TPVG - Earn +12% From 2 Dividend Heroes

2023-06-28 07:35:00 ET

Summary

• Buy the income picks you need now, not just the ones you think you'll want later.
• Don't let the market do the thinking for you. Its goals are not yours.
• A retirement paid for by dividends is entirely possible and one thing you should strive for.

Co-authored with Treading Softly.

Have you ever been misunderstood? I like to recall The Dark Knight Rises , a movie that many consider a classic, where a key thought is that Batman is not the hero Gotham wants but is the one they need at that time.

For many investors, bear markets are scary and desirable to avoid, while bull markets are sought after. Few novice investors realize that bear markets determine who are the winners when the bull market arrives. They simply are only aware of the wealth generated during a bull market but are unaware that those who are getting that wealth set up their portfolios during the bear market.

As an income investor, I love a bull market as much as the next investor. Who doesn't love to see that big green number go higher? However, I understand that it is during bear markets that I have the greatest opportunity to grow my current and future income.

I've been using this now-past bear market to rapidly grow my income stream. The financial news may be all excited about rate hikes or cuts or how we're officially back to a bull market in the S&P 500 (SP500), but I've not been focused on the news; I'm focused on finding opportunities to exponentially grow my income!

The bear market is over, for now, but fortunately, there are still several lingering opportunities to grow my income. Today, I want to look at two outstanding opportunities to do just that.

Let's dive in!

Pick #1: TPVG - Yield 14%

The more things change, the more they stay the same. The stock market has seen a lot of changes in the past decade. Where we used to pay fees for every stock trade, today we can place a trade on our cell phone from anywhere we can get internet service. The most current news on our favorite tickers is now widely available at our fingertips within seconds of it happening. No doubt about it, the Internet is an amazingly powerful tool for quickly spreading information. The quality of that information? It isn't always the best, to put it mildly.

Even though we can trade faster than ever and get information faster than ever, it is perhaps more important than ever to take our time. The stock market often makes knee-jerk reactions to the news, and those reactions are often wrong.

The last time we talked about TriplePoint Venture Capital ( TPVG ), earnings had just been announced, and it sold off over 12% in a single day. TPVG reached a new 52-week low.

TPVG is a Business Development Company ("BDC") that makes debt and equity investments in "venture stage" companies. These are companies in which venture capitalists made equity investments and are preparing the company for an IPO or acquisition. With the failure of Silicon Valley Bank, a bank that specialized in providing services to the venture capital niche, the pressure on venture capital-funded businesses increased. This creates a vacuum for TPVG to find new investment opportunities as a capital provider but also creates some risk.

Prior to earnings, a short-seller published a "report" on TPVG, then at earnings, TPVG spent time discussing a few borrowers who filed or are expected to file for bankruptcy, adding fuel to the fire.

On May 4th, we published to members an article noting the selloff and discussed how the loans that TPVG makes are highly secured. Even in a bankruptcy situation, TPVG has historically experienced very high recovery rates. We identified the selloff as a buying opportunity, writing:

"Historically, TPVG has consistently traded at a significant premium to book value. With a book value of $11.69, TPVG is now trading at a 15%+ discount. This isn't as cheap as it got during the COVID panic, but historically, buying TPVG at a 15%+ discount to book has turned out very favorable to buyers."

That marked a bottom for TPVG, and in slightly over one month, the price had mostly recovered.

TPVG is now trading just below book value, which is still a relatively attractive price for a company that frequently trades at a 10%+ premium and is paying out an attractive 14% dividend.

Over the past year, the number of IPOs has diminished. Most companies don't want to IPO into a bear market. For TPVG, this means that borrowers will be looking to extend their loans, paying more in interest. It also means that the big monetizations that TPVG enjoys on their equity portfolio have been fewer.

This environment won't persist forever. Eventually, the bulls will regain control, and TPVG's portfolio companies will be looking to IPO, creating large gains for TPVG. Until then, TPVG is paying us handsomely to wait.

Don't join the market's knee-jerk reactions. When the market panics, it is often an opportunity to buy more!

Pick #2: BRSP - Yield 12.2%

It isn't every day you can apply the word "conservative" to an investment that is paying out a double-digit yield, yet sometimes the market gives you a gift. BrightSpire Capital, Inc. ( BRSP ) is a commercial mortgage REIT that is trading at about 35% discount to book value.

Here is a look at the headlines: Source .

BRSP has $1.99/share in unrestricted cash on hand, providing it with significant liquidity. Debt-to-equity is only 2.0x. Compare this to "premium" peers Blackstone Mortgage Trust, Inc. ( BXMT ) at 3.5x and Starwood Property Trust, Inc. ( STWD ) at 2.5x.

BRSP's dividend is $0.20, while distributable earnings are $0.27, providing 135% dividend coverage and beating most peers.

Additionally, most of BRSP's debt is either limited recourse or non-recourse.

This means that BRSP cannot become "upside down" on these loans and be forced to pay the lenders more than the collateral is worth.

Finally, BRSP has focused on senior mortgages, with mezzanine loans and preferred equity only accounting for 4% of its portfolio. Also, BRSP has proactively increased exposure to multifamily properties, a sector with strong fundamentals.

It's no secret that commercial real estate is starting to show stress in some areas. In particular, office properties in large cities have seen rising default rates. The Fed has kept hiking, and cracks are starting to show in the economy. When sectors get tough, the winners are the ones who have the liquidity and ability to be buyers when others can't. BRSP is positioning itself to be one of the big winners, with pockets full of cash and a strong balance sheet with low leverage. In the last earnings call, CEO Mazzei said :

"In closing, I believe our prudent and conservative approach to managing our leverage and liquidity will position us well for when the tide turns, when the Fed starts to ease and the capital market stabilize, we will be in a strong position to deploy capital in what will be an extraordinary lending environment."

He went on to describe defending the balance sheet as priorities "one through five" for management.

As investors, we can have the confidence that BRSP is conservatively positioned to manage a difficult environment and has the ability to take advantage of great investment opportunities as they arise, and their competition is forced to cut back. The best part is that, with BRSP trading at such an enormous discount, we can collect a very high yield on our investment while we wait!

Conclusion

With TPVG and BRSP, we can lock in highly attractive yields while the market is looking the other way. 20% down to reach a bear market takes 40% to recover from, even though a bull market starts at the halfway point. This means that it's not time to get distracted by those calling the market overvalued, and instead, continue to grow your income.

A farmer doesn't stop planting their crops because it's raining in a far-off city. They work diligently regardless, and so should you with your income portfolio. A little work today can revolutionize your retirement tomorrow. After all, hard work pays off. A retirement paid for by dividends is a beautiful sight to behold, and you can achieve it!

Unlock a retirement filled with enjoyment and relaxation by obtaining high levels of income from the market!

That's the beauty of my Income Method. That's the beauty of income investing.

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