Tim's Corner: Higher Yields, Lower Volatility
Specializing in biotech stocks, Small Caps, managing optimized portfolios
Seeking Alpha Analyst Since 2009
Finding tomorrow's big winners in the lucrative biotech sector, The Biotech Forum focuses on proprietary, breaking research on promising biotech and biopharma stocks with significant potential for outsized alpha. It is the fourth most subscribed to investment service offered through the Marketplace on SeekingAlpha.com. Our service offers a model-20 stock portfolio as well as the most active Live Chat on the Marketplace. This is where scores of seasoned biotech investors trade news and investment ideas back and forth throughout the trading day.
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Specializing in profiling high beta sectors, Bret Jensen founded and also manages The Biotech Forum, The Insiders Forum, and the Busted IPO Forum model portfolios. Finding “gems” in the biotech and small-cap stock sectors, these highly volatile spaces proven hugely successful have empowered Bret Jensen's own investing portfolio.
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Learn more about Bret Jensen's Marketplace Offerings:
Discord harder is to end then to begin.”― Edmund Spenser
This instablog post is sponsored by Tim Plaehn, expert on income investing and a friend & colleague of mine at Investors Alley as well as a contributor here on Seeking Alpha. Tim runs the Dividend Hunter newsletter which offers a solid & diverse selection of attractive high yield plays. The service now nearly 10,000 active subscribers and can be had HERE for the rock bottom price of $49 (It usually is $99) for the first year. Tim provides a solid selection of lower beta, high yield recommendations for these challenging times.
Many years ago, I made a New Year's resolution to never make New Year's resolutions. Hell, it's been the only resolution I've ever kept!”― D.S. Mixell
By Tim Plaehn,
Before the coronavirus pandemic and resulting financial crisis, I was lukewarm about preferred stocks. For my Dividend Hunter service, I felt that high-yield common shares provided all the opportunity needed to build an attractive income stream. The pandemic-triggered stock market crash and numerous dividend reductions and suspensions pushed me to reevaluate my thoughts about individual preferred stocks.
Before the crash, my recommended preferred investments consisted of a couple of preferred stock ETFs. However, when the economic shutdowns forced REITs and other high yield companies to slash common stock dividends, I realized the benefits of owning individual preferred stocks in an income-focused investment portfolio.
For me, the turning point occurred when hotel REIT RLJ Lodging Trust (RLJ) slashed its quarterly dividend to $0.01 per share, down from the $0.33 paid for the last five years. While RLJ was not alone amongst hotel REITs in slashing its dividends, the one-cent common dividend reminded me to consider the merits of preferred stocks.
Preferred stocks are so named because they have the preference over common shares for dividend payments. Put another way; a company cannot suspend paying preferred stock dividends if it wants to pay dividends on the common shares. When I saw that RLJ was paying a penny instead of suspending the dividend, I asked myself: “Does this company have preferred shares?” And yes, it does.
I first recommended the RLJ Lodging Trust Preferred A (RLJ.PA) shares in late March. At that time, the RLJ preferreds traded for $16.50, with a 12% yield. The shares now trade for $26, and my subscribers have done very well.
However, other features of preferreds mean that even after share prices have recovered, there are still compelling reasons to buy and own individual preferreds. Most preferred stocks have a $25.00 par value and a dividend coupon rate based on the par value—for example, RLJ.PA pays $0.4875 per share quarterly, for a 7.8% coupon rate.
Over the past six months, I have put together a list of recommended preferred stocks, most of which are trading at or below par. The average coupon rate is 7.5%, and the average current yield is 7.8%. These are very attractive yields from a group of investments with an added level of dividend safety compared to common stock dividends.
I currently recommend that subscribers invest 25% to 35% of their Dividend Hunter tracking capital into the preferred stock list. Predicting the future for stock prices is very hard. Predicting a steady 7.5% income stream from selected preferred stocks is much easier and brings peace of mind for that portion of your investment portfolio.
Some of us fail to find the good in the bad because resentment is a shortcut to resolution.”― Jamie George
Tim Plaehn of The Dividend Hunter has developed a monthly dividend calendar. It is yours free when you click here.
Thank You & Happy Hunting,
Bret Jensen
Founder, The Biotech Forum, The Busted IPO Forum & The Insiders Forum
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.