Seeking Alpha

Invest Yourself's  Instablog

Invest Yourself
Send Message
I am a IT Professional with a bachelors degree in Computer Science. I am not some multimillionaire (although I hope to be one day) I am an average everyday working person who decided to step out on his own and I want to encourage others to do the same. My investment profile closely resembles... More
  • Alternative Monthly Income For Fixed Income Seekers 0 comments
    Feb 26, 2013 4:41 PM | about stocks: MAIN, O

    Introduction

    The last few years have been very hard for income seeking investors. Bond yields are at an all time low and when compared to inflation is actually losing people money over time. There are viable alternatives to these extremely low yielding bonds if you are willing to venture outside of your comfort zone. There are companies that pay monthly dividends instead of the more widely popular quarterly dividends. Two such companies are Realty Income Corporation and Main Street Capital Corporation. Let us take a deeper look into these companies to help determine if they are companies you should consider investing in.

    Background:

    • Realty Income Corporation (O)

    Realty Income Corporation is a real estate investment trust headquartered in California. REIT's (real estate investment trusts) receive special tax treatment as long as they pay a specific portion of their income back to its investors. They just recently completed an acquisition of American Realty that significantly upgraded the quality of properties and tenants owned. This acquisition also made O the largest publicly traded net-lease REIT by a factor of 2, and the 18th Largest REIT in the United States. Realty Income has been paying a reliable monthly dividend since 1996 and has consistently raised its dividend each year since. O can do this because they have built-in clauses in their lease contracts that slowly increase lease rates over time. This helps the company keep up with inflation rates.

    • Main Street Capital Corporation (MAIN)

    Main Street Capital Corp. is a specialty investment company which provides customized financing solutions to lower middle market companies. It focuses on management buyouts, ownership transitions, re-capitalizations, strategic acquisitions, business expansion, growth financings and other initiatives primarily for businesses. This company is headquartered in Houston, Texas. Since the financial system struggles during the great recession, small business financing has witnessed the slimming of financing options. Between 2009 and 2011 MAIN saw their revenue grow from 8.2 million dollars in 2009 to 68.88 million dollars in 2011. MAIN began paying quarterly dividends in 2007 and switched to monthly dividends in 2008. They have raised their dividend payments for the last 3 years.

    Fundamentals:

    When investing in companies for fixed income reasons there are a few items that we need to analyze.

    1. Market Capitalization: We want to make sure the market cap is large enough that it can weather downturns in the market
    2. Beta: Since we are picking these companies for income we want companies with low Beta preferably below 1.0. This way we will be somewhat insulated from the swings of the broader market.
    3. Annualized Dividend and Yield: Yield and dividend payout are crucial these companies are to be viewed as income first. That places the utmost priority on dividend yields and their sustainability.
    4. (Reits only) FFO: Also known as (Funds From Operations), this is an important metric for REIT's. Funds from operations indicate how well a given REIT is generating revenue.

    Realty Income Corporation

    Market Capitalization7.96 Billion
    Beta0.54
    Current Annualized Dividend$2.17
    Dividend Yield4.90%
    • FFO For the Quarter:
    1. Normalized FFO available to common stockholders increased 8.7% to $74.0 million
    2. Normalized FFO per share increased 9.8% to $0.56
    • FFO For the Year end 2012:
    1. Normalized FFO available to common stockholders increased 7.8% to $268.8 million
    2. Normalized FFO per share increased 2.0% to $2.02

    As you can see Realty Income has done a very nice job of increasing its FFO over the last quarter and year respectively.

    Main Street Capital Corporation

    Market Capitalization1.01 Billion
    Beta0.70
    Current Annualized Dividend$1.80
    Dividend Yield5.70%

    (click to enlarge)

    Advantages:

    As seen above, these companies offer a fairly reliable level of income. They are also less volatile than average stocks as demonstrated by the low BETA's. These companies offer a slight advantage over bond centric income. Whereas bonds are structured mainly for capital preservation and reliable levels of income these two companies not only provide you with reliable levels of income but they also allow you growth your wealth. This is something that bonds have a hard time claiming.

    (click to enlarge)

    As you can see from the graph above these two companies did suffer a slight downturn during the recession but rebounded quickly. Now they are rewarding those who stuck with them through those tough times with good monthly income as well as significant wealth accumulation. On top of that if you are allowing the dividends to reinvest in the stock over this time you were rewarded with additional wealth accumulation.

    Risks:

    If you are seeking reliable income from sources other than bonds there are a few risks you should consider. Owning stock in the above companies does expose you to market swings that bonds would otherwise shield you from. What you must ask yourself is this; is the yield of these stocks plus the stock price appreciation enough to compensate me for the extra yield that I will receive above current bond rates. If you are uneasy about the exposure to the market that come with these stocks, you could consider investing small amounts into these stocks until you become more comfortable with them.

    Summary:

    The current market that surrounds us today is one of low yields and low interest rates. If you are a retiree living on fixed income payments, this time period has seen your income stream squeezed significantly. These two stocks offer you an alternative to invest in that may allow you to regain some of your lost income. There are a few other alternatives to the companies listed above such as preferred shares and junk bonds. Junk bonds and preferred shares however have their own inherent risk factors which I will cover in an upcoming article. Please respond in the comments section below and let me know what other investment vehicles you are using for reliable monthly income.

    Disclosure: I am long O, MAIN. 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.

    Themes: income-investing-strategy Stocks: MAIN, O
Back To Invest Yourself's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.