To The Moon

Summary

• Samuel Smith, leader of High Yield Investor, discusses the looming rate-cutting cycle and 3 stocks that he believes will benefit in the months ahead. Watch now!

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Daniel Snyder: Hello, everyone. Daniel Snyder here from Seeking Alpha. Thank you so much for taking the time to join us today on this complimentary webinar with Samuel Smith from High Yield Investor. I know a lot of you are keeping eyes on the market just like we do here every day. Of course, we just had Powell and all the remarks of the shift in policy coming forward. The time has come for rates to change. And this time is ticking down for great opportunities within the high yield environment.

So thankfully, we have Samuel Smith joining us today from High Yield Investor to give us a whole deep dive into what he thinks is coming, how they're positioning the portfolios that he has. And then of course, we'll talk about three names that he's bringing to the table. And it's going to be a compelling argument because what he has to say doesn't exactly line up with the Quant System to a T. So, we're going to challenge him a little bit here this half hour or hour. So, go ahead and grab some coffee, grab some water, stick around, hang out for us, but first things first, I have to get a little bit of housekeeping out of the way.

So, let me go ahead and share this for everyone. And I'll go ahead and read this through real quick. So, past performance is no guarantee of future results. Any views or opinions expressed in the webinar do not reflect those of Seeking Alpha as a whole. Seeking Alpha does not take account of your objectives or your financial situation and does not offer any personalized investment advice. Seeking Alpha is not a licensed securities dealer, broker, U.S. investment advisor, or investment bank. Information provided by the Investing Group does not constitute investing advice. Investing Group leaders are third-party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Any content and tools on the platform are offered for information purposes only.

And with that out of the way, I would like to go ahead and invite Samuel Smith to join me here on camera. And Samuel, how are you doing today? Why don't you go ahead and say hi to everybody?

Samuel Smith: Hi everyone, glad to be here.

DS: All right, Sam. So, first things first, I'm sure I've got a couple thousand people here with us right now already. So, and for the people watching the replay, the big question in the room, of course is, who is Samuel Smith? Why don't you go ahead and just give us a little bit of background about how you got into investing, what your approach is, and how long you've been doing it, etc, etc.

SS: Yeah, sure. So, I've been investing my own money for a little over a decade now. And I got into it mostly as a hobby. I love to read. I love to study how the world works ever since I was a young kid. My grandfather was pretty avid self-directed investor. I remember watching CNBC with him in the mornings while he would drink his coffee. And I'd sit with him and watch it. Gave me a couple of books on economics, got me down that path. So anyway, I started reading and actually started writing on Seeking Alpha as a hobby quite a while ago. And then I got approached by different investing newsletter companies asking me if I do - they liked my work, asking me to do some work for them, to be an analyst for them.

So, I worked for several different dividend investing newsletters, which meshed well with my initial strategy, which was just a pure value investing approach. And through that experience, I was able to hone my own strategy and was delivering strong results for myself, consistently outperforming the market. And so, between that and some pre-existing relationship that I had with the founder of High Yield Landlord, Jussi Askola in 2020, coming out of the COVID pandemic, and the high yield space, the value space was very attractively priced. And we felt like this was a good time to really invest in the space.

So, I thought it was a really ideal time to launch High Yield Investor to help guide investors to take advantage of the post-COVID world. And turns out our timing was spot on and we had really strong results out of the gate and the rest is history, as they say.

DS: So, let's talk about high yield, because I know a lot of investors, they hear the words high yield. Of course we all want the high yield. Don't get me wrong, we all want that, but we also know that there's an associated risk that typically comes with high yields. So, how do you approach that?

SS: Yeah, so my approach to high yield investing is really rooted in four main qualities I look for in every stock. One is that it has to have a durable and defensive business model. And what I mean by that is, it should be a company that generates stable cash flows through market cycles. Doesn't mean I never invest in cyclical stocks, but the bulk of my portfolio is always invested in stocks that generally have either regulated or long duration stable cash flows, either through contracts or through, say, permanent capital asset manager, or they loan money out on a longer-term basis and have steady interests or contractual payments from that. So, something like that, it's very easy to model the future cash flows, takes out a lot of the guesswork and the sophistication. The defensive side and the durable side of it as well means that they're somewhat resistant to technological disruptions. Either they have an identifiable moat or like I said, very stable, durable cash flows, that should be somewhat stable through all kinds of economic cycles. That helps reduce some of the macro speculative nature of the investment as well, because I'm not really a macro guy, I'm more of a bottom-up analyst.

The second trait I really look for in stocks I invest in, and this is an area where I found that I can never put too much effort into this because even when I think I've done my due diligence, I still occasionally will make mistakes, but it's in terms of the balance sheet strength, is ensuring that the company's balance sheet is one that it's not going to, again, barring some unforeseen calamity like COVID or something like that, some black swan event, should not force the company to choose between sustaining its dividend and protecting its balance sheet. It should be a balance sheet that gives the company plenty of flexibility and not being beholden to the lenders, not being beholden to the capital markets, and being able to invest accordingly and still be able to pay out their dividends consistently.

I'm getting a note here that the audio is breaking up. Can you hear me okay, Daniel?

DS: Yeah, I hear you fine over here.

SS: Okay. All right. Then the third big trade I look for is a dividend that is well covered. And actually, again, the vast majority of my picks, I like to have ones that grow their dividends on a consistent basis at a pace that at least meets but ideally beats the rate of inflation over the long-term. And again, the whole point of that is, if a company is consistently growing their dividend, they're much less likely going to be inclined to cut it. And the second point that is obviously you want your purchasing power to keep up with inflation or ideally even increase relative to inflation on an organic basis. And so, if you have that dividend growth, then you don't have to worry about that.

And then the fourth big trait I look for is, as the name implies, I want a high enough dividend yield that I'm not relying almost entirely on the growth from the stock to be able to drive the total returns. And again, that takes out some of the speculative nature of the analysis. For example, if a stock is paying out a, for example, Enterprise Products Partners is a well-known blue chip stock most people are familiar with. It pays out a little bit over 7% yield at the moment. And so, it really does not need to deliver some incredible Superman feat in terms of growth to still deliver a double digit annualized total return. In fact, it's been growing its distribution at about 5%, which is roughly in-line with its per unit distributable cashflow growth rate. And so when you combine that with the 7.2% yield, I think it currently is on the distribution, you're setting yourself up for 12% or even higher percent annualized total returns, and it's very stable cashflow locked in. It's not a really a big risky proposition.

