3 High-Yield Themes Paying Off Big
11/10/2011 8:15 am EST
The on-again, off-again love affair with Eurozone headlines and the triple-digit volatility it brings with it has turned the daily business of "investing for the long term" into what is now being referred as "risk-on" and "risk-off" trade, notes Bryan Perry of Cash Machine.
At the end of October, the Dow lost 575 points in two days, before recovering about two-thirds of those losses by last Friday.
Considering how uncertain the investing landscape seems to be, being long high-yield sectors is definitely the right place to be. And we’re positioned perfectly.
Our portfolios are getting a nice push higher, as evidenced by rising year-end capital flows back into the equity and debt markets. Each of the major themes that define the Cash Machine buy lists is playing out well and providing for exceptional high yield payouts with long-term capital appreciation.
And when you combine the holdings of both portfolios, it carries a current yield of 8.24%, and reflects what I believe are strong asset classes where our objective goals can be met.
Within my favorite themes, business development stocks Fifth Street Finance (FSC), Triangle Capital (TCAP), Hercules Technology Capital (HTGC), and the E-TRACS 2X Wells Fargo BDC Index (BDCL) are firming up nicely.
We’re still in a very favorable commercial lending environment where banks remain cautious, allowing BDCs to prosper by being the primary lender for hundreds of small- to medium-sized companies that are in hot growth industries.
I just love this business model for the individual investor. It allows passive investors to come alongside very smart money and make some whopping yields from being a silent corporate banker getting 15% returns. FSC, TCAP, HTGC, and BDCL all remain buys.
This past week, HTGC—the leading specialty finance company addressing the capital needs of technology-related venture capital and private equity-backed companies—reported third-quarter results. It reported steady growth and strong fundamentals, posting a 19.9% gain in total investment income.
The company created about $216 million in total commitments to new and existing portfolio companies. That’s a 160% jump from $83 million in the third quarter of 2010. Total investment assets surged to about $576.5 million year-over-year, a 41.5% increase. This BDC is perfect for income-seeking tech investors.
Another favorite of mine, TCAP reported stellar numbers, beating Wall Street estimates by 7 cents, representing a 15% upside surprise. It also bumped up its quarterly dividend payment to 47 cents from 44 cents per share. This is the third dividend increase in the past 12 months. Nice!
Total investment income was $16.2 million, which was a 65.7% increase over last year’s third quarter. The surge was thanks to new portfolio investments made during the past two years, which increased total loan interest.
Up on the Farm
The secular bull market for nitrogen fertilizer to meet global demand for corn is also unfolding according to plan.
Shares of Terra Nitrogen L.P. (TNH) was up sharply after posting an incredibly strong third quarter. TNH reported net earnings of $128.4 million on net sales of $203.3 million, which was a whopping 265% pop over last year’s third quarter.
For the first nine months of the year, TNH recorded earnings of $378.2 million on net sales of $597.9 million, which represented a 178% increase over the first nine months of 2010. And third-quarter sales jumped 49% to $203.3 million, thanks to higher ammonia and urea ammonium nitrate solutions selling prices and sales volumes.
Due to the strong pricing, TNH declared a cash distribution of $3.96 per share. It will be payable on November 29, to holders of record as of November 14. This represents a forward yield of 9.05%.
Not to be outdone, our other star performer in the nitrogen fertilizer space, CVR Partners L.P. (UAN), also threw up huge numbers for the third quarter. That fully endorses my belief in the strength of the top- and bottom-line growth for these businesses.
CVR reported third-quarter net income of $36.3 million on net sales of $77.2 million, a 169% increase over the 2010 third quarter. UAN set the quarterly dividend to 57 cents per share, and it traded ex-dividend yesterday.
Now is a great opportunity to lock in a very healthy 9.6% current and forward distribution yield. Buy UAN under $27.
Best of All…
While China Mobile (CHL) upgrades its wireless backbone to accommodate Apple (AAPL) products, the giant mobile telecommunications company is still selling iPhones and iPads. Bloomberg reports that the carrier signed up almost 5 million users of the smartphone in just four months.
It’s been able to boost customers drastically for one simple reason: It’s offering gift cards worth as much as $441 to people who prepay for its Wi-Fi service. In fact, China Mobile plans to roll out 1 million new Wi-Fi hotspots over the next three years in China.
And this strategy has already doubled its iPhone subscribers to 9.5 million in the past 5 months. This is a fabulous development for CHL in the making.
The company now has more subscribers than China Unicom (CHU), which is the only other carrier selling the iPhone in China. This story only gets better. Buy CHL.