Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
Share
Why it might be time to sell these stocks.
Published 21 days ago • 3 min read
Presented By: The Early Bird
Official affiliate partner The Early Bird
First, a deep and sincere THANK YOU to the twenty-five people who replied to last week's newsletter!
The response was heartwarming, insightful, and freaking cool to hear from so many of you.
Thank you.🤘
Now, onto the topic at hand, which has been on my mind as I've watched the share price of Main Street Capital (MAIN) keep climbing higher.
Last week, Main Street Capital set another all-time high at $49.
Warren Buffett has said, "Interest rates are to asset values what gravity is to matter."
When interest rates are low, there's a very small gravitational pull on asset prices.
People and businesses make very different financial decisions when they can borrow money for practically nothing.
BDCs are specialized lenders to medium-sized businesses and tend to do well with higher interest rates because they can charge more for their loans.
REITs own and operate real estate properties like retail stores, shopping malls, and office buildings.
When interest rates are high, REITs often struggle because borrowing money or refinancing their properties becomes more expensive.
The Federal Reserve has raised the interest rate 11 times to a 23-year high starting on March 17th, 2022.
Source: Fortune.com
When we also factor in that yield-seeking investors not concerned with capital appreciation can get a "risk-free" 5% return, even more money is sucked out of the REIT universe.
Check out this 3Y chart comparing the price return for Main Street Capital (MAIN), Ares Capital (ARCC), Agree Realty (ADC), and Realty Income (O).
You can click on the chart, too, and you'll be whisked away to the land of SeekingAlpha.com, where you can get all interactive with it!
Source: SeekingAlpha.com
It looks like all four chopped sideways until July 2023, when there was a clear divergence between the two asset classes.
I couldn't find any specific reason for this, but interestingly, the last rate hike was on July 27th, 2023.
Perhaps around this time, investors became convinced that higher interest rates would stay for a while, which benefitted the BDCs but was a headwind for the REITs.
So, the current thinking is that when the Federal Reserve eventually starts cutting interest rates, it will be a headwind to BDCs and a favorable tailwind to REITs.
But we don't know exactly when those rate cuts will happen, and it could make sense to consider taking some profits from the high-flying BDCs and redeploying that money into underperforming REITs.
This way, as dividend investors, we could collect higher-than-usual yields from REITs and be paid to wait for a more favorable interest rate environment to occur.
This is not financial advice but something I'm thinking about.
By hitting REPLY, I would love your thoughts on selling BDCs and shifting that cash to REITs.
😁Once again, THANK YOU to the (25!) people who responded to the last newsletter!!
🤑Rick Stambaugh from Orange Mountain Financial brings you ‘Grow Retirement Income.' He’s a seasoned pro with over 30 years in trading and a passion for guiding folks to a prosperous retirement.
⚠️Seeking Alpha Premium SALE!
Click the image above to try Seeking Alpha Premium forFREE for seven days and save 20%!
*This is an affiliate offer, and I will receive a small commission at no additional cost when you buy a premium annual subscription after clicking the image above. *Auto-renews is an annual subscription for the first year only. At the end of the free trial, $189 is charged automatically for an annual subscription. Auto-renews as an annual subscription at the then-current annual list price. Plus sales tax/VAT, where applicable.
Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
Presented By: The Intellectual Investor Official affiliate partner The Intellectual Investor Well, we finally did it. We quit Altria Group (MO) this week when we sold our remaining 100 shares at $44.47 thanks to a covered call that exercised. That dropped our P.A.D.I. (Projected Annual Dividend Income) by $392. Ouch. Altria is a dividend king and has increased its annual dividend for 54 years. But there's a method to this madness that starts with declining U.S. cigarette sales. Source:...
Presented By: The Intellectual Investor Official affiliate partner The Intellectual Investor Isn't it crazy how some of life's most important lessons are the ones you learn on your own? This newsletter is a little bit different, but there's something important I want to share with you. So stick with me here, and I think you'll enjoy it... We have no control over the family or society that we're born into. And my family was a lower-middle-class one. My maternal grandparents helped raise me...
Presented By: The Early Bird Official affiliate partner The Early Bird I remember hearing that it's unwise to deify (make godly) people because everyone is flawed and imperfect, and doing so would cloud your judgment of that person and set you up for a letdown. The 2024 Berkshire Hathaway annual meeting was on May 4th, and it was the first without Charlie Munger. A touching tribute to Charlie at the start of the meeting is a must-see for any fan of the dynamic duo. But one thing jumped out at...
