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Income Expert Eyes Baby Bonds from Sachem Capital
07/31/2020 5:00 am EST
"Baby bonds" are miniaturized versions of their traditional bond siblings. As such, they benefit from being required to be paid their interest payments or else the company goes into default, explains income expert Rida Morwa in his High Dividend Opportunities.
However, unlike their sluggish siblings, they normally get quarterly payments vs semi-annual. Another benefit is smaller per bond size, easily findable due to being listed on Market Exchanges and reduced fees compared to traditional bonds.
In fact, buying a baby bond is exactly similar to buying a listed common stock. Note that most baby bonds have a Par Value of $25 per share and a fixed coupon rate payable on a quarterly basis.
We have been locating and highlighting livable-yield producing baby bonds for members of our investment community, and as such, we like them to produce solid income.
Most of our picks will also be trading below par (usually $25 per share), so at maturity, you have additional capital gains baked in.
An example of some attractive baby bonds are those issues by Sachem Capital (SACH). The company is a hard money lending REIT out of Connecticut that currently has its common dividend payments on hold until year-end. Management wants a clear view of what's coming before paying out their usual 100% of taxable income.
Sacham Capital does have two baby bonds that both yield about 7.4% and trade below par:
1) Sachem Capital Corp., 6.875% Notes due 12/30/2024 (SACC)
2) Sachem Capital Corp., 7.125% Notes due 6/30/2024 (SCCB)
Both baby bonds are the very tippy-top of SACH's capital stack, no one has a superior claim in the event something goes wrong.
While COVID-19 has hit many sectors hard, the moves by the United States government has helped ensure the housing market is not set to collapse. So buying up SCCB and SACC can add regular reliable income to your portfolio, while securing a yield of 7.4%.
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