It sure was nice to see high yield bounce back at the start of 2013’s second half.
The correction in the high-yield space that began in June had been a rough-‘n’-tumble ride, inflicting a great deal of damage among many fixed-income portfolios. However, the holiday-shortened week that followed brought a more positive tone akin to the year’s first five-and-a-half months — and that’s very welcome news to report.
I recently wrote that, based on pure valuation, it would appear as though the market was close to the point at which the money-good dividends offered by high-yield assets would become increasingly attractive. And it appears that notion was spot-on.
Leading up to the start of the new quarter, if a stock had a notable dividend yield, it was treated harshly — regardless of its fundamental makeup. But cooler heads and yield-hungry bargain hunters started stepping up purchases last week. With the bond market settling down and the release of a number of positive economic reports last Monday, buyers of high-yield securities once again showed up among all of my recommended sectors.
High-yield assets began trading up after the release of the June ISM Index reading that came in at 50.9 (vs. a consensus 50.5), and a construction spending reading of 0.5 that hit analyst estimates. As hard as it is to judge investor behavior during a session in a holiday-shortened week, I believe buyers will be back in even higher numbers now that their vacations are over.
Meanwhile, a number of the high-yield names I recommend to Cash Machine subscribers are trading at very attractive entry points, and also are set to benefit from some positive news of their own.
Brokerage firm BGC Partners (BGCP) recently updated its second-quarter outlook, saying it now expects quarterly financial results to be toward the higher end of its revenues and earnings guidance range. BGCP also expects to generate up to $465 million in distributable earnings revenues. With the stock currently paying a solid 7.8% yield and still trading right above my $6 buy-under price, you’d be smart to pick up BGCP soon or on a dip.
Navios Maritime Partners LP (NMM), an owner and operator of dry cargo vessels, just announced that it closed a five-year $250 million loan, secured by first-priority mortgages covering certain vessels owned by subsidiaries of Navios Partners. NMM will use the proceeds to repay debt and to complete the acquisition of four new vessels. NMM, which sports a yield of 12.3%, is trading far below my recommended buy-under, so snap up NMM shares at will.
Last but not least, Prospect Capital (PSEC) — one of the “big kahunas” in the business development company space — recently was given a BBB+ rating with a stable outlook by Kroll Bond Rating Agency. According to Kroll, PSEC’s rating “is supported by their majority senior-secured position within their investment portfolio, strong leverage metrics that are well within the BDC limits, excellent asset-quality performance to date and the quality of their credit originations and monitoring.” PSEC has a current dividend yield of 12.3% and is very attractive at the $10.85 level, so get in while you can. Note: PSEC pays out monthly.
Bryan Perry is editor of Cash Machine, a newsletter focused on dividends and income investing. His newest service, Extreme Income, also focuses on dividend investing with “income boosters” like momentum plays, option strategies and more.