Valuentum Exclusive Analysis for the Discerning Investor

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Jul 3, 2024

High Yield Dividend Income Investing Is Not as Easy as Chasing the Highest Yield
Image: EpicTop10.com. The skills to successfully invest for long-term capital gains or long-term dividend growth are much different than those required for generating high yield dividend income. Income investing is a much different proposition. However, the skills do center on a similar equity evaluation process, but one that requires an acknowledgement and heightened awareness of considerably greater downside risks. Income investing, or high yield dividend income investing, should at times be considered among the riskiest forms of investing, as many high dividend-yielding securities tend to trade closer to the characteristics of junk-rated bonds than they do most net cash rich and free cash flow generating powerhouses that we like so much in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio.

Nov 17, 2023

REITs Will Likely Continue To Underperform
Image: REITs have not performed as well as some may have thought. This article clearly explains that REIT dividends are risky and showcases that REIT investors have missed out on a lot of total return during the past decade or so. One has to go back a long time to see any real return from REITs, and changing working and shopping habits will likely continue to punish the broader REIT sector. We view REITs as a game of financial leverage tied to the vicissitudes of the commercial real estate cycle, all for a dividend yield that approximates that of risk-free assets these days. REITs seem to have a large following these days and many will come to the defense of REITs in their own way, but from a bird's eye view of this market, we remain puzzled by the love affair some have for them. We can only posit that some have a myopic focus on REIT-specific metrics, are not getting the best information when it comes to capital-market dependence risk, and perhaps don't truly understand the structural dynamics of the dividend payment with respect to the free dividends fallacy (i.e. that a REIT's share price is adjusted downward by the amount of the dividend on the ex-dividend date). In our view, the structural dynamics that have hurt REITs for the past decade won't be going away anytime soon, and for investors looking to maximize their returns and the longevity of their retirement savings, there are much better options than REITs.

Aug 2, 2023

ICYMI: Let’s Play Devil’s Advocate: What’s the Bear Case for Realty Income?
Image Source: Realty Income. It’s helpful to challenge one’s thesis on a favorite idea every now and then, and we’ve done just that with Realty Income in this article. We see three areas of weakness at Realty Income that could challenge our bullish take on the name: 1) its retail exposure, 2) its financial leverage and arguably unwarranted investment-grade credit rating, and 3) the current rising interest rate environment. Perhaps the most compelling component of the bear case on Realty Income is its massive net debt position and present value of future dividend liabilities that dwarf its annual operating cash flow. The REIT business model isn’t as attractive as many make it out to be.

Mar 9, 2023

SVB Financial, Silvergate Capital, Credit Suisse Reveal Cracks in Global Financial System
Image: SVB Financial looks to be collateral damage of the Fed’s rate-hiking cycle, and we can’t rule out that other regional banks could have also managed interest-rate risk wrong. Shares of SVB Financial have collapsed, and other banks could be facing similar issues that have yet to come to light. Image Source: TradingView. SVB Financial announced March 8 what looks to be an emergency equity offering to the tune of $2.25 billion in common stock and convertible preferred shares. The company also announced that it had sold almost all of its available-for-sale (AFS) $21 billion securities portfolio, which resulted in an after-tax loss of ~$1.8 billion during the current quarter. This looks to be an effort to shore up liquidity while it can, and we would not be surprised to see some bad bets at the bank come to light. SVB Financial’s client cash burn has accelerated, and the executive team noted that the “challenging market and rate environment has pressured Q1 performance, with implications to (its) 2023 outlook.” It’s difficult to know just how bad things are at SVB Financial, but the bank seems to have mismanaged interest rate risks and its asset sensitivity. SVB is reconstructing its AFS portfolio with short-duration fixed rate U.S. Treasuries. Though this may be the right move, the stark scenario for the bank is that if market participants lack confidence in the institution, there is more downside to come.

