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.
 Source: Google.com |
Most BDCs (Business Development Companies) I’ve seen, like Main Street, are doing well.
While at the same time, most REITs (Real Estate Investment Trusts) have been struggling.
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!!
Check out the portfolios and podcasts, or see what’s cooking on YouTube.
That said, let’s get to this week’s portfolio activity.
Dividends Received ~$0
Dividends Received Year to Date~
$2,228.23
Stocks Sold (AVERAGE)
- 1 PepsiCo (PEP) 5/24/24 $185 Covered Call | $126.00
- 1 Altria (MO) 5/3/24 $44 Covered Call | $21.00
Stocks Bought (AVERAGE)
- 2 Toronto-Dominion Bank (TD) | $58.67
- 7 Agree Realty (ADC) | $57.73
- 10 Harrow Health (HROW) | $10.10
- 3 Schwab US Large-Cap Growth ETF (SCHG) | $87.77
- 1 Schwab US Dividend Equity ETF (SCHD) | $77.74
- 1 Johnson & Johnson (JNJ) | $146.38
- 1 Starbucks (SBUX) | $87.87
Notable Ex-Dividends This Week + SSD Score
- 4/29 Agree Realty (ADC), 5.19% | 70S
- 4/29 Conagra Brands (CAG), 4.50% | 41B
- 4/29 Enterprise Products Partners (EPD), 7.09% | 65S
- 4/29 STAG Industrial (STAG), 4.29% | 60BS
- 4/29 Morgan Stanley (MS), 3.66% | 55BS
- 4/30 Ally Financial (ALLY), 3.05% | 50BS
- 4/30 Realty Income (O), 5.74% | 80S
- 4/30 Hasbro (HAS), 4.34% | 50BS
- 5/2 Norfolk Southern (NSC), 2.25% | 86VS
📰 What’s in the news…
Google (GOOGL) is paying its first dividend [LINK]
Why Intel (INTC) stock is falling [LINK]
24/7 stock trading is coming… [LINK]
🎦If you missed it, I shared the April dividend income + a dividend king that you should put on your watch list.
Investing Newsletters You Might Like
⭐Ryne Williams writes a free weekly dividend newsletter and creates multiple top-notch YouTube videos every week.
🤑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.
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Random music video I enjoy and you might too!
🎵Beborn Beton – Another World🎵
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That said, have a WONDERFUL week, and I’ll see you in the next one.
