2 Top Picks, Yields +6% For Potential Rapid Returns And High Income

seekingalpha2024-09-03

I love investing for income over time, but today, we look at two quick capital return opportunities.Every once in a while, we collect fast returns on top of our income.Collect income, collect returns,...

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Growing up, we didn't have a ton of extra money to afford to eat out regularly. So when we did do so, it was primarily low-cost fast food like McDonald's (MCD). I enjoyed a good home-cooked meal with family laughing and talking around our dinner table. I have strived to maintain this with my family. We sit and enjoy meals together. It isn't a rushed event or shared with a screen. We enjoy a meal carefully, lovingly, and diligently prepared together. This is how I like to build my portfolio and how I crafted my Income Method. It's not something you rush to get results. You diligently, lovingly, and carefully build your portfolio to provide you with the income you need in retirement. However, at times in life, we're busy, rushed, and stressed, and a quick stop at Wendy's sounds like a massive time-saver and enjoyable meal. It fills up your belly and lets you get back to what you were doing. Today, I want to examine two opportunities for \"fast food\" returns—quick, short-lived opportunities to earn some capital gains and keep rolling on. Let's dive in! Pick #1: BGR – Yield 6% BlackRock Energy & Resources Trust (BGR) is a CEF (Closed-End Fund) that focuses on large-cap oil companies. Its top 10 is a who's who of the oil world. Source   BGR Website BGR invests in the oil majors and then sells call options to increase income. As of July 31st, BGR had approximately 1/3rd of its portfolio overwritten. One of the biggest appeals of BGR, as opposed to investing in these companies directly, is the large discount to NAV (Net Asset Value) that it has been trading at. Looking at the 3-year chart, we can see that BGR's NAV (orange line) has gone up further than the share price (purple line). Data by YCharts This means that we can buy $14.8 worth of assets for $13.2. While we love buying at a discount, BGR's management would prefer that it trade at a smaller discount. As a result, BlackRock has announced a \"discount management program.\" Following any quarter where the average discount to NAV is greater than 7.5%, BlackRock will buy back 2.5% of the outstanding shares at a price of 98% of NAV. At the end of June, the discount was steep enough to trigger a tender offer for 2.5% of shares. Those who took BGR up on the tender offer will receive approximately $14.45/share on the shares accepted – a nice gain for those shares. Those who didn't accept the tender offer will benefit from a slight increase in NAV (we estimate approximately $0.0075), and fewer shares outstanding means that the distribution is more likely to be increased in the future. If you missed the tender offer, don't worry. You will likely get another opportunity. The next measurement period is from July 1st to September 30th. About halfway through that period, BGR's discount has been steeper than 10%. Data by YCharts BGR will most likely buy another 2.5% of outstanding shares in November — unless, of course, BGR's price closes in on NAV and the discount is significantly less than 7.5% for the next month. Our primary goal in buying BGR is to gain exposure to the energy majors. These companies have proven very reliable through a variety of economic conditions, and energy has been one of the strongest sectors. BGR provides us with that exposure while providing a dividend that fits our income goals. The opportunity to take them up on their tender offers and the possibility that we see some capital upside as they close the valuation gap is a cherry on top. Pick #2: SACC - Yield 6.8% Sachem Capital (SACH) is a small mortgage real estate investment trust, mREIT, that focuses on development loans tied to fix-and-flip or mid-construction loans with very short durations. SACH works as a secondary lender. They primarily lend to individuals who want to close very rapidly and do not want to go through all the hurdles that a traditional bank would require. Furthermore, they also lend to individuals who are not able to secure standard bank financing because the bank finds the situation to be too risky. All of their loans are tied to real estate, meaning that they have the ability to foreclose and operate the facility themselves or sell off the property to recoup their losses historically. SACH has been very successful in managing this unique business and was able to grow rapidly through the issuance of baby bonds. The issue they run into now is that these baby bonds are beginning to mature, and interest rates are too high, making it undesirable for them to issue new debt to pay off these baby bonds. This has led to them allowing their portfolio to wind down as loans are being paid off. They're holding on to the cash and using the cash to pay off the baby bonds. We saw that earlier this year they decided to pay off the baby bond that matured in June by using cash on the balance sheet. That's the plan that they have iterated to do this December as well.  \"Gaurav Mehta I wanted to follow-up on the balance sheet, the $34.5 million loan that's due in December. I wanted to get some more color on your plans on re-financing that loan and how much capacity do you have currently on the balance sheet to address that loan maturity? John Villano That's a great question, Gaurav. So, if you look at our June 30 balance sheet, we did have $10.5 million in cash. Currently, we have almost $30 million of cash on hand, not including liquidity from our credit facilities or repurchase agreements to handle the December maturity. So, we're in really good shape. Gaurav Mehta So, $30 million cash on hand after 2Q? John Villano That's correct.\"  This means Sachem Capital Corp., 6.875% Notes due 12/30/2024 (SACC) are a very low-risk baby bond, providing a quick return and a couple of interest payments. Conclusion BGR and SACC provide two ways to get some quick capital returns in short order. You can buy BGR, tender your shares the next time a tender offer comes through, and enjoy a quick capital gain. With SACC, you can buy the baby bonds near PAR, collect one or two interest payments, and then have those successfully redeemed by a company carrying the cash on the books to do so. These aren't the kind of returns I typically like to go for because I like to have a carefully, lovingly, and diligently crafted portfolio that rains income into my account, but at times, it never hurts to pick up a quick fast food meal and a \"fast food\" return on a short-term opportunity. When it comes to your retirement, you shouldn't have a retirement where you eat only fast food. Likewise, you shouldn't have a retirement portfolio that depends on you making quick trades and fast turns to receive the majority of the income you need. But it doesn't mean that you shouldn't take advantage of opportunities that present themselves in a low-risk manner from time to time.  That's the beauty of my Income Method. That's the beauty of income investing.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.4","shortVersion":"4.29.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2464877370"}