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Where to find an 8% yield in today's low rate environment

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March 18, 2013 – Comments (10) | RELATED TICKERS: BEE

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

http://seekingalpha.com/article/1283131-the-predictable-return-route-to-investment-in-strategic-hotels-resorts?source=google_news

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.

Jason

10 Comments – Post Your Own

#1) On March 18, 2013 at 8:20 PM, MoneyWorksforMe (< 20) wrote:

TAC sports a 7.8% yield. The company has been in business for over 100 years, and has a very stable dividend history. I also love the fact that most of its plants are in Canada. Aside from the specific business prospects, I like the chances that the CAD continues to strengthen against the dollar over the long term; and Canada has been less exposed to the terrible mess the rest of the developed world is in.

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#2) On March 18, 2013 at 9:21 PM, TMFDeej (99.29) wrote:

Thanks Money. I'll definitely take a look at TAC.

Jason

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#3) On March 18, 2013 at 9:28 PM, TMFDeej (99.29) wrote:

Huh, I was just goins through one of the blogs that I regularly read and noticed that the excellent blog Whopper Investments recently wrote about BEE as well.

He agrees that they offer a safe 8% yield, but isn't buying because the upside is limited. I personally will always find a place in my portfolio for something safe that yields over 6% more thn the 10-year. Perhaps I'm too risk averse, but I'm a yield hound at heart.

Yields like this combined with some special situations work for me 

http://www.whopperinvestments.com/bee-preferreds-a-relatively-safe-high-yield-security

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#4) On March 18, 2013 at 9:56 PM, Option1307 (29.96) wrote:

I find this play very attractive and will need to look into a bit more.

I have been raising cash lately as I'm becoming more and more uncomfortable with the general market at these levels. While I want to keep a decent portion of cash around for opportunities that will present themselves when we do have a correction, whenever that may be. I think it's wise to park a chunk of cash in these high yielding preferreds or similar type investments.

I feel like people often get caught up in trying to hit home runs with stocks. That's great and all but you absolutely need to take smaller gains that are much safer e.g. preferreds like these. Locking in gains of 6,7,8% is nothing to sneeze at and shouldn't be ignored.

I honestly don't have much experience with preferreds, for whatever reason I have tended to stay away from them but I really like this idea. I will hopefully find some time to look into these further.

Nice idea deej, +1! 

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#5) On March 19, 2013 at 5:19 AM, dbjella (< 20) wrote:

What is the difference between BEE-A, BEE-B or BEE-C? 

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#6) On March 19, 2013 at 12:58 PM, TMFDeej (99.29) wrote:

Thanks Option.  All of the high-yield bonds and preferreds that I own have held back my returns somewhat over the past year, but they definitely help me to sleep easier ;).

Jason

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#7) On March 19, 2013 at 1:00 PM, TMFDeej (99.29) wrote:

Hi dbjella.  Many companies have multiple lines of preferred shares that they have issued over the years. From what I can tell, there's not much of a difference between the A, B and C preferred for BEE. The "C" is in the middle of A & B in terms of shares outstanding and yield. I personally don't think that it makes much difference which one you go with. Right now, the A shares seem to have a slightly higher yield.

I definitely would use a limit order when buying with these. Having said that, I didn't have any problem at all getting shares at a price that I was comfortable with. That was a while ago though.  The liquidity should be even better today with the recent press that these shares have been getting then it was when I purchased them and the dividend had been suspended.

Jason

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#8) On March 19, 2013 at 1:28 PM, shalumov (98.55) wrote:

I know that BEE-C is callable prefereds, but I am not sure what are BEE-A and BEE-B. Anyone else?

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#9) On March 19, 2013 at 2:43 PM, Mega (99.97) wrote:

shalumov

I think you will find Quantum Online a useful resource for looking up preferred stock terms. http://quantumonline.com/

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#10) On March 19, 2013 at 3:31 PM, shalumov (98.55) wrote:

MegaShort,

Thank you very much for the link - it is very userfull. Will bookmark it for the future use.

 

dbjella, 

It look like the main difference is that all the 3 stocks were issued on the different date, and that is why they have a different suffix. The other difference between them is that BEE-C have a special note (divident will be increased to 9.25% if the stock is not listed/quoted on NYSE/AMEX/NASDAQ exchanges).

 

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