So, those are my ideal stocks that I look for. I'd probably hold up EPD, Enterprise Products Partners, is like a poster child for the type of stock that I target. Obviously, not everyone's going to meet those exact specifications, but that's generally what my approach is on trying to, again, avoid swinging for the fences, just trying to hit a lot of singles, doubles, and triples, and then opportunistically recycling capital as certain stocks get in favor in the market, recycling capital out of those into undervalued stocks that still meet those criteria. And that's enabled me to lever, since we launched High Yield Investor back in 2020, about 18% annualized total return in our core portfolio, which not only beats the high yield space actually by a 2-to-1 rate, but it's actually beaten the S&P 500, I think by nearly 50% on an annualized basis, so.

DS: Yeah. So, I want to double click on a couple of different items here. So you have three portfolios that you're running within High Yield Investor, and you're targeting this 6% to 8% yield is what we had talked about leading up to this call today, but I want to make sure as well, you touch on the point that you said you also focus on capital appreciation, right. So, maybe you just dive into that of like, so you're looking at dividend yield, but also capital appreciation.

How? I mean, because most of the time I think about high yield and the stock price might fluctuate, it might pull back. I feel like I'm not getting that dividend. It's not covering the cost that I'm losing. How do you find these companies?

SS: Sure, so first of all, I'll just clarify. Like you said, we have three portfolios. One is the core portfolio, one is the international portfolio, and one is the retirement portfolio. And actually run the core and international really as a single portfolio. Our reason we discriminate is just so our members can tell which stocks are U.S. based versus which ones are international based. Many of our investors like to know that for tax reasons or whatever other reasons. And so, those are both run with the intent of maximizing total returns within the pool of high-yield stocks.

The retirement portfolio is run primarily with a focus on generating safe and attractive income for investors who are not, - total returns are a secondary priority there. So, we don't totally run away from those in that portfolio, but we still focus primarily on the income. So there will also include some preferred stocks, some bonds, and we're less aggressive in our trading in the retirement portfolio, because again, we're just focused on that income. And so whereas in the core and international, we're more likely to do capital recycling.

Now, to your question about capital appreciation. So, first of all, we approach our investing with a long-term investing approach. We're not trying to beat the market the next month, even the next year. We're focused on the 3 to 5 or even a little bit longer-term time horizon. Our service launched right around that timeframe. So, right now is actually when we first really start paying attention to our results and they've been, praise God, very good for us. But really what we're trying to do is, again, we make an investment with the idea that even if the market is volatile, if the stock remains a dog for a short period of time, as long as our investment thesis is intact. Those cash flows are coming in, the balance sheet is strong, the business model is still generating stable cash flows, the dividend is safe, and it's growing like we thought it would. We're fine. We don't care. In fact, we like it when the market tanks the stock after we buy it, because then we could just buy more at an even better yield and a better total percentage of expected total returns. But how we accelerate our compounding process and really chase the total returns, like I said, is because with high yield stocks generally, you're not going to get these incredible growth companies like NVIDIA. And so, you don't have to worry about speculating, oh, is it going to keep doubling its earnings year after year, because you know it's probably going to only grow its earnings between 3% and 10% at best per year in most cases.

Occasionally, we'll get some that grow faster than that, but most of them are in that mid-to-high single digit growth rate. And so you know that if it can continue to do that, you don't make a mistake, you don't step on a landmine, combined with the, say, 5% to 8% yield on the stock, occasionally it's a little bit higher, occasionally a tiny bit lower, so maybe even 4% to 10%, it's probably our full range. You're going to get that 10% to 12% annualized total return, but how we juice that up to 15% to 18% is dealing with valuation multiple expansion factor.

And so, what we do is, when we have conservative fair value estimate, which we call buy under price in our portfolio sheet. And when the stock gets really close to that buy under price or the conservative end of our fair value estimate, whether it may be a little bit above or below right in line with it, if we have another attractive opportunity that fits in with our sector and overall portfolio diversification goals and meets our criteria that I mentioned earlier, we’ll often either sell part or even all of that existing position that has appreciated a lot and recycle it into this undervalued position and then move into that one over time. And then as that one recycles, we rinse and repeat.

It's a very similar strategy to what Brookfield implements with a lot of their subsidiaries for audience who's familiar with, for example, Brookfield Infrastructure Partners or Brookfield Renewable Partners, they've done this very well and many other companies do it as well. Obviously we're not adding value ourselves or not active investors, but we buy with a patience, but we basically let volatility serve us. So, if the market decides within a month of us buying a stock that it wants to reprice the stock we bought 30% higher, we'll gladly take them up in the market up on his generosity and either trim or even sell that entire position, depending on the circumstances, and recycle the capital in a new opportunity.

And so that volatility layered on top of our core underlying dividend yield plus growth is what gives us that extra 3%, 6%, 10% annualized total returns on top of what we would just get from buying and holding those securities in the first place.

DS: Yeah. Now, I just want to mention real quick, Robert's blowing up the chat. Robert, we see you. We will be talking about these three equity picks here in just a moment. Before we get to that, we got to talk about, I know you said you're not a macro economist, but obviously things are changing. And you had mentioned to me before that you're setting up the portfolio to be more defensive. Obviously, we're coming off of Jackson Hole last week.

Powell said, it's time to change monetary policy. We've got to focus on unemployment, the other side - the dual mandate. We're seeing all the different macroeconomic data points that come in week after week after week. Just walk us through, what do you watch on that front that is getting you to a point where you're okay, wanting to be more defensive with the names that you're chasing after right now.

SS: Yeah, and again, to be clear, I would say the tilt of my portfolio is almost always somewhat defensive in nature. Because like I mentioned before, I really put a premium on those businesses that have generally, again, there are occasional exceptions, but generally speaking, I want businesses that have durable defensive cash flow streams that are not highly subject to the macro conditions, because again, I'm not a macro analyst. So, I try to take that risk off the table.