Feb 10, 2023

Dividend Increases/Decreases for the Week of February 10
Let's take a look at firms raising/lowering their dividends this week.

Jan 20, 2023

Why Are the Dividends of REITs So Risky?
REITs, as measured by the Vanguard ETF (VNQ), have generated a total return of 39.5% since the beginning of 2015 through the end of 2022, an eight-year period that has translated into a measly compound annual return of just 4.25%. This compares to a total return of the Vanguard S&P 500 ETF (VOO) of 116.3%, which translates into a compound annual return of 10.1% over the same time period. Not only have REITs underperformed terribly during the past 8 years, but there have been more than 100 dividend cuts by REITs over this time period, too. REITs just aren’t what some make them out to be. Be careful.

Dec 7, 2022

REITs May Continue to Face Pressure
Image: The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%. Equity and mortgage REITs have been under considerable pressure during 2022. Institutional investors seem to be fleeing the sector, but retail investor interest still seems unusually high. We think this might be a tell-tale sign that retail investors could end up getting burned, if they haven’t been already by the terrible performance across the sector so far in 2022. Withdrawals on non-publicly traded REITs are soaring, and SL Green’s dividend cut may be the first of many in the sector to come. We only include a select few REITs across our simulated newsletter portfolios.

Sep 15, 2022

High-Yielding Digital Realty Is Committed to Rewarding Income Seeking Investors
Image Shown: Digital Realty Trust Inc continues to secure new leases which supports its growth outlook. Image Source: Digital Realty Trust Inc – Second Quarter of 2022 Earnings Press Release. Data center real estate investment trusts (‘REITs’) are a great source of income with ample growth opportunities given the secular tailwinds underpinning data demand growth. The proliferation of cloud computing, the Internet of Things (‘IoT’) trend, the rise of autonomous automobiles, households that previously did not have access to the Internet gaining access (particularly in sub-Saharan Africa and South Asian), the rollout of 5G wireless services, and other factors are all driving up data demand around the world. In turn, that makes it easier for data center REITs to renew existing leases, sign new leases, and expand their asset bases. Digital Realty Trust is one of our favorite data center REITs given its global footprint, scale, and commitment to income seeking investors as it has pushed through 15+ years on consecutive annual dividend increases. Shares of DLR yield ~4.1% as of this writing.

Apr 27, 2022

Public Storage Getting Ready To Report First Quarter 2022 Earnings
Image Shown: Public Storage, a longtime idea in our High Yield Dividend Newsletter portfolio, has seen its share price skyrocket over the past year with room for additional upside, in our view. After the market close on May 3, the self-storage real estate investment trust (‘REIT’) Public Storage intends to report its first-quarter earnings for 2022, which will be followed up by an earnings conference call a day later. Shares of PSA have been a long-time idea in the High Yield Dividend Newsletter portfolio, and we continue to be enormous fans of the name. The top end of our fair value estimate range sits at $445 per share of Public Storage, indicating that shares of PSA have room to keep running higher. As of this writing, shares of PSA yield ~1.9%.

Mar 24, 2022

Public Storage Is a High-Quality Income Generation Idea
Image Shown: Public Storage, a self-storage REIT that is included as an idea in our High Yield Dividend Newsletter portfolio, is a stellar cash flow generator with a bright growth outlook. We are huge fans of the self-storage REIT industry, particularly in the US, due to the ability of companies operating in this space to fully cover their total dividend obligations with their free cash flows. Image Source: Public Storage – March 2022 IR Presentation. The self-storage industry is an attractive space for investors seeking income generating opportunities, particularly real estate investment trusts (‘REITs’) with a sizable presence in the U.S. market. The self-storage REIT owns economic interests in 2,800+ self-storage properties across the U.S. Public Storage is a cash flow generating powerhouse that historically has fully covered its total dividend obligations with its free cash flows. Its promising growth outlook and strong financial position underpins the REIT’s dividend strength. Shares of PSA yield ~2.2% as of this writing.