Harry Domash is a leading income specialist; in his Dividend Detective, the advisor maintains a wide variety of model portfolios designed for investors with different levels of risk tolerance. Here, he looks at a preferred pick, a high tech idea and a REIT.
We’re adding Carlyle Group 5.88% Series A (TCGP), which are credit-rated investment grade (BBB-), to our preferred stock portfolio. Carlyle Group (CG) is one of the world’s largest alternative asset (private equity) asset managers. These preferreds recently traded at $24.23, below their $25 issue and call prices.
The market yield is 6.1%, and yield-to-call (9/15/22 call date) is 6.7%, which is high for investment quality preferreds. The preferreds are non-cumulative, meaning that the issuer doesn’t have to make up missed dividends. However, that sort of event is highly unlikely for Carlyle.
We’re also adding American Software (AMSWA) to our high tech, high dividend portfolio. American is a small ($470 million market-cap) company that produces software targeted to the retail and manufacturing industries. Until recently, AMSWA hadn’t grown much. In fact, fiscal April 2017 revenues, at $106 million, were only $4 million higher than the FY 2012 total.
But AMSWA is transforming its strategy from leasing software to users who must install and implement the applications themselves, to “software as a service,” whereby the company fully develops customer applications and essentially rents the working programs to its customers.
That strategy is working, but will take a few quarters to play out. For the fiscal year that ended on April 30, 2018, earnings rose 52% on 6% revenue growth. Analysts are forecasting around 20% annual EPS and 10% annual revenue growth for each of the next two fiscal years. However, it’s likely that those forecasts will be exceeded. American Software is paying a 2.9% dividend yield.
In our real estate investment trust portfolio we're adding National Storage Associates (NSA), a relatively new REIT (April 2015 IPO) that rents self-storage units to end-users. There's nothing special in that since there are already many self-storage REITs. However, NSA has a different business plan.
Rather than expanding by buying up independently owned self-storage operations, National Storage forms partnerships with independent operators, who continue to manage their properties, but have access to NSA’s resources. It’s working so far.
The EIT has been growing FFO (free cash flow) around 10% and revenues around 20% annually. Analysts are forecasting similar growth numbers for 2018 and 2019. National Storage is paying a 4.0% dividend yield.
