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Checking Under The Hood Of Income Investments

Mar. 04, 2020 8:20 AM ETARCC, DEM, DIA, DVY, DVYL, FEI, FPE, GEO, GLNG, GLP, GLP.PR.A, MIE, QQQ, SAF, SAR, SDIV, SDY, SDYL, SPY, TM, TOYOF, TSLA, VYM76 Comments

Summary

  • Investing in a new security requires due diligence.
  • We look at three areas of research that should be conducted before hitting the "buy button."
  • Regardless of investment style, these should never be overlooked.
  • Looking for a portfolio of ideas like this one? Members of High Dividend Opportunities get exclusive access to our model portfolio. Get started today »

Co-produced with Treading Softly

Here at High Dividend Opportunities, we benefit from a vast array of life experiences. Among our members and our experts, we have a worldwide range of knowledge that we can rapidly share and assist each other with. We personally love seeing members stepping up and helping each other with basic investing questions or technical data that others may struggle with. We focus on "high dividend" stocks and often look for a new investment can be like shopping for a car.

https://static.seekingalpha.com/uploads/2020/1/23/48716285-15798051212524142.png

When you buy a new car or new-to-you car, you will source them out through various means. Online car sites, car dealerships, family and friends. You also may opt to read reviews about a potential purchase from a trusted source or take it to your favorite mechanic for a once over.

Likewise, you don't want to run out and buy a new stock based on a brief look alone. You can shine up a terribly running car, and unless you crank the engine you'd never know!

So where do you start looking at a potential investment to know if it's a golden find, or a lemon waiting to ruin your portfolio?

Lift The Hood, Check the Internals

Whenever you're buying a car, the paint could be shiny, fancy and looking sleek, but if the engine is broken, all you are buying is a driveway ornament. Likewise, as many pundits can proclaim how great an investment is by labeling it as "value," "blue-chip," or "SWAN," it does not mean it will have the engine power to propel your portfolio properly.

Consider Global Partners (GLP) which yields 10.6%. GLP at first glance doesn't look appealing.

  • It's an MLP that issues a K-1.
  • It still has incentive distribution rights for its general partner.
  • It has low trading volume

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This article was written by

Rida Morwa profile picture
105.22K Followers

I am a former Investment and Commercial Banker with over 35 years of experience in the field. I have been advising both individuals and institutional clients on high-yield investment strategies since 1991. I am the lead analyst at High Dividend Opportunities, the #1 service on Seeking Alpha for 6 years running.

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In addition to being a former Certified Public Accountant ("CPA") from the State of Arizona (License # 8693-E), I hold a BS Degree from Indiana University, Bloomington, and a Masters degree from Thunderbird School of Global Management (Arizona). I currently serve as a CEO of Aiko Capital Ltd, an investment research company incorporated in the UK. My Research and Articles have been featured on Forbes, Yahoo Finance, TheStreet, Investing.com, ETFdailynews, NASDAQ.Com, FXEmpire, and of course, on Seeking Alpha. Follow me on this page to get alerts whenever I publish new articles.

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High Dividend Opportunities ('HDO') is a service by Aiko Capital Ltd, a limited company - All rights are reserved.

Analyst’s Disclosure: I am/we are long SAR, GLP, GEO, FEI, MIE, ARCC. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (76)

c
thank you very much for sharing
M
It is my plausible theory that GEO, and CXW, will become much more valuable due to the near certainty of COVID-19 throughout prisons. They will have to stop double and triple bunking, and alter delivery of food services and medical, along with many other changes.


This will lead to a) need for MANY more single prison beds and isolation units, and thus prisons, and b) a desperate need for better efficiency in delivery of services, which private prisons deliver better than any governmental entity.


Ergo, stock prices shooting upwards; I will be gradually adding to my positions.
Rida Morwa profile picture
@MegaDivGuy interesting thoughts, thanks for sharing!
TigerMoney profile picture
@Rida Morwa,
I bought some EQM on your advice a while back. I am down a whopping percentage now. What would be your advice at this point...??

Tiger
Green Elmo a.k.a. User 48289781 profile picture
"It is my plausible theory that GEO, and CXW, will become much more valuable due to the near certainty of COVID-19 throughout prisons."

Id the prisoners weren't out and about during the past two or three months, how can the Kung Fu Flu infect them? I suppose prison guards might be infected and transmit the bugs to the prisoners, but otherwise I don't see get it. Prisoners in prisons are already socially isolated and locked down, aren't they?
h
Re GLP, the IDR is NO PROBLEM. GLP is controlled by a family, who control 22% of the units, and the IDR last year was 0.23% of EBITDA.
Rida Morwa profile picture
@hrturner Agreed, GLP is a fantastic little company
m
Rida, we know certain sectors are gonna suffer more than others, ie: oil & energy related businesses. So my question is, Will BDC's like MAIN and ARCC suffer major impact? Also if you wouldn't mind commenting on UTF (Cohen & Steers Infrastructure Fund). Do you see serious risk on adding to an existing position? thank you for your comments!
PendragonY profile picture
@mike m.m. m.

