Chasing the Yield Kevin Bae

Topics discussed on today's show.

Debt vs. No Debt: Some investors prioritize returns and view having no home mortgage as better. However, debt on real estate has its own benefits.

Real Estate Appreciation: Real estate generally appreciates over time, offering significant capital gain, especially when debt-free. However, mortgages reduce this gain with interest payments.

Debt's Drawbacks: Debt siphons income, limits savings, and can lead to stress, snowballing debts, and repossession.

Alternatives: Explore options before debt. If necessary, choose the best rates, prioritize needs, and borrow responsibly.

Debt as a Tool: Use debt cautiously, prioritize stability, and understand its long-term consequences.













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My annual income increased $25 as a result of dividend increases from Microsoft (+10%), NJR (+7.7%), and 5 other holdings. Meanwhile, there were changes to the Dividend Safety Scores of W. P. Carey, Smucker, and Walgreens.

W.P. Carey Surprises With Plan to Exit All Office Properties; Dividend Could Be Reduced by Around 20%. Downgraded to Unsafe • Sep 21

J.M. Smucker to Acquire Hostess Brands, Increasing Leverage. Downgraded to Safe • Sep 12 

Leadership Changes, Softening Consumer Spending Suggest Walgreens' Turnaround Struggles Continue. Downgraded to Borderline Safe • Sep 1

Casino Expansion, Higher Rates Weigh on Realty Income; Dividend Coverage Remains Healthy. Safe Rating Reaffirmed • Sep 13 

Dominion Nears End of Strategic Review With Gas Utilities Divestiture; Dividend Expected to Remain Flat. Safe Rating Reaffirmed • Sep 7

Enbridge to Become More Diversified Energy Company With Gas Utilities Acquisition; Dividend Remains Safe. Safe Rating Reaffirmed • Sep 6



Brandywine cuts dividend by 21%, as economic headwinds continue to pressure office REITs



Fortis increases payout by 4.4%, celebrating 50 consecutive years of annual dividend growth



Microsoft hikes dividend by 10%, reaching 14th consecutive year of payout growth



W. P. Carey raises dividend by 0.19%



Philip Morris ups dividend by a modest 2.4%, balancing deleveraging goals with payout growth



Realty Income raises dividend by 0.20%
NJR increases dividend by 7.7%, marking 30th increase in 27 years



Verizon raises dividend by 1.9%, reaching 17th consecutive year of annual payout growth





 









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UGI Mulls Separating Propane Business to Unlock Value, Potentially Causing Jump in Payout Ratio

Dominion's Strategic Review Nears End; Firm Remains Committed to Dividend Despite Rising Payout Ratio

Labor Inflation and Higher-for-Longer Interest Rates Delay Healthcare Realty's Payout Ratio Improvement

Softening Furniture Demand Slows Leggett & Platt's Deleveraging; Free Cash Flow Still Covers Dividend



Altria raises dividend by 4.3%, tracking with goal to achieve mid-single-digit payout growth through 2028



Capital Southwest raises dividend by 3.7% and declares $0.06 per share special dividend



Illinois Tool Works increases dividend by 6.9%, extending streak of paying higher dividends every year since 1972



Main Street grows dividend by 2.2%, continuing an ongoing commitment to a strong payout



Hercules raises dividend by 2.6% and declares $0.08 per share special dividend



 









For questions or comments contact me at mail@chasingtheyield.com

Dominion Energy has been in the energy business since 1898. It’s one of the biggest utility companies in the U.S. and serves about 7 million customers in Virginia, the Carolinas, Ohio, and Utah electricity and gas.



Dominion has steady and predictable income because it is regulated utility. Regulated utilities are like monopolies that are controlled by the government. They spend a lot of money to build and maintain power plants, transmission lines, and distribution networks that cover a large area.



The government limits the competition by deciding which companies can build new power plants. And even though regulated utilities are monopolies, they can’t charge whatever they want for their services. The government sets the price in an effort to make it fair for the customers while giving the utility enough incentive to invest in safe and reliable service.



Dominion’s main business is Virginia Electric and Power Company, which makes more than half of its profits. It operates in Virginia and North Carolina, two states that have good regulatory environments, according to research group called RRA.



These states in which Dominion operates have fast-growing populations and businesses, which makes the regulators want to encourage more infrastructure spending by giving higher returns on capital and allowing higher electric rates over time.



South Carolina, where Dominion has its next biggest business, is also one of the fastest-growing states in the country. This helps Dominion grow its income organically. In short, most of Dominion’s utilities have good relationships with the regulators and good prospects for growth.



But even though Dominion operates in friendly states, it had to cut its dividend in 2020. This ended a long history of paying dividends without interruption for over 90 years.



This happened because Dominion decided to sell its natural gas business, which made about 25% of its profits. Without this cash flow, Dominion would have paid out more than 100% of its income as dividends, which wasn't sustainable. So it had to lower its dividend.



But, by selling its natural gas business, Dominion became a more focused with one of the best growth rates in the industry. It also plans to increase its dividend by 6% every year until 2026.



Dominion’s business is more aligned with the trend of clean energy, and its income has become more predictable with regulated utilities making up 90% of its operating earnings.





Dominion Energy is undergoing a strategic review to improve its business. The review could involve selling some of its assets, such as its stake in a gas liquefaction facility, which it already agreed to sell to Berkshire Hathaway for $3.3 billion. However, the outcome of the review is still uncertain and could affect the company’s dividend safety and growth prospects. Dominion has withdrawn its earnings guidance for the year and said it will share the results of the review by the end of this quarter. The company has also reaffirmed its commitment to maintain its current dividend, which has a high payout ratio of near 65%. Dominion’s stock trades at a low valuation compared to its peers and has an attractive portfolio of regulated and renewable assets. We are keeping our small stake in Dominion in our portfolios until we learn more about the review and its implications for the company’s future.












