DBRG - Earn Up To 9% From Your Best Friend

2023-06-06 07:35:00 ET

Summary

• The best way to make money is from everyday life.
• The actions people take without thinking are most likely to recur over and over. Find a way to get paid by those.
• When was the last time you bought a bottle of Motrin or used the Internet? Did you get paid for that? I did.

Co-authored with Treading Softly.

I'm not always the most observant person. When my wife asks me to find something, I can never locate it, but she always manages to do so, magically finding it right under my nose.

Perhaps the reason for this is that my mind is frequently elsewhere. When it comes to income, some might describe me as "obsessive." Everywhere I look, I see income opportunities. I'll open up the pantry to look for sugar, and I'll see the branded baking powder paying interest on bonds I own.

When I walk out the door of my house, I see folks filling up their cars at the gas pump, pumping dividends straight into my portfolio. "For sale" signs in front of houses make me think about all the mortgages streaming income into my portfolio. The pharmacy on the corner? They are paying me rent through one of my REITs. See that school? They took out a bond that is paying me interest. The business over there has an investment from one of my BDCs. The powerlines along the road are pumping pure green into my utility investments.

Everywhere I look, I see people who are paying my bills just by living their lives. Generating income from everyday boring sources is the key to having a steady and reliable income stream. If you do something without thinking and that results in me getting paid – the chances of you continuing that activity and me being paid are stellar.

Today, I want to look at two ways that you can get paid for the everyday life of everyone else and even your own daily activities.

Let's dive in!

Pick #1: THQ - Yield 7.2%

Tekla Healthcare Opportunities Fund ( THQ ) is a Closed-End Fund ("CEF") that specializes in the healthcare sector, including pharmaceutical companies, healthcare providers, medical equipment companies, medical technology, and even real estate. THQ invests in companies that operate in the U.S. or get most of their revenue from U.S.-based operations.

THQ is trading at its steepest discount to NAV since 2020.

As you age, healthcare becomes one of your largest expenses. The fundamentals for most businesses in this sector are strong and inevitable. The U.S. consumer is aging, and the demand for medical care is rising. Additionally, the Baby Boomer generation is, on average, much wealthier than their parents. They have a greater ability to pay for elective medical procedures than prior generations.

THQ has exposure to some of the largest medical companies in the world. Source .

By buying THQ, you can get an immediate 11% discount and enjoy a much higher dividend yield than you would receive from buying the companies directly.

Lower price, higher dividends? Sign me up!

Pick #2 - DBRG Preferred Stock: Yields up to 9%

• 7.125% Series H Cumulative Redeemable Perpetual Preferred Stock ( DBRG.PH )
• 7.15% Series I Cumulative Redeemable Perpetual Preferred Stock ( DBRG.PI )
• 7.125% Series J Cumulative Redeemable Perpetual Preferred Stock ( DBRG.PJ ).

DigitalBridge Group, Inc. ( DBRG ) is an alternative asset manager focused on digital infrastructure assets, such as data centers, cell towers, edge infrastructure, and fiber networks.

DBRG operates two business segments:

1. Investment Management: DBRG manages private equity funds composed of digital infrastructure assets. The company raises capital and deploys them into the acquisitions and development of these alternative asset classes. DBRG serves as the investment adviser and general partner and receives fee-earning equity management fees ("FEEUM"). Investment Management’s fee revenues are recurring, predictable and stable. The funds managed by DBRG have a long duration, with an average fund life of over ten years.

2. Operating: This is a collection of legacy assets where DBRG maintains direct responsibility over the business operations. The company holds ownership stakes in two data center operators, Vantage SDC (13%) and DataBank (11%).

DBRG’s top priorities for 2023 include:

• Divesting non-core legacy assets.

• Reducing corporate debt.

• Scaling down the Operating segment.

During Q1 2023, DBRG was successful with two of these items.

The company has sold all its position in BrightSpire Capital, Inc. ( BRSP ) and raised $200 million in proceeds. DBRG used these proceeds to pay off its 2023 convertible notes and reduced corporate debt by 35%. Further, management revealed their intent to call the 2025 convertibles in July to achieve the corporate debt reduction goal for the year. Source .

Management expressed optimism about their ability to execute a similar sell-down in their ownership of Vantage SDC by the end of this year.

During Q1, DBRG achieved 47% YoY growth in FEEUM as a result of 49% YoY growth in assets under management ("AUM").

DBRG’s TTM preferred dividend expenses were $61.4 million, and the company spent $136.1 million on interest expenses during this period. These were adequately covered by the company’s TTM net cash from operating activities ($281.5 million). Moreover, DBRG has initiated and maintained its $0.01/share quarterly dividend for four quarters (including the upcoming June payment), costing the company $3.2 million TTM. DBRG ended Q1 2023 with $668 million in cash and cash equivalents, placing the company in a comfortable liquidity position for its FY 2023 objectives.

DBRG preferred shares enjoy adequate dividend coverage from the company’s growing investment management business. All of DBRG's preferreds are trading post-call date and can be redeemed anytime with a 30-60 day notice. However, as and when they are ready to do so, we believe management will buy a substantial portion of the discounted securities in the open market.

DBRG preferred shares outstanding have declined materially, potentially set to cost the company $59 million in dividend payments (if no repurchases are made in FY 2023).

*FY 2023 preferred dividend spend projection assumes no further preferreds are repurchased during the year.

Preferred dividend spending has declined ~22% since 2020, and this trend will continue as management proactively makes repurchases.

DBRG's three classes of preferred trade very closely in price and current yield. While DBRG-I offers the highest yield (9%) and upside to par (~26%), the difference between Series H and Series J is quite negligible and can change within a few trading hours (if not minutes). When you are buying, we recommend considering whichever security offers the most attractive yield.

A live yield comparison chart is available for High Dividend Opportunities members to help with that evaluation.

DBRG is fortifying its alternate asset management business, and the transformation pace has been spectacular. The company continues to execute its strategy by divesting from its legacy assets and investments to improve its balance sheet strength and liquidity profile. We will see growing adoption of digital transformation globally, and DBRG preferreds offer up to 9% yields to cash in from this uniquely focused asset manager.

Conclusion

By using THQ and DBRG, we can enjoy income streams pouring into our accounts from the everyday activities of our peers. Whether it's picking up a bottle of Motrin or logging into your favorite website, these activities can benefit these two investments and allow us to continue receiving excellent income.

I will place these two investments right alongside my investments in utilities, telecommunication companies, or fuel distributors – they're not exciting, and they're not sexy, but they are financially dependable.

When it comes to my finances, I'm not looking for the snazziest or most exciting investments. I'm seeking investments that meet my goals and incrementally move me toward financial security and independence. I do this by investing for income; that way, my portfolio provides me with an income stream far above my monthly expenses. Being wealthy isn't being a millionaire – that's being rich! Being wealthy means having an income cash flow that far exceeds your expenses regardless of your total net worth; as long as that excess continues, your net worth will climb.

That's the beauty of my Income Method. That's the beauty of investing in dividend stocks!

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