And again, the stocks I'm investing in, I'm not looking for home runs. I'm simply looking for stocks that can deliver a consistent return that I can implement, overlay it with my capital recycling strategy to get the returns I want to. So, I'm just trying to make it. That's why I like high yield stocks because they're much easier to model consistently rather than the high growth names like NVIDIA and others where it's hard to know exactly what they're worth.

But yes, in terms of defensive bet, I would say, I'm just a little bit on the cautious side just because like you said, with where unemployment's going, with where consumer spending is going, with the record levels of consumer credit card debt, there's been reports of softness in the middle market. If you hear some of the BDC CEOs like Ares Capital Corporation talk about that, they've mentioned that they expect non-accruals and even defaults to spike in the industry. You've seen that with some BDCs have already encountered those headwinds. So, you have lots of hints of this. Even some of the tech companies are laying off employees. You have issues with China, both in terms of their own economic malaise, as well as a lot of companies are starting to pull out of there or at least diversify away from there. So, that's another headwind on the global economy.

And then you have all the geopolitical risk right now with the potential for all out war in the Middle East really at any moment between Iran and Israel, the ongoing war in Eastern Europe, you never know if that could escalate. And really the most concerning is what's going on in East Asia, especially with China and Taiwan and the Philippines. If that were to erupt at any moment, we're headed probably for a global depression or at least a very serious market crash. So again, if you're truly worried about those things, never invest at all, right? Just hide your money under a mattress or buy gold and head for your bunker.

But we can't live in fear, but at the same time, I do want businesses that are not at risk of just completely cratering in terms of their fundamentals. And at least most of their dividends should be sustainable, or at least not subject to a severe cuts if a worst place scenario were to play out.

And I also diversify my portfolio. Like for example, I've invested in a market maker that profits from market volatility. In fact, it's two biggest periods of profitability were during the two last big market crashes in the 2008-2009 financial crisis and in the COVID crash. And the stock, it was private back in 2008-2009, but in the 2020 crash, the stock actually shot up a lot higher while the rest of the market was tanking. So that was a stock that really helped us with that.

I do invest in precious metals. There are some unique approach ways that I go about generating yield from precious metals investments in our portfolio. And so for example, we have positions in gold and some exposure to silver, I expect especially gold to do well in a geopolitical event. And that's obviously, it's been doing well for us this year, even without some of these worst case scenarios playing out. But that's an area I've been bullish on and we've done well with that.

And again, I have a lot of infrastructure type businesses. The real estate holdings that I have are very defensively structured. Again, in our retirement portfolio, we have a lot of fixed income that also bolsters the defensiveness of that portfolio. So, yeah, that's how I'm approaching things.

DS: All right. Well, I think we spent enough time talking about all of that. We need to start diving into some individual names that you're bringing for us today. I know our audience wants to hear it as well. So, I'm going to go ahead and pull them up here on Seeking Alpha as we run through them. Why don't we kick start things off with this first one? I think it's Brookfield Renewable Partners. Why don't you tell us about what it is, what they do, and why you like it?

SS: Yeah, so Brookfield Renewable Partners, I actually mentioned them earlier in the call. So, they are a renewable power company. They invest in renewable power generation assets, primarily hydro power. So, they have a lot of hydro power plants around the world. They also own a large portfolio of wind farms and they have a very rapidly growing portfolio of solar panel, solar power farms that that's their fastest growing segment right now. They also invest in some battery storage. They also have exposure to the nuclear power space. They recently acquired a stake in Westinghouse, which is in the nuclear space.

So, they're pretty diversified with a main focus on renewable energy. And so, I like them because their long-term track record is exceptional. They have grown their distribution every year for over a decade at a mid-single digit CAGR. So, again, I'm getting that distribution growth rate that exceeds inflation. It's very consistent. They've also grown their underlying cash flows on a per unit basis at an even higher rate and they expect to be able to continue growing those cash flows unit actually at a 10% or even higher annual growth rate moving forward.

They also have a very durable and defensive business model. Obviously, people have differing opinions about renewable power, but from my perspective, again, this is not a comment on climate change or the politics or even the science of it. I have my own views on that, but the bottom line is, is that leading companies are committing heavily to the space. For example, Microsoft actually just signed a multi-billion dollar deal with Brookfield for them to provide renewable power to power their AI investments. And Brookfield has signaled that they have several other of these opportunities potentially in their pipeline as well.

So, there is a strong future, and I think Brookfield is going to be a leader in it because of their scale, their global presence, their very strong balance sheet, their access to attractively priced capital. They have a demonstrated track record of excellence, both in operations and in development. So again, I think they have a competitive advantage in the space.

Their assets enjoy very long-term contracts, and they have inflation escalators built into those contracts. So again, I think they're well-positioned against a scenario where we have a rebound inflation potentially. They are very well positioned against an economic downturn, but at the same time, if interest rates do fall meaningfully on a long-term basis, that's actually good for them because it increases the net present value of their contracted cash flows. It also means their own cost of capital is going to go down so they can invest more aggressively in development projects and in acquisitions to turbocharge their growth.

Meanwhile, you're getting a 6% distribution yield on top of all of that. So, I think they have a huge margin of safety. And then to cap that all off, they have a BBB+ credit rating, which is by far the best in the renewable power yield company space. They have very well laddered debt maturities, weighted average term to maturities of like 12, 13 years in both their corporate debt, as well as their asset level debt. And the vast majority of their debt is actually at the asset level with no recourse to the corporation.

So that means that even if one or two of their assets were to have an issue and go belly up for example, they could just jettison that asset to the lender and it would have no impact on the broader side of their portfolio or their corporate balance sheet. So that adds another layer of security.

Of course, they're also backed by Brookfield, which is the second largest alternative asset manager in the world. They have a trillion dollars in assets under management, a very strong balance sheet. So, they have that to backstop them as well. And Brookfield itself is very well aligned with investors because they are the largest individual shareholder of Brookfield Renewable Partners shares, and they regularly buy shares themselves. And BEP actually even buys back its own units on occasion when the price is down.

