows a sunny avenue to adventure. Try some MAIN and see if it works for you. I most likely will not add any more.

The REITs for me are more understandable, but all are still amazing and interesting the way they can create income.

This chart shows the BDCs with the current P/E (Price/Earnings) compared to 5year normal.

The REITs are shown with Debt/Cap, current P/FFO (Price/Funds From Operations) and the 5year average.

NAME Ticker S&P Credit Debt/Cap % P/FFO 5yr P/FFO Sector
REIT
CHATHAM LODGING NA 46 9.2 12.6 Lodging
DIGITAL REALTY BBB 58 17.5 14.3 Data Center
WELLTOWER BBB 44 16.1 16.3 HealthCare
HCP BBB 51 11.3 14 HealthCare
LEXINGTON BB+ 59 8.6 9.2 Diversified
NATIONAL HEALTH NA 45 14.6 15.9 HealthCare
REALTY O BBB+ 43 22.6 18.3 Triple Net
OMEGA BBB- 51 10.2 11.6 HealthCare
STAG INDUSTRIAL NA 50 13.9 14 Industrial
STARWOOD PROPERTY BB 58 in BDC Hybrid
URSTADT BIDDLE NA 30 18 17 Retail
VENTAS BBB+ 53 15.4 15.4 HealthCare
WP CAREY BBB 43 14 14.9 Diversified
WP GLIMCHER BBB- 72 5.5 7.5 @2yr Management
P/E 5yr P/E
BDC
ARES BBB 43 9.6 11.1
HERCULES BBB- 45 10.6 12.1 Tech
MAIN STREET BBB 42 14.5 13.9
PENNANT PARK BBB- 49 6 9.1
STARWOOD 9.5 11 Diversified
Click to enlarge

For me this was an excellent exercise to show me which ones are at a nice entry level price. Please do your own due diligence before purchasing any of these.

Over priced are: DLR, and O. These are excellent REITs and it would seem they are getting appreciation for being strong dividend payers with growth.

Many are @ Fair prices, in fact most.

The only somewhat under priced stocks are: CLDT, HCP and the BDCs except MAIN which is according to the P/E a bit above the norm.

CLDT is still a buy in my estimation, but I have recently bought my position and don't need more. HCP is going to spin-off some holdings and is getting sold by many investors for just that reason. You might like it, but it is not viewed to be a positive managerial action right now. I want to emphasize to always do your due diligence.

A word of CAUTION about the equity REITs. They will be given there own sector in August this year. Many ETFs and Hedge funds or institutions will be forced into buying many of these and pricing could get very strange. It may or may not be built into some of the prices already, I can not know, but please be aware of that happening.

Now a few words about my new holdings:

P.S. I actually was looking for less monitoring and I hope these will help in that goal.

Starwood- diversified hybrid REIT

Here is a brief description from Yahoo Finance:

"Starwood Property Trust, Inc. originates, acquires, finances, and manages commercial mortgage loans, other commercial real estate debt investments, commercial mortgage-backed securities, and other commercial real estate- investments in the United States and Europe. It operates through three segments: Real Estate Lending, Real Estate Investing and Servicing, and Real Estate Property. "

Described as:

-- Cash Cow by Brad Thomas article here that allows one to SWAN (sleep well at night).

---Boring Cash Generator by The Fortune Teller, his article here.

9.5% Yield @ $20.20. I will not try to say more than what is in these fine articles.

ARCC -Ares Capital Corporation-BDC

Information from it's website states:

"It is a leading specialty finance company that provides one-stop solutions to meet the distinct and underserved financing needs of private middle-market companies across diverse industries. As of December 31, 2015, ARCC is the largest business development company by both market capitalization and total assets, with approximately $9.5 billion of total assets. "

The Fortune Teller describes his A team holdings, with ARCC being one of his first.

The article, here, is excellent and I can not do any better than his reasoning to own this BDC. It is still undervalued and he even suggests the buy, hold and sell points. Not many writers offer that information. A must read, even if you don't want to buy any.

9.96% yield @ $15.26

UBA- Urstadt Biddle

Equity REIT mostly operating in New York suburbs with upscale clients, wholesale clubs and grocery stores. It resides in CT.

2 contributors I value immensely have written articles I remember from 2015.

--Bill Stoller wrote this article, here, in Sept 2015 extolling what a great buy it was @ 5.8% yield.

--Brad Thomas here, wrote November 2015, and makes the same excellent tribute to the company.

It is a 22 year Dividend Contender with 5% yield @ $20.96.

I came late to the party, but I am glad I arrived. I am very pleased. If it falls again, this year or next year, I will buy more. I was blinded by low growth, but I have come full circle and appreciate what a steady and wonderful holding this company is. It should be indeed a SWAN holding.

WPG- WP Glimcher

Simon Property Group spun this off in 2014, thereafter Washington Prime Group bought the realty holdings of Glimcher in 2015. The BBB- credit, is a somewhat recent downgrade as it deals with tenant occupancy, bankruptcy and restructuring some stores into restaurants and non retail entities. It also has lifestyle centers and community centers. Brad Thomas explains this in a series of articles (here and here) on this interesting company. It was viewed as cheap @ $10.12 then with 9.9% yield.

WPG does have Sears, JC Penney, Macy's and Dillards as renters as 25% of it's tenants, but the rent is low on them with only 3% of rental income coming from them, and only 1.1% from Sears. Even so, finding replacement renters might even be a favorable happening for WPG, if those stores should default. The management is using many tools learned from SPG (Simon) one of the best to change it's properties to higher levels. This one might take time to come to glory, but I think a margin of safety in priced in with a P/FFO of 5.5.

I paid $10.11 for my shares @ 9.9% yield.

That's All and I wish you Happy Investing.

Disclosure: I am/we are long ALL STOCKS MENTIONED.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.