For questions or comments contact me at mail@chasingtheyield.com

TC Energy, a company that develops and operates energy infrastructure, announced that it plans to spin off its Liquids Pipelines business into a separate company. The decision was made after a two-year strategic review and is expected to be completed in the second half of 2024. The spinoff will create two independent, investment-grade, publicly listed companies that will focus on their own growth objectives and operational excellence. TC Energy will become a diversified natural gas and energy solutions company, while the Liquids Pipelines Company will be a critical infrastructure company that connects supply and demand markets for oil and other liquids. The spinoff will unlock shareholder value by providing both companies with more flexibility and efficiency. The spinoff will also enable both companies to contribute to the energy transition and security by providing reliable, lower-carbon energy sources. The spinoff is anticipated to be achieved on a tax-free basis for TC Energy shareholders.

Positives


The spinoff will create two independent, investment-grade, publicly listed companies that will focus on their own growth objectives and operational excellence. This will allow investors to choose the company that best suits their risk and return preferences, as well as diversify their portfolio.



The spinoff will unlock shareholder value by providing both companies with more flexibility and efficiency. TC Energy will be able to optimize its capital allocation and pursue opportunities in natural gas and energy solutions, while the Liquids Pipelines Company will be able to leverage its existing assets and expand its market access and customer base. Both companies will also benefit from lower costs of capital and improved financial metrics.



The spinoff will also enable both companies to contribute to the energy transition and security by providing reliable, lower-carbon energy sources. TC Energy will continue to invest in renewable power generation, hydrogen production, carbon capture and storage, and other emerging technologies. The Liquids Pipelines Company will transport oil and other liquids that are essential for various industries and products, as well as support the development of low-carbon fuels. Both companies will also strive to reduce their environmental footprint and greenhouse gas emissions.

Negatives


The spinoff will create uncertainty and complexity for TC Energy shareholders, who will have to decide whether to hold or sell their shares in the new Liquids Pipelines Company. The spinoff will also require regulatory approvals, shareholder votes, and other conditions that could delay or prevent its completion.



The spinoff will reduce TC Energy’s diversification and exposure to the liquids pipelines sector, which has been a stable and profitable source of cash flow for the company. The Liquids Pipelines Company will face competition from other pipeline operators, as well as environmental and social challenges that could affect its operations and growth prospects.



The spinoff will also impact TC Energy’s credit profile and financial flexibility, as the company will lose access to the cash flow and assets of the Liquids Pipelines business. TC Energy will have to rely more on its natural gas and energy solutions segments, which are subject to market volatility and regulatory uncertainty. TC Energy may also have to incur additional debt or equity financing to fund its capital expenditures and dividend payments.







For questions or comments contact me at mail@chasingtheyield.com

It's well known that Americans like to buy stuff. I know this first hand being an American with a wife that, I believe, single handedly pulled the United States out of the 2008/2009 Great Recession. Back when my kids were young and we lived in a modest 3 bedroom split-level in a Chicago suburb we rented a storage unit. We stored all our old stuff and seasonal items. We had that unit for about 10 years until we put an addition on to our house which created more space for all our stuff. That broke the cycle of addiction.

Storage is so profitable thanks to two key factors: month-to-month leases, in which the rents can be raised on short notice, and human nature. It doesn’t much matter what someone pays when they move in. Most stays outlast introductory rates. 

“Statistically, once a customer stays with us for a year, they end up staying for five years,” Public Storage CEO Joseph Russell Jr. said. 

Is There a Limit to Americans’ Self-Storage Addiction? Billions of Dollars Say Nope - WSJ (no paywall)

As a former addict I can affirm it's much better being on the other side. Instead of paying a storage company to hold my stuff I invest in them others who pay to store their stuff are now paying me. I have a ways to go to break even from a decade of renting a storage unit but every quarter I get a little closer.

Storage owners compete fiercely to get customers in the door. They duke it out online with algorithmic one-upmanship and move-in specials. But once someone signs up, the battle for their business is over.

“The only thing that competes with an existing customer is the trash can,” said Spenser Allaway, storage analyst at real-estate research firm Green Street. “No one says, ‘This sounds like a fun way to spend a weekend, I’ll beg my friend to borrow their truck and move my stuff into another unit to save $10 a month.’ ”

Even savvy storage investors become ensnared. “I’ve had one six years,” said Christopher Merrill, CEO of $56 billion property investor Harrison Street, which owns 119 storage facilities and is looking for more. “I’ve probably paid for the stuff six times over.”

Is There a Limit to Americans’ Self-Storage Addiction? Billions of Dollars Say Nope - WSJ (no paywall)

I bought Public Storage (PSA) back in 2019. While the stock price has held steady, which is my preference, it has paid me roughly 3.5%, on average, in annual dividends over that time. Public Storage is one of the largest self-storage companies in the world and has paid an annual dividend since 1981.

If you're interested in investing in self-storage REITs there are other companies besides Public Storage. They pay a higher yield but are not as well capitalized and are not as safe a bet. They all look pretty solid though. Check them out.



Public Storage (PSA) - 4.42%



CubeSmart (CUBE) - 4.76% yield



Extra Space Storage (EXR) - 5.13% yield



National Storage Affiliates Trust (NSA) - 6.91% yield



For questions or comments contact me at mail@chasingtheyield.com