Renting: 2 Best Ways to Make Safe Money

Co-written with PendragonY.

The Best Series Offer More Profits and More Security

Preferred issues combine some of the features of bonds with features from common stock. The entrepreneur gets a controlling stake, and its potential for appreciation, combined with a guaranteed dividend payment (equivalent to an interest payment on a bond).

Since the price of the preferred stock depends on the value of the company, the value may increase or decrease. Although the call price (and the maturity price if the issue has a maturity date) affects the price of the preferred shares, the value of the issuer still affects the price of the preferred issue.

Shares require high income. The main reason is that the best financial deals are guaranteed in the In most cases, the money an investor collects is stable and very predictable. Investors will almost always earn more from the issuer’s preferred shares than from the issuer’s bonds. And since the price of the preferreds exceeds the price of the issuer’s bonds, the investor has the opportunity to earn better income by using those price changes to their advantage.

Preferred shares offer retired investors a good mix of high yield and safety. What they need when they need their cash to pay for their living. HDO’s income method recognizes that there is no significant benefit if the dividend is cut before the investor collects it. That’s why we use better shares, to get safe but good income.

Preferred Factors from CEFs are more secure

Closed-End Funds, or CEFs, offer investors a simple way to gain diversification. Although these funds have smaller holdings than mutual funds or ETFs, they still have access to hundreds of thousands. As the organization’s research budget increases and diversity increases, CEFs offer a great way to buy a diversified portfolio. This can increase the safety of the investor’s property.

The main thing is that CEFs are limited by the law on how much leverage they can use. For preferred shares, the fund must receive $2 in total assets for every $1 of preferred shares issued. Holders of the fund’s preferred shares are not protected by management discretion, which is a legal limit on the amount of debt the fund can issue. Therefore, CEFs are less volatile and safer to invest. As a result, no stocks favored by CEF have already fallen.

Fees paid by a fund, such as those of a C-Corp, cannot be deferred since the fund is paying dividends on common shares. However, unlike a C-Corp, a CEF is required to distribute 90% of the dividends, interest, and capital gains it collects from its holdings. This also provides another level of protection to shareholders. While the C-Corp’s preferred shareholders can suspend their payments whenever management sees fit to cancel the payments made on its common shares, the CEF cannot stop paying dividends on its common shares unless it collects cash in excess of its shares. pay.

This requirement to issue distributions on common shares makes it easy for us to determine how safe distributions on preferred shares are. We simply look at “Net Investment Income,” or NII; if good then good distribution is safe. If all are covered by a normal distribution, a better distribution is better.

The advantages of CEFs are that they offer the investor an additional layer of security. This is what they need when they need the money from their accounts to help with their living expenses.

Pick #1: GDV-K Best Rate – Yield 5.2%

Gabelli Dividend & Income Trust, 4.25% Series K Corporate Shares redeemable at any time. (GDV.PK)

GDV invests in stocks with high dividends or high earnings in the financial services, consumer goods, health care, and information technology sectors. With interest rates likely to see more than one more hike from the Fed and a sharp drop in stock prices for banks due to issues at Silicone Valley and other banks, the shares should be released fund high prices and fine jewelry products. Health care and biotechnology should also be good. Consumer goods are a defensive sector, especially when the economy slows down. Information technology has been doing well even though it has seen a bit of a comeback recently. Holdings for the fund are relatively stable and more likely to generate large amounts of cash to pay good dividends.

GDV-K has an “A3” credit rating from Moody’s. As discussed above because GDV is a closed-end fund, it has leverage limits that increase the security of the issue. No CEF is preferred by default. The leverage limit is 50%, but according to CEFdata, GDV’s leverage is only 14% which is very low. These factors combine for a very safe but still effective product. The total valuation of the series K issue is $150 million from the $2.2 billion market value of the common shares. In 2022, according to the annual report, NII per common share will be $0.20, while dividends on preferred shares (which have more issues than series K) will total $0.11.

Looking at the source of payments for the last 12 months, we can see that NII was used to cover a portion of the ordinary distributions and that the fund was required to pay a “special distribution” due to the since regular distributions did not meet the minimum legal requirement to distribute 90% of its income. They should be distributed again. That indicates that the fund earned more than the dividends on the preferred shares.

Due to the requirement to distribute NII and accrued income, GDV is not in a position to suspend favorable payments. The managers, Gabelli, kept the distribution of the two funds they managed, GAB and GGT, as the fund did not support the distribution of ordinary shares for a short time. Therefore, it is unlikely that the fund will cut the distribution on the common shares, and the distributions will not cease. That makes the distribution of preferred shares very safe. At ~18% below par, GDV-K is a solid buy for investors.

Pick #2: PRIF-L Best Friend – Yield 7.1%

Capital Equity Inc – 6.375% Series L Mutual Funds Can be purchased at any time. (PRIF.PL)

Many CEFs invest in collateralized loan obligations, or CLOs, which are reissued stocks that are preferred over time. The five CEF CLOs Eagle Point Credit (ECC), Oxford Lane Capital (OXLC), OFS Credit (KILL), XAI Octagon (XFLT), and Basic Income Fund (not traded). For investors who are not familiar with the different types of preferred stocks, “seasonal” preferred stocks have a maturity date unlike most preferred stocks (no expiration date). for a fee). Therefore, “term bonds” are similar to bonds in that the issuer must pay the principal on the maturity date, even though it is smaller in the principal amount.

MAIN-L a “best before date” with a date of 3/31/2029. The $25 call is possible after 2/28/2025, but since it’s trading below par, it’s a good call and nothing to worry about.

The common stock of First Income Fund is not publicly traded except for filings with the SEC and its stock is eligible for trading on the NYSE. We can access their financial information. Little is known. MAIN-L (PRIF.PL) offers similar results to that offered by Eagle Point Credit (ECCC) while providing diversification across CLOs and CLO managers.

Looking at the financial data, PRIF’s allocation is covered by 151% on NII. That ratio is calculated after dividends are paid on preferred shares, so there’s a lot of leverage that makes this stock a solid one.

Looking at the companies that PRIF holds debt for, many are in high-interest sectors. Less than 9% of the fund’s assets are in the banking and financial sector, and it is not a big problem to affect allocations to preferred shares if the characteristics of banks. And that seems unlikely because the situation with the banks has stabilized, and some of the banks are reporting earnings. The same can be said for the hotel sector if we enter recession.

At ~10% below par, PRIF-L is a good buy and a great way to get more diversity in the CLO sector with a safe allocation.

Conclusion

Demand shares are a great way to raise real money for risky investors. They are as safe as bonds but with higher yields. It is important to know which stocks you are willing to invest in, and which have the highest level of safety. At High Growth Investments, we value stocks that do well because they are cheaper and safer to invest in, especially in the face of a mild recession later this year. That’s why we cover 50 stocks as part of our Best Portfolio that earns 8.7%.

As mentioned above, the preferred shares of CEFs carry more safety features, and we value them. GDV-K and PRIF-L offer reliable cash flows for yields of 5% and 7%, respectively. This is suitable for investors who want high returns without sacrificing safety. Retired investors can benefit from holding these preferred shares with their inclusion of higher yields and reliable income to help them pay their living expenses during retirement and give money for life. Being an entrepreneur is great!