Seeking Alpha

Launching Retirement Income Solutions

by: Dane Bowler
Dane Bowler
Value, hedge fund analyst, REITs, long/short equity
Summary

There are few clean sources of high dividend yield given the low interest rate and high market price environment.

We are fortunate to be specialized in an area that still has reliable high yield.

Retirement Income Solutions features two high yield portfolios consisting of fundamentally sound and economically diversified REITs.

Editor's Note: This article is meant to introduce Dane Bowler's Marketplace service, Retirement Income Solutions.

2nd Market Capital’s Retirement Income Solutions, or RIS, is a full-service marketplace offering designed to provide members with all the tools they need to generate large and growing dividend streams. This article will detail what is provided in the service, but first, let us go into why we are doing this.

Impetus for creation

Over the past decade, the world has become a more difficult place in which to retire. Expenses, particularly medical, have gone up, while sources of investment income have dried up. Bonds and treasuries used to have a high enough return that one could generate sufficient income, but today, fixed income pays bottom of the barrel interest rates. Even equities can’t generally pay the bills with the S&P yielding 1.77%.

Source: multpl.com

There is, however, one area left that can produce reasonably reliable dividend income as high as 7% to 9% unlevered: High yield REITs.

Unfortunately, the high yield REIT space is littered with traps. Companies run by management focused solely on enriching themselves or properties that are about to lose their tenants which will eventually force the REIT to cut its dividend. This area can be lucrative, but one must know how to navigate the waters.

This is where we come in.

Retirement Income Solutions is co-produced by Ross Bowler, Dane Bowler, and Simon Bowler. As executives of a REIT dedicated hedge fund (2nd Market Capital), we have 40 collective years of experience in the high yield REIT space. With assets under management of roughly $84mm (as of 12/31/18), we are small enough to be nimble but large enough that REIT managers pick up the phone. We know most of the REIT management teams; which ones are honest and which are scoundrels. Our fundamental research gives us a good sense for which companies will thrive and which will fail. This knowledge came from a continuous dedication and much of it was learned the hard way.

Those looking to retire may not be able to afford learning this stuff the hard way and we hope to help subscribers avoid the pitfalls that we have seen in the past. Our goal is to provide a toolkit for achieving a large and growing stream of dividend income. We want to share our experience and research and RIS is the medium of conveyance.

Retirement Income Solutions

RIS is designed to provide an extraordinary quantity of quality content to subscribers at a low price. We believe that by offering a superior value proposition, we can achieve a greater subscriber count, thereby making it work for us through volume.

The full list of content can be found on our landing page, but there are a few features that I want to highlight here.

High yield portfolios

Our focus is on finding high quality REITs that happen to trade at opportunistic valuations and from this basket of REITs we build economically diversified high yielding portfolios. Retirement Income Solutions features 2 real-money portfolios that we make continuously available to subscribers through google spreadsheets and real-time trade alerts.

2CHYP

2nd Market Capital Corsaires High Yield Portfolio or 2CHYP began trading on 7/1/16 with $100,000. Through reinvestment of dividends and active opportunistic repositioning, we have grown its dividend yield to just over $10,800 annually (as of 11/30/19). That represents a 10.8% dividend yield on invested capital and our intent is to continue to grow the dividend income over time. A subscription to RIS allows readers to join us in our pursuit of income growth. 2CHYP is meant to represent a retirement account, so it does not use leverage or short selling.

2GDP

2nd Market Capital’s Growing Dividend Portfolio or 2GDP began trading on 10/1/2019 with $100,000. It has indicated annual dividend income of about $15,900 as of 11/30/19. It targets dividend income between 12% and 15% using leverage ranging from 0% to 100%. 2GDP is aimed at those with a longer investment horizon and margin capacity.

Both portfolios are economically diversified with exposure to a wide variety of fundamental drivers. We view diversification as not just a safety mechanism, but as a means of growing the dividend income. Sectors rotate in and out of favor and we opportunistically rotate between sectors, raising our exposure to those that are undervalued by the market.