So, they're not just one of these fee factories that's just growth at all costs to earn fees for the manager. They actually really work hard to try to protect unitholder value and create it over the long-term. And again, their track record shows that. The parent Brookfield has so much invested in them that they profit when Brookfield Renewable Partners appreciates as well. And then as you can see on the chart there, they're down a lot from previous highs. And I think they were significantly overvalued previously, but interest rates, with interest rates rising, the stock has gotten beaten down so much that I think that if we do enter a cycle of interest rate cuts, which it seems like we are, and even if it's accompanied by an economic slowdown, I think BEP is positioned to be a significant outperformer.

One final thing I'll mention about it is that, it does issue a K-1, and so that may be a no-go for a lot of investors, but there are two important things to keep in mind. One is, is that according to their investor relations, they do not generate any UBTI. And so therefore, even though it issues a K-1, you could hold it in your Roth or standard IRAs or 401(k)s. In fact, that's where I hold all my units and I've held them there for quite some time, never had an issue. So, I'm going to have to file the K-1 when I hold it. And that's it in that account.

And the other thing is, there's a sister symbol called BEPC that is an economic equivalent of theirs, but it generates a 1099 form. The only difference is that it is a little bit pricier because of that convenience. A lot of institutional investors buy the BEPC shares instead, but that's another option for people who just cannot deal with the K-1. So, those are my thoughts on Brookfield Renewable.

DS: Now, I want to dive into some of this because the chat is blowing up. Everybody's looking at this and they're saying, well, BEP is at a high risk of performing badly, says the Quant System on Seeking Alpha, but of course this is what I love this is why we do these webinars, it's you're bringing the case you're talking about the pitch of what makes this company and this management which by the way I know you talked to a lot of management companies within your service over there at High Yield Investor. Is this a team that you have spoken to before?

SS: Yes, we spoke to them just a few months ago, actually.

DS: And so, you're grilling these management teams and you're saying, hey, we're obviously out here in the stock with you and everything else. So, maybe can you share anything that may have come up in a conversation with them that really just solidify why you're saying that even though we see the down pullback in the stock price over the last few years. I mean obviously that's for the people watching. That's why the momentum grade here is an F.

I do see over the last six months though that the EPS revisions of Wall Street analysts is actually increasing as well. Of course, Seeking Alpha Analysts have a Buy, Wall Street Analysts are a Buy on the stock as well. So, maybe you can just share a couple more data points and maybe we dive into some of the dividend metrics here as well.

SS: Yeah. So, really with the Quant, again, I don't regard it very much because it puts priority on things that don't really fit with me. For example, the momentum. I don't care at all about momentum because again, as I mentioned, I'm a long-term investor. I don't try to perfectly time stocks and outperform over the next month or year even. I also, with real asset stocks like BEP, earnings per share is not a good metric to judge it because it has a lot of accounting depreciation which creates a disconnect between what the GAAP earnings per share are and what the true earnings power of the business is. And so again, that's a score that probably is not going to be terribly accurate.

But in terms of our conversation with management, I think the biggest thing with them is just getting more color, more granularity into their confidence and their growth guidance. Because obviously that 6% distribution is great, right? That gets you easily halfway to a decent total return. They have a great track rerecord, they are not only sustaining, but growing that distribution, as you can see there, even through COVID crisis and rising interest rates, they've continued to grow their distribution at a very steady clip. So, that's something that we have a lot of confidence in.

But in terms of their actual growth above and beyond that to really drive the appreciation in the stock price over the long-term, again, their recent agreement with Microsoft, I think, is a huge deal. That's a unique thing in the space. No other renewable power yieldco can say anything close to that. And it's a sign of potential things to come. It means they have those relationships, they have that appeal that they could very likely be signing additional agreements with Microsoft and or other big tech companies.

And then just their balance sheet strength as well on top of that just gives us so much more confidence than in some of these others, because basically all their peers are junk rated in terms of their credit ratings, whereas not only is BEP investment grade, but they're BBB+, which is several notches above the baseline for investment grade.

So, between the balance sheet strength and just the way it's structured, combined with the potential for growth upside in addition to their contractual escalators, their capital recycling program that they've proven to be very successful over time, and their own operational improvements that they do in every asset that they acquire, and they've got proven track record of that, I think there's a very high likelihood that even if they don't meet their 10% plus guidance, although they have a path to doing that, and they've done it in the past, especially if interest rates come down, it should not be hard for them to do, I still think it's very likely they're going to generate a high single digit annualized growth rate, which again, combined with that 6% yield is going to get us where we want to be over the long-term, even if the market takes a while to get us there.

DS: Right on. Now, I want to follow up and ask you about this dividend growth rate for the five-year CAGR. I mean, it's standing there at 11.69%, compared to the sector median of 5.19%. So, obviously, they're doing something right. Do you think that that level of growth appreciation should continue to happen for the dividend?

SS: No, I don't. Management has said that moving forward, they expect to grow their dividend at like a 5% to 9% annualized rate. And actually for the foreseeable future. Now, again, they said this when interest rates were still pretty, considered to be higher for longer. So, this may change, but they felt like they wanted to retain more cashflow to be able to invest in their – a very attractive growth pipeline because they can earn they’re targeting 15% plus returns on investments with retained capital. And so, with the cost of capital being higher in that environment, they were focused on that. But again, if their cost of capital goes down, they may be able to grow their distribution faster again, because that past five years, a lot of that faster growth was during a period of really low interest rates. But they have mentioned that the baseline growth for them is 5% per year with their distribution, and their cash flow growth is going to be 10% plus.

So, I think that it may move higher into that range closer to 10%. Again, if their cost of capital goes down, but on a conservative basis, I would assume probably a 5% to 6% annualized distribution growth rate.

DS: All right. I think that's well done enough for BEP. Why don't we go ahead and move on to the next one? What's the next stock you're bringing for us today?

SS: Well, one that we talked about was BSR REIT. It's traded on the Toronto Exchange, but also in, you can get it over the counter here in the U.S. at ticker symbol BSRTF. And this is a multi-family real estate investment trust. It's a very unique company. It is headquartered in Canada, but all of its assets are in the United States, and the vast majority of them are in Texas, mainly in DFW, Austin, and Houston.

