I haven’t written much about Robert Rapier’s stuff in recent years, mostly because the relatively safe utility stocks he mostly covers for his Utility Forecaster service don’t get people hot under the collar… and because there’s rarely a “get rich quick” headline over his stuff.

Yes, the old Utility Forecaster ads about a “dividend map” sometimes obscure how important time is in the effort to build large dividend on cost income streams — so occasionally readers ask me “how do I get those 60% dividends on safe utility stocks?”… to which the only answer, unfortunately, is “buy them and wait 20-30 years for compounding and dividend increases to work their magic.” But still, nobody’s buying utility stocks because they’re sexy or exciting — they’re buying them because they need some income, and they’re scared of most everything else.

But now he’s got a new service out that’s not quite as boring as Utility Forecaster… so the questions are piling up. He’s selling this new Income Forecaster ($199/yr, no refunds) with the promise of much higher yields, and judging by the questions we get here at Stock Gumshoe, that’s appealing to folks now that inflation is making their old 3% dividends look awful:

“Tired of ‘Settling’ For Yields Of 2.1%… 3.4%… Or Even 5.8%? …

“Payouts Of 7.5%… 9.3%… 11.1%… And Even A Wallet-Stuffing 19.4% Are Just A Click Away….

“I’m going to give you something BIGGER than anything you’ve ever gotten from me before. Specifically…

“The chance to get the names of stocks that pay out up to 915% more than the ones I currently cover. Each of them ticks three specific boxes…

“They generate a yield of at least 7.5%

“Their share price has the potential to jump at least 30%…

“They pass my full gauntlet of rigorous financial stress tests designed to separate the studs from duds”

So it’s still income and safety, with some growth thrown in… but now he’s promising much higher income, and higher growth.

And he hints at a few of the five picks he’s promoting, so let’s see if we can get the Thinkolator to name some names for us…

“A Sub-$12 Stock That Yields Over 18%!

“What do you do when you find a stock trading for around $12 that boasts a yield north of 18%?

“Well, if you’re like me, the first thing you do is dream about how you could use all the money it’s throwing off…

“And the second thing you’d probably do is dismiss it as “too good to be true.”

“In most cases that would be the right move.

“But this time — it would be a mistake.

“Because the rock-solid commodity shipping company I’ve found passed each of the five tests it takes to satisfy my Wealth Formula with flying colors.”

Those five tests are:

• 7.5%+ dividend
• 4%+ Return on Equity (ROE)
• 8%+ cash flow growth
• “Swimming with the sharks” (meaning insider and institutional buying, I assume)
• … and an undisclosed “financial health gut check”

So who meets those criteria? Most of the shipping companies who have yields in that neighborhood right now are container shippers, which is a different category (their ships operate on scheduled routes, carrying containers for multiple customers)… a commodity shipper would mean that you’re dealing with either dry bulk shipping (wheat, coal, etc.) or liquid/gas tankers that carry oil, gas and specialty chemicals, typically for a single customer and on either a long-term charter or a spot one-journey charter that’s paid by the day.

There are a lot of tanker and bulker owners that trade publicly, and they tend to be very volatile, but the one I can find who best meets this criteria is a Norwegian propane shipper called BW LPG (BWLPG.OL in Oslo, BWLLF OTC in the US (also BWLLY, though that ticker rarely has any trading)). It’s very illiquid, no pun intended for this propane transporter, which is one reason this might not be a match for Rapier’s tease, so move slow if you’re interested (even in Oslo it only trades ~$2 million worth of shares per day — there is often very little trading in the US, so if you do want to buy OTC make sure to use limit orders based on the trading price in Norway, and buy in the morning in NY, when both Oslo and NY markets are open).

How does it match? Well, it’s not exactly a $12 stock with an 18% yield, but it’s pretty close — the share are at around $12.50 right now, and the trailing yield is a little over 19% (the dividend is highly variable, so it could be meaningfully higher or lower over the next year). It was a “sub-$12 stock with a 18%+ yield” a couple weeks ago, though we don’t know when exactly Rapier pulled the data to create this ad.

The return on equity is exceptionally high, even though their debt is not quite as wild as a lot of shippers — ROE is now about 24%.

