Anyone planning to retire early will need a steady source of income to cover their monthly living expenses. Many investors do not have a defined benefit pension plan and Social Security may not cover all of your living expenses. However, with a nice diversified portfolio of preferred stocks and corporate bonds, a steady source of income can be made available. This article will look at a few of these securities and is the fifth article in my Early Retirement series.
Preferred stocks and baby bonds are normally issued with a par value of $25 and are ideal holdings for a fixed income portfolio. Corporate bonds are normally issued at$1,000 each. However, these securities rarely trade exactly at par value and more often can be purchased at a discount (or premium) to par value. Let’s take a look at a few of these securities to help build a portfolio of fixed income securities.
Security #1 – Urstadt Biddle (UBP-G) 6.75% Series G cumulative preferred stock
- Urstadt Biddle Properties is a real estate investment trust (REIT) founded in 1969
- They are the owners and operators of high quality retail shopping centers predominantly in the suburban communities surrounding New York City
- Their 6.75% Series G cumulative preferred stock was issued in October 2014 and is not callable until October 2019 at $25 per share. It currently trades at about $25.30 per share for a yield of about 6.7% and goes ex-dividend on approximately October 18th.
Security #2 – Cedar Realty Trust (CDR-B) 7.25% Series B cumulative preferred stock
- Cedar Realty Trust is a real estate investment trust that owns a portfolio of predominantly grocery-anchored shopping centers in high-density urban markets from D.C. to Boston.
- Over 80% of the portfolio is comprised of grocery store anchored centers.
- Their capital structure features no debt maturating until 2021.
- Their 7.25% Series B cumulative preferred stock was issued in May 2012 and was partially called in December 2017. It currently trades at about $24.65 per share for a yield of approximately 7.34%. If the remaining shares of the preferred were ever to be called, investors would receive $25 per share plus any accrued dividends on the shares.
Security #3 – Global Net Lease (GNL-A) 7.25% Series A cumulative preferred stock
- Global Net Lease is a real estate investment trust that focuses on acquiring and managing a globally diversified portfolio of commercial real estate properties
- The company owns over 300 properties with 99% of the properties currently leased
- Approximately 51% of the portfolio is located in the United States and the other 49% is located across six countries in Europe
- Their 7.25% Series A cumulative preferred stock was issued in October 2017 and currently trades at a slight premium to par at $25.25. The current yield is 7.18% and the preferred goes ex-dividend on approximately October 3rd. This issue is not callable until September 2022, so investors have four years of call protection with this security.
Their commercial properties are also diversified as shown below:
Security #4 – Sachem Capital common stock (SACH)
My portfolio is primarily focused on income, but I do have a few smaller common stock holdings for companies that pay higher dividends.
Sachem Capital is a Connecticut based real estate finance company that specializes in originating, servicing and managing a portfolio of first mortgage loans. The offer short-term (three years or less), secured banking loans that are sometimes referred to as “hard money” loans. They sometimes called “hard money” loans because they are secured by the borrower’s real estate (hard assets) as opposed to business furniture and equipment. They currently fund loans for the acquisition, renovation and rehabilitation of properties located primarily in Connecticut as well as Massachusetts, Rhode Island and New York.
SACH recently closed at approximately $4.20 per share, with a current yield slightly over 10%. As this security is riskier than the preferred stock recommendations, it compromises slightly less than 1% of my total porfolio and I will continue to monitor their quarterly earnings reports.
Security #5 – Mack Cali Realty 4.5% corporate bonds due 04/18/2022
While many investors may prefer bond mutual funds, there are certain times when purchasing individual bonds makes economic sense. Please note that when investing in corporate bonds, they normally trade for $1,000 each and there is often a minimum purchase amount of 5 bonds. At the present time and with the current pricing level, this is one of my favorite corporate bonds:
- Mack-Cali Realty, 4.50% coupon, maturity date of 04/18/2022, rated Ba1/BB+, CUSIP 55448QAQ9. Current pricing is $98.098 per Vanguard, with a yield to maturity of 5.06%.
Mack-Cali Realty is an owner, manager and developer of premier office and multifamily properties in select markets throughout the Northeast. The bond is just one step below investment grade but has a very nice yield to maturity of 5.06% for a security that matures in less than four years.
While all of these investment ideas are in the real estate sector, they do appear to be diversified between commercial, industrial, retail and the multi-family property areas. In addition, the GNL-A issue provides some international exposure. Hopefully this fifth article in my series on early retirement has been educational. A portfolio of fixed income securities can provide a steady source of income while still protecting capital. Overall, these five selections should yield over 7% on average and provide limited downside protection to any portfolio.
Happy and successful investing to everyone!
Disclosure: I am long all of the securities mentioned in this article.
Disclosure: I am/we are long UBP-G, CDR-B, GNL-A, SACH, MACK-CALI BONDS. 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.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.