Now, the stock suffered because there was some overbuilding in some markets, especially like Austin in particular, DFW and Houston to a lesser degree, but the long-term demographic trend is very bullish for all three of these markets because we're in a state that's having massive in-migration, not just from south of the border, but from places like California, New York, Chicago, a lot of companies and people are leaving these higher cost of living areas, these areas that have much more restrictive political environment, legal environment, regulatory environment. They're coming to Texas, which is a very business friendly state, a much lower cost of living. And also, even in terms of real estate in particular, Texas has a very strong and growing anti property tax movement. This last session, they had some significant property tax cuts, and there's significant momentum in this next session to continue that effort to reduce property tax cuts. And that is a huge, huge tailwind for a company like BSRTF because in fact, their biggest expense is often property taxes. And so, for them, that's huge. Very, very, very big tailwind for them when property taxes get cut.

So, when you combine that with what is their other biggest expense, interest expense on their mortgages, with interest rates potentially coming down, that's also going to help them out a lot in terms of helping their bottom line. When you combine that with a strong population growth over the long-term, you have a very attractive combination.

Other reasons I really like BSR REIT right now is, because, one, they have a strong balance sheet. So again, even if interest rates remain higher for longer, they're not going to be in a situation where they're going to get in trouble, but they also traded a massive discount to the private market valuations.

You look at KKR recently bought apartments in some of the markets that BSR is concentrated in. And it was at a cap rate - they were similar style apartments at a cap rate way lower than what BSR currently trades at on the public market. And so, there's a lot of implied upside. Depending on your estimates, they trade at probably between a 20% and 30% something discount to their net asset value.

So, you're getting very quality multifamily real estate in attractive markets for the long-term at a deep discount to what you would buy if you were to buy it in some other investment, private fund or buy apartment community yourself. And these are all Class B properties, and so that's also nice in the current environment because if we do go into a recession, they're much less likely going to get hit by that than say class A properties would, but at the same time, there are some newer properties and they're Class B, they're well maintained. And so, they're not terrible apartments, these are - so, they do have appeal to people to middle class folks who want a nice place to live. They're not dumps.

So, I really like that balance that they have. Insiders are very much aligned with shareholders. They own a huge percentage of the company. They continue to buy more. They're also actually even buying back their own stock right now, and they just hiked the dividend by over 7%. They pay out their dividend monthly, which is another nice bonus. Some people really like those monthly dividend stocks. The payout ratio is just a little bit over 50%, so a very conservative payout ratio should be very sustainable. And so, there's a lot to like there. It's one of these investments where I feel like, heads I win, tails I don't lose much.

I really find it hard to believe that over the long-term this is going to be a losing investment and there's potential significant upside either through the REIT being buy out because it's a small REIT in an attractive market or even if it doesn't get bought out over the long-term, I think this value is going to eventually surface to the market as they continue to buy back stock, continue to grow their dividend.

DS: Yeah and I'm just looking here on Seeking Alpha I just noticed that they increased the dividend here this month actually.

SS: Yeah, it was over 7%.

DS: Amazing. So, obviously, Real Estate Investment Trust company, obviously a different side of taxes and everything else that goes in the portfolio. Speaking of, how much does that kind of go into your methodology of how you invest when it comes to trimming positions and what you've all been talking about? How much does taxes really factor in?

SS: Yeah, taxes are not a primary consideration for me. I share that with my members. The vast majority of my holdings I hold in a Roth. Obviously, some of the K-1s I don't, and a few others of them I don't, but I don't take, I don't – let's just say this, I don't avoid a really good opportunity because of potential tax ramifications and especially because for members, all their situations are different.

That being said, I don't completely ignore taxes, but it's not the primary factor I consider. We're not targeting a tax-efficient portfolio. We're targeting a portfolio that will significantly outperform the market. And even if you get hit with taxes, you're still going to meaningfully outperform, but yeah, we don't completely ignore taxes in every single situation.

DS: Copy that, just had to check. All right, let's move on to this third stock because I know we got some Q&A coming in here in the channel and make sure we have some time for that as well.

SS: Yeah, so that's Patria Investments. This is another unique company. It's fully based in Latin America, but it is traded in the New York Stock Exchange. And its roots are with Blackstone. Blackstone actually used to be a major stockholder in the company. They helped build the company, design it. In many ways, it's modeled after Blackstone, but it's focused entirely on Latin America, which is a very fragmented and largely untapped market for the alternative asset management space.

The big players have some exposure to there. For example, Brookfield does have some assets in Latin America, but they largely play in spaces that are very different from Patria. So Patria, really in terms of the assets they invest in, are not competing with the big boys like Brookfield and Blackstone and KKR. They're mostly competing with small regional players in Latin America. And so, this company has been growing extremely fast.

They have been acquiring a lot of small companies through bolt-ons, and so they're building this critical mass, this scale, to build a formidable moat as the leading alternative asset manager in Latin America. Now, obviously, the biggest headwind you have to face here is market sentiment on Latin America, obviously, is pretty volatile with potential flare-ups in the region can cause market sentiment to just kill all stocks in the region, including Patria.

And so again, it's a long-term investment that I personally view as my exposure to Latin America as a play on the region for as part of a diversified portfolio in my international portfolio. I don't view this as a, put everything you have into Patria investments, but rather something that's a part of a well-diversified portfolio. But we like it because it pays an over 5% dividend yield that is very well covered by earnings. They have a large amount of net accrued performance fees, which make up about 20% of the current market cap.

What those are basically is, they have – because they've outperformed their benchmarks and their private funds for their investors, they have their own performance fees that they earn as an incentive fee for doing so well. And those are in assets they have yet to sell and realize, but if they were to sell them all today at their non-asset value, they would generate over $2 per share in additional earnings just from the performance fees, which compared to the current stock price is close to 20%.

So that alone is a big margin of safety built in because on top of that, you have a very nice dividend yield that's well over 5%. And they're expecting to grow their fee related earnings. That's not their performance earnings. These are just base management fee related earnings per share at an over 20% CAGR over the next several years. And so, when you combine that incredibly fast growth rate, they have a strong balance sheet, a lot of their capital is long dated and or even permanent in nature, so, they're earning very stable fees. Plus they have that upside potential from their embedded performance related fees. I see a huge margin of safety here. And again, it's barring Latin America just completely exploding. And again, there's a risk for that, but again, as part of a diversified portfolio, that's just to be taken to account. Barring that happening, it's hard to see how this investment would be a loser over the long-term, and it could be a massive winner. So, that's why we're bullish on it.

