Dividend stocks are always in vogue, but sometimes a bit of fortuitous timing can help. Remember, it isn’t always the dividend that matters with a dividend stock. If you can squeeze out some capital appreciation, so much the better.
I think that Manhattan Bridge Capital (NASDAQ: LOAN) is one of those stocks. It is so inexpensive that if you buy in, you not only get a 7.5% yield, but a shot at substantial appreciation, with very little downside, as the stock trades at only $3.62.
The Manhattan real estate market is on fire and Manhattan Bridge Capital is a hard-money lender. That means it lends straight-up cash that the borrower immediately deploys. In this case, it is to finance the purchase and repair for real estate flipping, loans for new construction on small family homes, or bridge loans to buy rental properties.
This kind of loan is very much in demand nationally, as housing speculators buy homes and renovate or flip them. For Manhattan Bridge Capital, their loans are not large, ranging from $50K to $1.4 million. They are interest-only, with a first position lien on the property, plus personal guarantees, and a modest LTV of 65%.
The company has never had a default. However, the market hates the stock because it fears that a rise in interest rates will harm the company’s profit spread. What the market doesn’t realize is that hard-money loans come with 10%+ interest rates. If borrowing rates rise for the company, they’ll just pass those on to borrowers because this is a secondary lending market with pricing power.
One of my favorite new investments is exchange-traded debt, which is similar to preferred stock. It trades in a very narrow range like preferred stock, it provides dividend yields that are about the same as preferred stock, yet is ahead of preferred stock in terms of recovering your investment in the event of a bankruptcy.
ETDs distribute income quarterly, but these distributions are NOT classified as dividend income. They are classified as interest, and therefore are taxed as ordinary income. That’s the price you pay for that additional security, because your normal dividend stock is often taxed at the “qualified dividend rate” of 20%. That’s a great reason to hold the security in your retirement account.
General Electric Capital 4.875% Notes (NYSE: GEH) is a conservative choice in the exchange-traded debt (ETD) field, as it trades the debt of GE Capital, the venerable commercial and consume finance arm of the famous company. GE Capital is in very solid shape financially, so it is no surprise the ETD is rated AA+ by S&P, thereby saying it has “very strong capacity to meet financial commitments.”
After trading below par for some time, it is now at $25.18, and so yields a hair less than 4.875%. Now is a good time to get in before the market sends it higher and before its next interest payment in April.
Teck Resources Ltd. (NYSE: TCK) is a mining and production company with operations all over the world and with a wide variety of minerals in its production portfolio. It produces zinc, lead, molybdenum, germanium, indium, cadmium, gold, and silver. It also has diversified into producing industrial chemicals, fertilizers, sulfur products, and even electrical power.
It is exactly this diversification that I like, and not something all mineral companies have. It is geographically diversified with 13 mines in Canada, the United States, Chile, and Peru.
The stock presently trades at $15.37, almost 40% off its 52-week high. It was already there prior to the decline in commodities, thanks to the weak prices in coal. Again, however, because of its diverse product line, the coal side has been somewhat offset by zinc production and pricing.
The company has $2 billion in cash on hand, and a $3 billion untapped credit line, and even managed robust cash flow in an otherwise dismal recent quarter. Mining gets easier as the weather warms up, so I’d jump in now and enjoy the 5.6% yield.
Dividends for Every Month of the Year
If you’re looking for just one dividend stock to round out your income stream, consider a little-known company that pays out dividends 12 months of the year.
Click here to see the full details of this company in my Dividend Calendar…