I like where ARCC and MAIN are positioned. I think UTF should do okay in the long run and should be okay in this crisis. I would add to ARCC and MAIN and more carefully add to UTF at this time.
s
So I just looked at MIE, one of the two you mention favorably as having a 10% distribution. in 2019, 71% of that distribution was return of capital. And apparently there's a sale charge? assets.cohenandsteers.com/...
Vandooman profile picture
Straight- would hold it in an IRA so you don't get whacked with taxes on sale. Much of those taxes would be at your full personal rate.
PendragonY profile picture
Most of the distribution from MLPs are counted as ROC, so MIE would do so as well. And I have never paid a sales charge.
N
Thanks Rida for this excellent article. You make a difficult subject approachable.
o
What about $CXW compared to $GEO?
PendragonY profile picture
We like them both.
whaleshrimp profile picture
These reports always includes good information that I can use. I am not qualified to do this kind of company financial investigating without falling asleep and hitting my head on my computer. I am pretty darn good at picking buy points on my charts. Many Thanks! from an old guy.
j
Why has CBL delayed filing their 10-K? The latest they have filed in the last 12 years is March 3rd. Most on or before March 1st. What is the hold up this year.
mickeystoysz16 profile picture
You mentioned a couple of MLP funds. What do you think of CEN?
t
What's up with GLP this week . Down over $2.00
Rida Morwa profile picture
Fundamentals are very solid. GLP should come back in full force like the rest of the market. It is an opportunity to buy it on the cheap!
c
Another outstanding viewpoint.
Rida Morwa profile picture
@chuckseb thank you for your kindness
J
SA needs more articles like this one. Too many authors write long, exceptionally boring pieces. Thank you for getting to the point, and writing in a manner that us non-professional investors can easily understand.
Rida Morwa profile picture
@JustHer You are very welcome!
s
I saw a post that said CEO Zoley of GEO increased his stock position by about 27% during the recent market correction.
C
Both GEO and CXW are silly cheap at these levels with 10 year treasury yields under 1 percent.

I see smart moves to the upside with their safe yields.
Rida Morwa profile picture
@smcguyer yes GEO's CEO did buy a large amount of shares.
PendragonY profile picture
I very much like it when a CEO steps up and adds a significant chunk of shares to his holdings.
Donggle profile picture
"added tax headaches that a K-1 cause"? I imported mine right into TurboxTax, they use to be a headaches. Stock and option trades use to be a headache until you could just import them all!
Rida Morwa profile picture
@Donggle Thank you for sharing your thoughts and opinion.
Good1 profile picture
@Donggle - Even with turbo companies often issue them late (K-1s). Also, if you have a question on turbo they are now driving you into a very expense paid service. One question can cost you a lot of $.
Donggle profile picture
@Good1 been doing my own taxes for 30yrs. Very expensive compared to what? The advantage is that it is not 1099 taxed at rates every year. K-1 gives you a chance to turn the distribution in capital gains when you sell it. So the extra hassle could be worth it tax wise.
hawkeyec profile picture
@Rida Morwa

Absolutely right. Good due diligence is critical to success in investing. With all the investments the market contains it is very difficult to do great research on all of them. That is why the first 2 1/2 hours of my day are spent on this site reading the fruits of the labor of excellent analysts like yourself and your team. I consider myself most fortunate to be able to benefit from the depth of wisdom I get here. I would say conservatively that half my investment income arises directly from information gleaned from the experts such as yourself, @Hoya Capital Real Estate, @Stanford Chemist, @Alpha Gen Capital and others I follow on SA. For me, at least, this is the most productive investment site on the web, which is one reason I pay for a Premium membership. I used to use ValueLine long ago, along with Barrons. Frankly, neither of those sources ever helped me make better decisions like the experts on SA. Also, there are many extremely talented individuals who add additional insights through comments on the site. I am getting old, hate Facebook, and I live alone. My best company is right here on SA. Thanks and keep up the good work. Your "income approach," btw, is spot on.
Rida Morwa profile picture
@hawkeyec Thank you for your kindness! I agree the tool available through Seeking Alpha and access to experts has improved many investors investing experience. The Income Method is definitely been a strong performer for me for many years.
d
@Rida Morwa
Looking at the auction results over the last decade or more would suggest that not all cars depreciate. In fact some cars, the most desirable manufactured say fifty or sixty years ago have enjoyed staggering appreciation. One model that comes to mind a Ferrari 275 GTB/4 has appreciated 24000% since it sold new in 1967 and there are other cars that have dwarf those figures. But you are correct most cars depreciate.
Rida Morwa profile picture
@du4sloop It is true many "classic" cars have appreciated in price over time. Just like some companies have gotten better with age while their peers fall in value.
Vandooman profile picture
du4 a friend of mine learned last year that the undercarriage of his 1964 Jag Mark 2 was gone. His gold mine turned into a sale of parts.
TAS profile picture
Excellent advice. I suspect some investors do a "ready, shoot, aim" on some investents instead of understanding what they actualy bought.

Then again, I think many retail investors think they can both understand and digest all of the information on the stock they are looking at. Thinking you know more than you actually know can be dangerous.
Rida Morwa profile picture
@TAS Thank you for reading and sharing your thoughts. I think it is important to do due diligence before any investment.
b
Thank you Roda, love your articles.
Rida Morwa profile picture
@bimchen You are very welcome!
j
I more than doubled my money on AMLP based on your advice. I sold it happy! I agree the pipeline companies are looking good again. I like you MLP selection here. However, I bought MLPX last week at $10 bucks a share. I have been concerned about conversions to C corps and this fund had both. Not as high a dividend unfortunately. The producers might consolidate and have financial problems but the gas will flow. No enough lithium for electric cars and the have to charge up plugged into the grid. Electric companies are using gas, so solid investment in pipes. I appreciate your free advice!
Rida Morwa profile picture
@jasonjones I'm glad you've had success! Thank you for your readership
McBifferton profile picture
During what period did your AMLP double?
Vandooman profile picture
Jason, when you sell and MLP in a taxable account you get hammered by taxes because your cost basis drops like a stone. With a C Corp you get less dividend but can sell without getting scalped. MLPs delay taxes. They don't eliminate them.
cm schwab profile picture
đź‘ŤThank You
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