And we've, again, all these companies that I'm mentioning here, whether it be BSR REIT, Brookfield Renewable Partners, or Patria Investments, their teams are all very accessible. We've interviewed them at many times actually for each of them. And so again, we appreciate that as well that they're very open and willing to take our hard questions and answer them.

I see a question just popped up. What cities or geographies is Patria investing specifically? So, I'll just say right now, they invest a lot in Brazil. They have a growing exposure to Colombia. They have a growing exposure in Mexico, and a couple other places in Latin America. They do steer clear of regions that do not have institutions that have a proven track record of respecting private and foreign capital. So, they don't invest in the Venezuelas. They don't even invest in Argentina, even though some things are changing there just because of the track record in Argentina. And so, they don't chase individual election cycles. They focus on the long-term.

And I think also one of the things like, Patria is just their focus in Mexico, their focus there, I think could make them an attractive play for the decoupling trend from China. I think as the U.S. decouples from China, more and more even Chinese companies are moving their production to Mexico as a way to get around some of these tariffs and this trade war. And so, I think Mexico could profit a lot from this trend. And I think that, you know, Patria is one way to get exposure to that.

DS: I got to ask you real quick, because a lot of people have been pointing out over the various stocks we've been talking about today about the payout ratio. People always know dividends, payout ratio, that's the metric that everybody wants to focus on, even though there's obviously a lot more that goes into it. How much do you factor in payout ratios for companies when you're looking at them?

SS: I do factor them. Obviously, if a company is overpaying their dividend, I'm generally not going to buy it unless there's a really compelling reason why. If it's just a short-term thing, that goofy timing thing or something that happened, but it looks very stable moving forward, but yeah, I pay a lot of attention to payout ratios, but I will say that I've learned to pay even more attention to the balance sheet and the business model quality, because those are the biggest drivers of surprise dividend cuts rather than payout ratios, but yes, I obviously pay attention to payout ratio as well.

And I've also seen some comments coming in just about the risk profiles. These are three pretty niche companies that a lot of people may have not heard of, especially the last two. They're smaller size. They're in some unique quirks. I'll just mention that the reason I'm sharing these on this call is because these aren't companies that are covered often on the public site and so we do dig up off the beaten path companies in our service. That's one of the secrets to our outperformance is that we don't chase the highly covered stocks all the time, but I will also answer your question that we do have plenty of blue chip stocks that we own that are all in our portfolios.

For example, our largest position is Enterprise Products Partners, very strong blue chip, especially in a retirement portfolio, we have almost exclusively blue chip stocks that have a very low risk profile. So again, we don't just chase unknown risky small caps, okay. And again, I would argue that especially BSR REIT is actually not a risky stock at all. Just like, if you were to own a portfolio of dozens of multifamily communities in some of the leading growth markets in the U.S., I don't think you would view that as a risky portfolio, especially if it's conservatively financed and well managed. And so in the same respect, while BSR’s stock price might be volatile, what stock isn't volatile, I would not say it's risky over the long-term.

Patra is somewhat risky due to the geopolitical concentration, but again, as long as you're viewing that as your emerging markets exposure in Latin America, and it's part of a diversified portfolio, again, I think it's actually one of the lower risk bets on Latin America due to their business model and their balance sheet constitution. Again, they're diversified across a lot of sub companies within those markets. You can check out on their website. They have them all detailed there. So just to address that question as well.

DS: Yeah, Samuel, this is great. I mean, you're bringing up stocks. I mean, I'm looking here on Seeking Alpha, there's 5.7K followers of this stock. Like it is not these stocks that are widely known by everyone. And that's the crucial part of this is you can get in. I mean, this is a $1.8 billion market cap company, but I know we were looking at, what's it? This one is 700 million. So, it's like you're bringing up these names and you have all of this incredible coverage in High Yield Investor that I think people should really check out.

Speaking of, I just need to make a little plug. This is for High Yield Investor. Obviously Samuel has brought all this information to you today for free, but he is running a one-month pay trial, $29. You can jump in, see his entire portfolios, those three portfolios, the core, the retirement, and the international. And you can read all of his incredible coverage.

Samuel, real quick, you just want to mention something maybe about your community, the chat and what you do within High Yield Investor?

SS: Yeah, so High Yield Investor is a dynamic community with several thousand investors. We're one of the largest investing groups on Seeking Alpha. We're actually the highest rated if you just go by reviews that we have. I encourage you to check out the reviews from our members. But really what we are is we're an investing community and I serve as an investing guide. I have a couple other co-analysts that contribute as well, but I'm the main analyst that does the vast majority of the research.

And so what we do is, we'll post several articles every week that range from anywhere from earnings updates, if a company report, every quarter we do an update on each of our individual holdings that review the earnings call, the earnings report, anything we notice, any changes to our thesis or updates to our thesis.

We regularly publish exclusive interviews with the teams at each of the companies, whether it be the CEO, the CFO, or some other executive at the company, whoever is available to speak to us at the time, where we ask hard-hitting questions. We let members tell us, hey, what do you want to ask the company? You guys tell us, as long as it's a relevant question, we will ask it to the company for you. And then we share that with you guys. That's exclusive.

We also do deep dives into portfolio holdings, either new additions to the portfolio, or if we haven't done an update on the company in a while and the thesis has meaningfully changed. We also regularly share watch lists like these are stocks maybe we don't own at the moment, but we're interested in them to get people thinking about them ahead of time if we do a trade. And then we publish at least one trade alert every week where we will buy and sell stocks within our portfolio to again maximize our positioning to increase our income while also maximizing our total returns over time.

And then we also have a chat group, which is a live chat where you and all members of the community can interact with each other. You can send private messages to each other. You can send them to me. You can send them to the group to read. And I'm very active in there. I try to reply multiple times a day to the chat group. It's again, to answer any questions you have. I always put top priority in interacting with my members over my public articles. I try to reply to at least some of the comments on each article, but I rarely get to all of them, but in my investing group, you guys are my first priority.

