Valuentum Exclusive Analysis for the Discerning Investor

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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.

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.

Feb 18, 2022

Dividend Increases/Decreases for the Week February 18
Let's take a look at companies that raised/lowered their dividend this week.

Jul 30, 2021

Dividend Increases/Decreases for the Week July 30
Let's take a look at companies that raised/lowered their dividend this week.

Feb 8, 2021

Stock Market Outlook for 2021
2020 was one from the history books and a year that will live on in infamy. That said, we are excited for the future as global health authorities are steadily putting an end to the public health crisis created by COVID-19, aided by the quick discovery of safe and viable vaccines. Tech, fintech, and payment processing firms were all big winners in 2020, and we expect that to continue being the case in 2021. Digital advertising, cloud-computing, and e-commerce activities are set to continue dominating their respective fields. Cybersecurity demand is moving higher and the constant threats posed by both governments (usually nations that are hostile to Western interests) and non-state actors highlights how crucial these services are. Retailers with omni-channel selling capabilities are well-positioned to ride the global economic recovery upwards. Green energy firms will continue to grow at a brisk pace in 2021, though the oil & gas industry appears ready for a comeback. The adoption of 5G wireless technologies and smartphones will create immense growth opportunities for smartphone makers, semiconductor players and telecommunications giants. Video streaming services have become ubiquitous over the past decade with room to continue growing as households “cut the cord” and instead opt for several video streaming packages. We’re not too big of fans of old industrial names given their capital-intensive nature relative to capital-light technology or fintech, but there are select names that have appeal. Cryptocurrencies have taken the market by storm as we turn the calendar into 2021, but the traditional banking system remains healthy enough to withstand another shock should it be on the horizon. Our fair value estimate of the S&P 500 remains $3,530-$3,920, but we may still be on a roller coaster ride for the year. Here’s to a great 2021!

Jan 29, 2021

Dividend Increases/Decreases for the Week January 29
Let's take a look at companies that raised/lowered their dividend this week.