The real money portfolio difference

Model portfolios can be manipulated and performance cannot be accurately tracked. A model portfolio can say it owned a security from X date until Y date, but in some cases shares of that security were not available to buy or sell on the entry and exit dates (liquidity or price).

Our real money portfolios provide a degree of accountability that cannot be replicated with models. Our trade alerts communicate actual trades that we executed with real money and these trade alerts will include the actual number of shares traded and the price of transaction. There are no smokescreens or tricks by which we can enhance our performance. Everything we do in these portfolios is visible and auditable.

Research process

Our research is firmly rooted in fundamental analysis. It involves studying the property types and locations to ascertain an outlook. There are 20 subsectors in REITs ranging from timber and data centers to hospitals and apartments. REIT properties are primarily located in the top 100 MSAs with the occasional outlier. Each property type has different fundamental drivers and each MSA has different demographics and growth trajectory.

Our focus on small cap REITs allows us to get extremely granular. We can look at each MSA in which the REIT owns property and use a combination of publicly available and proprietary data sources to determine the supply and demand outlooks for the specific property type in the specific MSAs. This information gives us a better chance at understanding the fundamental trajectory of a given REIT. We then compare and contrast the fundamental trajectory with what is implied by the earnings multiple at which the REIT is trading.

REITs use different earnings metrics than the rest of the market and depending on the subsector we look at FFO, AFFO, NFFO, EBITDA or EPS. Each metric will often need to be adjusted for miscellaneous items that do not represent true cashflows. For example, many of the REITs will add back stock compensation to AFFO which is utter nonsense. Stock comp is a real expense and we will treat it as such.

Once we have a good picture of both the fundamentals and valuation of REITs, we can hand select REITs of high quality that are trading at significant discounts to intrinsic value. This research goes into the portfolios directly and we also share this research with RIS subscribers through the following means.

  • Stock specific focus articles
  • Biweekly sector analysis
  • Weekly market commentary
  • Monthly analytics of each portfolio
  • Earnings analysis: Commentary and data each time a REIT in one of the portfolios reports earnings
  • Quarterly deep dives in which we detail our reason for holding each and every name in each portfolio.
  • Monthly postings of pertinent REIT data

Informed investment is crucial for building a growing stream of dividend income. It is also important to be able to properly implement the information through clean and proper trading, so RIS has a section dedication to trading best practices.

Trading best practices series

Trading has a bad reputation as “day trading” which some consider synonymous with gambling. We trade frequently, but our trades are guided strictly by fundamentals and opportunity. RIS contains a trading best practices series which details the trading execution that we have learned in over 40 years of collective trading experience. Proper trading practices are not in place of long term investment, but rather as a supplement. The stock one holds for 10 years will have better returns if one got in at a slightly better price. Proper trading is multifaceted, and we intend to tackle this concept through a continuous series of tips and tricks.

  • harvesting tax losses
  • secondary offering opportunities
  • arbitrage opportunities
  • Why we don’t use stop losses or other triggered actions
  • Limit orders and exploiting low liquidity
  • Various other best practices as they become relevant

Active chat room

We do not want readers to simply subscribe and passively absorb our content. We believe one will get more out of our service if they are actively engaged. We encourage discussion in our chat room and will continuously be there to discuss ideas, concerns or whatever else comes up.

While we will provide members with the tools they need to build high income portfolios, it takes substantial effort to actually do it. We hope you are ready to take on the challenge and invest your way to a comfortable and financially secure retirement.

We understand this is a lot to take on so we are offering a chance to test if RIS is right for you through a 14 day free trial. Additionally, those who join us early will get a substantial discount.

Early subscriber discount

The first 50 marketplace subscribers will get a reduced rate of $30/month or $240/year. This represents a 25% discount from the already affordably priced base rate of $40/month or $320/year. For both the initial 50 subscribers and later subscribers, purchasing the Annual plan represents a 33% lower rate than the monthly price.

Full Disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person. Please see our SA Disclosure Statement for our Full Disclaimer

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.