Where to find an 8% yield in today's low rate environment
One of my favorite yield-plays recently went away when AIG called its exchange traded debt sporting a 7%+ yield. So, where is one to go to find that sort of yield instead. Well, the opportunities out there are getting scarce, but one company that I currently own preferred shares of makes a nice replacement candidate, Strategic Hotels & Resorts (BEE).
BEE is a REIT that owns 18 luxury hotels in North America and Europe under a number of different brand names, including Four Seasons, Hilton, Hyatt, InterContinental, Loews, Marriott, and Ritz-Carlton.
I have actually had the pleasure of staying at one of the company's hotels, the Loews Hotel del Coronado in San Diego last year. Despite the fact that it was under construction at the time, they were renovating the main lobby and I got a great deal on the room...who needs the main lobby anyhow, I could tell that it was a fantastic asset.
Strategic Hotels & Resorts currently has three issues of preferred stock out there. I personally own a small position in the company's "C" shares (BEE-PC in some systems though the exact ticker may vary). When I originally purchased my preferred stock in the company, it was actually a Gramercy Capital (GKK)-like investment in that the company had suspended its dividend payment on the stock. I made an educated guess that it would be healthy enough to resume payment and picked up shares in February of last year. That's exactly what happened. My BEE preferred stock just keeps chugging away tossing out cash that I can use in my portfolio to invest in other attractive opportunities. Today I came across an interesting SA article on this very subject:
The Predictable Return Route To Investment In Strategic Hotels & Resorts
As the author notes, an 8% yield on a company that I believe is very stable is very, very attractive in today's low-rate environment. Yes, the preferred stock is callable at any time, but get this...somehow it is actually trading at a discount to par right now.
Not surprisingly, the company's stock was absolutely crushed during the financial meltdown several years ago. Its share price has been steadily recovering since then, though its operational performance has been spotty. I have never feared for the safety of the preferred stock.
BEE recently attracted the attention of an activist investor, a firm called Orange Capital, has been urging the company's management to put itself up for sale. Orange Capital, which admittedly I am not personally familiar with...and I follow a lot of activists, contends that BEE's assets should be worth $11 - $14/share in a sale versus today's price of $8.46. Not surprisingly, BEE's management is not all that interested in selling, but I like the fact that Orange believes BEE's assets are so valuable.
With the economy slowly recovering and the hotel sector doing fairly well right now, I personally am very comfortable with BEE's ability to continue to paying its preferred shareholders. Should the company get bought out, you won't lose anything at this level.
Thanks for reading everyone. I'd love to hear where others are finding reasonable yields out there right now.