Cash flow has recently grown much faster than 8%. Over the past five years, cash from operations (CFO) and free cash flow per share have both risen by close to 10X, though that was not at all even — cash flow soared into the pandemic, then collapsed for 18 months or so, and started growing sharply again last year.

The business is commodity-based — they own and operate Very Large Gas Carriers (VLGCs) which move propane around the world. Propane supply from exporting areas, like the US and Middle East, is driven by oil and gas production, propane is mostly produced as a byproduct of natural gas processing (and to a lesser extent, from crude oil refining). Demand is partially for what we think of as the propane market, since folks in the US often use propane for cooking or heating or as an industrial fuel… but it’s mostly driven by chemical demand, particularly in China, where propane is a key feedstock for propane dehydrogenation (PDH) plants that make propylene, which is largely used for chemicals and plastics. China has been building PDH plants on the coast like mad, and increasing their imports of propane, which is what has driven the market in recent years… and people seem pretty confident that Chinese propane demand will remain high.

Here’s how they summed up the business in their midyear report a few weeks ago:

“BW LPG’s results are largely dependent on the worldwide market for transportation of LPG. Market conditions for shipping activities are typically volatile and, as a consequence, the results may vary considerably from year to year. The market in broad terms is dependent on the following factors: The supply of vessels, U.S. LPB export volumes and the demand for LPG. The supply of vessels depends on the number of newbuildings entering the market, the demolition of older tonnage and legislation that limits the use of older vessels or sets new standards for vessels used in specific trades. The demand side depends mainly on developments in the global economy.”

So, no surprise, it’s a commodity business… but it’s also growing pretty strongly right now, and the order book for future LPG tankers is known for several years (if you order one right now, you won’t get it until 2027).

Here’s how they describe their outlook:

“The current favourable oil price is poised to stimulate additional growth in LPG production and exports in the upcoming years. Moreover, rig productivity in the US begun to increase. Alongside the expected increase in LPG supply, we also anticipate heightening demand, partly fuelled by the emergence of additional PDH plants in China. While the rate of newbuilding ordering has slowed, a significant number of ships in the current orderbook remain to be delivered, and the market outlook is dependent on supply-side discipline.”

They see newbuilding deliveries slowing down after January, and have a “positive view” for 2023 and 2024… even though they say they’re “mindful” of the macro-economic environment, since slowing demand in China would be a big deal. They’ve both sold ships and bought new ones recently, so they are active in managing the fleet, and manage a lot of ships that they don’t 100% own.

Net leverage stands at 19%, which is a pretty low debt level for a shipper — a lot of the dry bulk shippers, and some of the standard tanker companies, carry dramatically more debt than that. They pay out essentially all of their adjusted profit as a dividend, which includes arbitrage profits sometimes (from product trading, essentially), which has resulted in the last two payouts being 95 cents in June and 81 cents next month, their highest dividends in many years… but the number could jump around a lot more than that — since 2019, the quarterly dividend has ranged from 10 cents to 95 cents, but it was mostly in the 10-30 cent range before this year.

And the icing on the cake, beyond the pricing benefit that they might continue to get thanks to the slowdowns in the Panama Canal, (longer trips if you can’t use the canal = more demand for tankers to move the same amount of product), is that they’re quite small (market cap around $1.6 billion), and have “resolved to work toward” a dual listing in the US, which could bring the stock to the attention of more investors.

Interesting stock — can’t be 100% certain that this is Rapier’s pick, but it’s the best match I can find, and it’s an interesting new-to-me high-yielder that I’ll probably spend more time on in the next few weeks. Haven’t owned many tanker stocks in the past few years, mostly because the sector is so wildly volatile, but they can certainly provide great income when the market works in their favor for a few years. Their latest investor presentation is here, and the half-year results report is here.

The next-closest match I’ve looked at is Genco Shipping & Trading (GNK), a smaller dry bulker. They come close to hitting the criteria, though the dividend has recently been lower and the numbers are not as good (ROE 9%, trailing dividend $1.58 for a 13% yield). I like the propane shipping market more than the dry bulker market right now, but I could be wrong.

Next?

