The U.S. stock market has had a great first four months of 2019. After a deep correction at the end of last year, the S&P 500 and Nasdaq stock indexes have recovered to exceed their previous records high set in early Fall 2018.
While I like to see share prices going up, as an income stock focused investor and newsletter editor, I get nervous when stock values are up. This is especially the case for an investor that has cash to put to work.
With the potential for the stock market to experience another correction this year, income stocks with attractive valuations are tough to find.
Yet to earn dividends, an investor needs to own shares and waiting for a better price can be costly in the terms of missed dividend payments. If you are looking for some high yield investment ideas right now, here are three “all weather” choices.
They are stocks that will hold up well if the market goes into another correction. They pay very attractive current yields. Two of the three will do even better if interest rates increase.
Commercial mortgage real estate investment trusts (REITs) are companies that make mortgage loans on commercial real estate such as office or industrial properties. Origination of commercial mortgages has several advantages over companies in the residential mortgage space.
- Commercial loans have shorter terms, typically five to 10 years, and are almost always adjustable rate. This makes commercial loans less risky regarding changing interest rates.
- Commercial lenders also stick to lower loan-to-value levels, which reduces the risk from an economic slowdown.
- Commercial mortgages have higher interest rates, which means a commercial finance REIT uses a lot less leverage than the residential mortgage REITs.
Here are two commercial finance REITs with great yields and conservative management.
Blackstone Mortgage Trust (BXMT) is finance REIT managed by $46 billion market cap asset manager The Blackstone Group (BX). BX has a large commercial real estate division, which allows it to pass attractive mortgage leads to Blackstone.
The REIT currently has a $16 billion portfolio of loans on institutional quality real estate in major markets.
The portfolio is 100% performing and has an attractive average 62% loan-to-value. For the 2019 first quarter the company reported core earnings of $0.71 per share, handily covering the $0.62 quarterly dividend. BXMT is a pure play commercial mortgage lender.
The stock currently yields 6.9%.
Starwood Property Trust (STWD) is a finance REIT managed by Starwood Capital Group, a real estate focused private equity company. This sponsor relationship also gives the REIT access to attractive mortgage loan prospects.
The company’s commercial loan portfolio of $7.8 billion has a low 69% loan-to-value. STWD is more diversified with a $2.7 billion dollar equity real estate portfolio.
The company also owns it’s a mortgage servicing company that handles servicing and securitization for commercial mortgage backed securities (CMBS) trusts. For the most recent quarter, Starwood Property reported core earnings of $0.54 per share. Current dividend rate is $0.48 per share.
STWD shares yield 8.3%.
Preferred stock shares are an alternate income type of asset where yields are fixed and share values are much less volatile. Preferred share dividends have preference (thus the name) over payment of common share dividends. Preferred stock is more like fixed income, slotted in between corporate bonds and the common stock in a company’s capital mix.
The Virtus InfraCap U.S. Preferred Stock ETF (PFFA) holds a portfolio of preferred shares from high quality companies. The fund uses moderate leverage to boost to yield above the typical 6% from other preferred ETFs.
PFFA pays monthly dividends and currently yields 9.0%.
I’ve identified a stock that will be your cash register for the next 30 years.
But don’t just buy shares to claim your income. Do this one thing with this one stock.