I always try to answer your questions as much as I can and even teach you about investing if you have any questions about my method or your own method. Again, I'm not a personal financial advisor where I'm going to give you individualized advice, but I can share what I would do if I was in your circumstances. So, that's really the service in a nutshell. And we're always looking for ways to improve it as well. So, we're always open to member feedback as well.

DS: Yeah, absolutely. And I do want to mention as well the price of your service will be going up on the annual side of the price. So, if you lock in the price today that will prevent you from having to pay that higher price increase in the future. And I know there's a couple members that joined us today for this webinar. Hey, thanks for joining us. I just want to remind you as well turn on auto renews so that that automatically kicks in for you and you lock in your price. So, it doesn't go up as well. That'll save you some little bit of dollars and sorry Samuel, that'll take it out of yours, but it's better for your members.

I want to go ahead and dive into some Q&A here if you want to stick around for me for a second because we have some people asking about, how do you feel about private credit BDCs? Why don't we start there?

SS: Okay, so business development companies. Yeah, sure. So, again, I've invested in them. I was more overweight them early on in the rate hiking cycle, because again, they're largely exposed to short-term interest rates, because most of the loans they invest in are floating rate loans that are indexed to short-term rates. So, as the Fed raised interest rates, their income shot up and it was a huge tailwind for the sector. BDC significantly outperformed other high yield spaces, like for example, REITs or utilities grossly underperform BDCs. But as we, last year, when we moved to peak interest rates, I began pulling out of the sector, and especially as they continued to price to a higher premium, someone just asked me about ARCC.

Yeah, I used to own ARCC, and then it got priced up to a 10% premium to NAV. So, I sold my position because I felt that with interest rates at peak levels, that's a high price to NAV relative to ARCC's history. So between the declining prospect for earnings growth and the fact of growing likelihood of earnings declines once the Fed starts cutting rates aggressively and the likelihood of further valuation, multiple expansion, its dividend seems to be safe, so again, if all you care about is the dividend, I wouldn't be too worried about that at this point. But if you're looking for maximizing total returns, that's not a stock I would buy. I would rate ARCC a Hold. And that's my general feeling on the overall sector.

Now we do own some BDCs because there are some that have pulled back recently and I think are being underpriced by the market. And I like to be broadly diversified, not totally betting on rate cuts, for example, but they're definitely a smaller part of my portfolio right now. I would not view them as, in general, one of the more opportunistic spaces.

DS: Right on. Now, we have a question from Pablo in Argentina. Thanks for joining us today. He wants to know, what is your opinion regarding preferred shares as part of a consistent high yield portfolio?

SS: Yeah, I think preferred shares, you have to be careful because you can get the worst of both worlds from them, right? You don't get the growth and the capital appreciation potentially that you get from common stocks, but at the same time, they're much lower priority in a bankruptcy liquidation scenario than say bonds are, because they're not contracted. Like bonds are, for example, where there's a legal claim on assets, they are ultimately equity. They just are preferred equity over common.

So, I generally steer clear of preferreds and riskier companies because I feel like you're getting the worst of both worlds there and only get a little bit higher yield to compensate you for it. If you can get a blue chip preferred stock or even a preferred ETF that doesn't charge you a huge expense ratio that's well diversified, I think those can be valuable if all you're focus on is income, you don't really care too much about total returns. So, in our retirement portfolio, we do have some blue chip company preferreds, and we also own a preferred ETF in there, because again they give you nice yields that are pretty stable, especially if they're from a strong company, that's a pretty dependable yield. And it's pretty attractive. But again, I don't expect those securities to deliver me double-digit annualized total returns. So.

DS: All right. So, Doug here asks, do you avoid certain types of dividends like MLPs within your portfolios?

SS: No, I actually like MLPs a lot. I've been overweight them my entire time at High Yield Investor. Some of my best investments have been MLPs. For example, Energy Transfer, we owned that right at our launch. It was shortly after they had slashed their distribution in half. And that stock nearly tripled for us and the distribution grew by more than double over a whole period. So, it was a fantastic investment for us. And like I said earlier, Enterprise Products Partners, another MLP, that's actually our largest position right now. And we own some others as well on top of that. So no, I liked it a lot.

And we also hold other midstream companies as alternatives or that issue 1099s for people who can't invest in K-1s. So, we do both. But yeah, I like the midstream space in general. I think it's at a really good spot right now.

DS: All right. And there's a few comments in here, actually, people want to know why you keep saying about the people that avoid K-1s, maybe you just want to highlight that for them real quick.

SS: Yeah, it's just a special cast. Again, I'm not a tax expert or tax advisor. So, this is just my opinion based on my own experience, do your own due diligence on this, just to extra clarify, because I don't really know a lot about taxes, but for K-1s, they're just an extra tax form that some companies, namely limited partnerships, tend to issue to unit holders come tax time. And so, it adds extra complexity to your tax returns. Potentially, if you hold them in a tax advantaged account like an IRA or 401(k), you could potentially be charged some extra taxes for holding them in there.

And then for some foreign investors, I've heard that as a non-U.S. investors, it can be, you can get some withholding on them when you sell or something to that effect. So, there can be extra complications. So, there's just extra complications that a lot of investors don't like to deal with. Personally, I don't mind. They're not hard to file. I use an electronic filing software. It's not a problem, but for some it is an issue. So, I just like to let people know that I always put in my Google sheet for my portfolio for the service, which stocks I invest in that have K-1s, just so investors know what they're getting into when they buy it. So.

DS: Yeah, we love the transparency. All right, we got Steve here. He says, he'd like to know your view on high yield funds like PTY and other ETFs that are out there, of course.

