Co-produced with Treading Softly
A common theme in literature is redemption.
The main hero of the story will experience redemption from past mistakes, past bad choices, and past evils.
We enjoy reading or watching people overcome past wrongs and mistakes to achieve greatness despite past mistakes. The battle to overcome the past gives hope. It encourages us to do the same and avoid being held back by past mistakes.
Often in the story, a twist occurs when someone from the main character’s past comes along to remind everyone how bad the main character was or how he screwed up at a key moment. The villain will seek to destroy the character’s current success by using his past.
What’s the lesson? It is important to know the past but not to let it govern the present or the future. The axiom that “Those who do not know the past are doomed to repeat it” is very true. Yet investors often get so bogged down in the past that they miss out on bright prospects for the future. Let the past inform you, but make the best decisions possible in the present!
Today I want to give you two choices with a very promising future. Use them to increase your income stream and improve your future!
Pick #1: OXLC – Yield 12.2%
We’ve talked a lot about the opportunity for CLO (secured loan obligation) funds for 2022. CEFs like Oxford Lane Capital (OXLC) offer retail investors access to investing in CLO “in-equity” positions.
A CLO is a collection of bank loans, usually given to “B” rated companies. These are senior secured loans, which puts them at the top of the equity stack. The CLO is divided into “tranches” where very conservative institutional investors like banks or insurance companies pay a high premium to obtain the senior tranches. The senior tranches are the first to be paid. The “equity” tranche is last in line, garnering a much higher return in exchange for absorbing any defaults.
OXLC invests in “equity” tranches, and collects substantial cash flow for his investment!
Note the two different yields: “Effective yield” and “Cash distribution yield”. The cash distribution yield is the amount of cash that OXLC actually collects. This is the actual cash received divided by the base cost of OXLC.
As of January 2022, there were no leveraged loans in default and only 5 in the last 12 months. This is a historically low default rate. Fitch’s outlook for 2022, default rates must be 1.5%. This compares to a historical average of 2.82%.
What does this mean for OXLC? Well, if defaults climb 1000% in 2022 and defaults are twice as high as Fitch’s projection, then OXLC’s actual return will look like its GAAP earnings (which use “effective return”) of $0.29/quarter and OXLC will only cover its dividend with gains over 125%. If defaults remain near historic lows, then OXLC is covering its dividend by close to 200% and we are likely looking at a dividend increase or a large special dividend at year end.
OXLC remains one of the best opportunities for 2022!
Choice #2: MRI – Yield 5%
When it comes to investing, we often hear about a company’s “moat”. This means that there are barriers to entry that prevent competition, allowing the company to operate in its own field.
iron mountain (IRM) is a unique REIT with a niche of its own. His castle is protected by a huge moat and he has no significant competition. IRM stores 740 million cubic feet of paper. Who else in the world can do that? Person.
Paper storage is quite lucrative, IRM has over $4.4 billion in revenue per year, most of which is related to its physical storage business.
– Source: IRM Q4-2021 Investor Presentation
Additionally, IRM’s revenue from storage is growing every year:
This company has a huge gap that no one is going to cross. IRM has consolidated its smaller counterparts, using its advantages of scale and the reality that no one else will make a huge investment in the paper storage business in an increasingly digital world.
Many investors have dismissed IRM as the world becomes increasingly digital. We see a cash cow, producing excess cash flow that grows every year. Moreover, IRM is not blind to the future and has thrived in the digital world.
Data centers currently account for about 10% of storage revenue and IRM will increase capacity by 67% with projects already under construction, while owning enough properties to more than double thereafter.
To put that into perspective, this level of development would make the capacity of IRM’s data center superior to that of CoreSite (COR) which was purchased by American Tower (AMT) for over $10 billion.
Data centers themselves don’t have a gap. Many companies own and operate them. However, none of their competitors have the infrastructure to provide both paper and digital storage options. For many businesses and governments that can’t or don’t want to go 100% digital, IRM is the only option they have to store all their data in one place.
IRM links its historical expertise and combines it with the modern movement towards digitization. Managing to set up their little niche corner of the data center market with a nice moat that sets them apart. Jump on the MRI bandwagon before there’s a high-priced moat around its stocks!
Lock in those returns now and enjoy a future filled with high dividend income. The past may have been littered with high-yield CDs, savings accounts, and gold bars. In the past, A-rated bonds had yields high enough to justify the traditional “60/40” mix. Those days were nice, but the future is different. Over the past decade, growth stocks have been on fire. Valuations are fueled higher by low interest rate policies.
With the Federal Reserve poised to raise rates, now is the time to demand higher returns from your portfolio and invest in companies and funds that will provide you with high-growth dividends. Value stocks, trading at attractive valuations and offering high dividend income are the best fuel for your income portfolio.
My retirement pays for itself. Have you ever had the joy of going to an expensive restaurant and enjoying a great meal on someone else’s tab? It can be a great experience, especially if there is no catch. My life is like that because of my dividends. Companies like IRM or funds like OXLC take my note as I enjoy my day-to-day life.
Is it different from what life was like 20 or 30 years ago? Clearly, times have changed. It’s time to live in the present, not in the past. Your retirement will thank you.