SS: Yeah, so high-yield ETFs, I think it depends on the ETF. I think if it has a relatively low expense ratio, and if its set up aligns with your goals, and you like the diversification, sure, it can be a great tool. If your goal is to meaningfully outperform the market, which is what my goal is, I prefer individual stocks, because I think, again, you can apply value investing principles and capital recycling on an opportunistic basis to generate outperformance that you can't do with large funds like ETFs or CEFs. But if you simply just want a nice easy plug and play solution, or you just simply want to layer on additional diversification to your portfolio of individual stocks just to add further safety to it and reduce the risk of you making a judgment error in your individual picks, absolutely. Or even you just want exposure to like, for example, tech ETF, if you're a High Yield Investor, but you also want exposure to tech, but you don't specialize in it and so you don't know whether to pick NVIDIA or Amazon to carry you forward. Maybe just buy a NASDAQ related or some tech related ETF.

And of course there are a lot of ETFs out there that sell covered calls. And those have gotten really popular because you can have a portfolio concentrated in mega cap tech stocks and still get a monthly yield that annualizes 8%, 12% or even higher in some cases. That's great. That's fine. I just - just know what you're buying because typically those funds have higher expense ratios. And remember, when you're selling covered calls, it's not free money. You're giving up upside potential and potentially very volatile underlying securities. And so, over the long-term, you're running the risk of underperforming meaningfully, but if you view it as an annuity substitute, okay, it can be a fine tool or just a diversification tool without reducing your overall yield. That's fine. That's fine. You just got to know again, why you're buying it, not just buy it because it looks cool. Know how it fits into your overall portfolio strategy.

DS: Well said Samuel. So, all right, here's another question for you. We need to do a little clarification. The three stocks we talked about today, they would like to know, have you ever owned them in the past or do you currently own them now?

SS: Yes and yes. So, I bought them all at different times, and I currently own all three.

DS: All right, just want to make …

SS: In fact, they're all three large positions in my portfolio. So, they're among my highest conviction picks. They're not necessarily my top 3 picks, but they would all – three of those three would all be in my top 10.

DS: All right. Let me see if there's any more questions here we should touch on. Do – talked about dividend ETFs. What is your opinion about YieldMax ETFs? Is there a difference with those?

SS: Yeah. So YieldMax ETFs, I believe are just referring to like, I was saying earlier, for example, there's one on Tesla that I wrote a while ago, and they have one on NVIDIA and a bunch of these other big game stocks that basically they do employ either outright or notional covered call strategies on them to juice the yield while still giving you exposure to underlying stock.

I don't like those, personally, especially on individual stocks like that that are so volatile. The reason to invest in an NVIDIA or a Tesla is because you believe in a very dynamic, world-transforming growth story. And if you believe in that enough to buy the stock, own the stock and don't cap your upside because those are the stocks that will give you that 2x, 3x, 5x, 10x returns as they have in the past. But if, and if you want yield, either buy a diversified ETF that does a covered call strategy or just buy individual high yield stocks. Don't, don't buy, I think those are just products that are frankly used to prey upon unsuspecting investors who love the thought of owning NVIDIA with a 15% yield or whatever it is. But reality, it's not the right mix of instruments in my opinion.

DS: Samuel, we had a great question come in. Obviously this is all about high yield. You care about dividends a lot, whether they're monthly or quarterly. It's up to you. A couple of different stocks have different things. Do you ever utilize the dividend reinvestment plan, the DRIP plan, or do you only take the dividends in and then reallocate?

SS: The only time I would ever consider using the DRIP plan is if the company has a program where you can reinvest those dividends at a discount, buy the stock at a discount. I know some companies have done that. So, currently I do not. At High Yield Investor, I never use the DRIP. I just retain all earnings, all dividend cashflow, and then reinvest it into the most opportunistic positions available to me at the time.

DS: Right on. All right, Samuel, we're coming up here at the top of the hour. This has been really incredible. Thank you so much for taking the time bringing these three stock recommendations today to share with everybody. Everyone, I just want to remind you as well, there is a special going on right now. $29 for your first month of High Yield Investor, and you can lock in that annual price of $399 before it jumps up to $499. And obviously the subscribers as well turn on that auto renew. That way it doesn't jump on you as well.

Samuel, before we jump off here, I want to leave the floor open to you. Is there anything you would like to say to our incredible audience as they've joined us today?

SS: Yeah, so I'm seeing a lot of people asking, the recording will be available for this after I'm sure. So, if you came late and you have questions about what companies we talked about, just check out the recording. You'll hear it all in there. Again, I would just mention at High Yield Investor, again, we're more than just a listing of my top picks at the moment. We're a dynamic investing community that we're always learning new things together.

I regularly publish, if I make a mistake, for example, if I make a bad investment, I always try to be very transparent about that and put in the issue - a couple of articles, shorts, where I say, hey, this is why the investment thesis broke, either maybe it was just some random event that no one has any control over, but many times it's, I made a mistake and I will share with members. Hey, this is the mistake I made. This is what I'm going to try to do better moving forward. So, you can learn from me. Obviously, we try to win a lot more than we lose. So far we've been blessed with that success.

And then also, again, we're constantly evaluating the stocks that we hold. We're constantly adjusting the portfolio. So, it's not something, where it's, again, it's just, these are my 10 picks to beat the next month. This is, we're looking out over the long-term and we're constantly shaping our view on these stocks and companies. So, it's a very dynamic community. It's a lot of fun.

If you love investing, if you love learning, if you love interacting with other investors who have the same investing approach as you and you want to have that mindset, that coaching even from your peers and from the investment group leader, as you go through periods of market turbulence to help you keep your mindset right instead of being swayed by your emotions. I think the service can add a lot of value to you on top of the research and the picks and the management interviews that we do provide as well.

Just the idea of keeping you on the right path with the right mindset through all kinds of market turmoil instead of panic selling or chasing some stock higher or abandoning your investment strategy because at the moment it's out of favor. I think honestly, that's probably almost as much as the picks and the outperformers that we generate is that mindset coaching and encouragement and reinforcement that we provide. I think honestly, it's probably one of the biggest additions in values of this service.

DS: I couldn't agree more. And Samuel, I look forward to doing another webinar with you in the months ahead, obviously, as we enter this rate cutting cycle going into it, and we'll see how these stocks do. And I'm sure you'll bring some more. So, Samuel, thank you so much for the time. Everyone, thank you for joining us today. And stay safe out there. And we'll see you in the next webinar. Take care.

SS: Thanks for coming, everyone.

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