“‘Smart Money’ Profit Potential With A 12%+ Dividend

“Of all the companies in this report, the “specialty banker” I’ll cover is one of the most intriguing.

“I’m not the only one who’s taken notice of what it’s up to either…

“Because large institutional buyers have spent the past few months snapping up shares at a breakneck pace.

“And when the ‘smart money’ starts making moves like that — it only means one thing…

“They see big profit potential.

“You can collect a stout 12%+ dividend while waiting for the capital gains to start rolling in…

“And best of all, it’ll only set you back around $14.”

That very likely means he’s teasing a Business Development Company (BDC), those are pass-through income investments (kind of like REITs) which make loans to private small and midsize businesses, often including federally subsidized small business loans, and typically get some equity exposure to those borrowers as well. That’s pretty close to the ~10% average yield for those types of investments right now (just going by the yield of the VanEck BDC Income ETF (BIZD), mostly because the industry is obviously interest-rate sensitive and cyclical to some degree.

Within that group, the ones who come closest to that price/yield combination are Golub Capital BDC (GBDC) ($14 share price, dividend roughly 11.5% at the rate of the last payment) Carlyle Secured Lending (CGBD) ($14.70, 12% yield), MidCap Financial (MFIC) ($13, 11.5%), Runway Growth Finance (RWAY) ($13, 13.5%), Stellus Capital (SCM), ($14, 11.5%) or Goldman Sachs BDC (GSBD) ($14.50, 12.5%). It could also be a mortgage REIT, which might qualify as a “specialty banker,” but if you want the hope of equity gains in addition to income it’s much more likely to be a BDC.

All of those types of companies will become a little more frightening if we head into a real credit crisis, which is what some folks are predicting given the high interest rates which are leading to serious challenges in commercial real estate and repayment risks for high-yield borrowers who have to refinance… but absent that, if the economy and rates stay relatively stable or go down a bit from here, they certainly offer high yields right now. Given Rapier’s other criteria and his stated “quality and safety” focus, I’d say Carlyle Secured Lending (CGBD) is probably the best match — it trades at a discount to its net asset value (NAV is currently $16.73), does earn some equity returns from its customers that can boost cash flow beyond their interest income.

On the “risk” side, beyond the constant risk that these are leveraged finance companies and therefore sometimes their profits are squeezed if their borrowing costs rise faster than the yields they can demand from their own borrowers… or, worse, if their borrowers balk at rising costs and default, Carlyle Secured Lending is quite small compared to other relatively attractive and discounted BDCs that have slightly lower yields, like Blue Owl Capital BDC (OBDC) or the giant Ares Capital (ARCC). So we’ll pencil that in as the best match, but there’s a lot of commonality among these companies and they generally perform similarly — check out Carlyle Secured’s last investor presentation for their quick run-through of the business.

If we go back four years, to get the full 2020 collapse and recovery and also get the impact of rising rates over the past year, this is what those stocks I noted above have looked like — as coincidence has it, Carlyle Secured is the only one that beat the S&P 500 during that time frame, and the BDC ETF (BIZD), no surprise, is right in the middle… GSBD and GBDC are the laggards:

Shall we seek out another?

“Get a 9% Dividend From This $11 Telecom Stock

“From online shopping to working remotely — the internet has become an indispensable part of the economy… and our lives.

“And I’ve found an $11 telecommunications company that’s poised to ride this constant demand to new levels…

“While doling out a generous 9% dividend.”

If we take him at his word there, and also only consider stocks that are pretty easy to buy in the US, that narrows it down to Orange (ORAN), the French mobile company, Telenor (TELNY) in Norway, or Vodafone (VOD), which has a pretty global wireless and wired business. None are a perfect match, but Telenor is probably the closest, so that would be my best guess for a match… and Vodafone is probably the one I’d be more inclined to research for a possible high-yield buy, just because it’s very large and globally diversified.

Tough sector, though, particularly given all the competitive spending over the past decade to upgrade networks and fight for customers, and a lot of these companies are really larded up with debt that worries investors… but it’s certainly true that internet access and mobile networks are indispensable utilities for much of the world now. This is the warning about how tough the telecom business has been for the big operators — a total return chart for those three plus US leaders AT&T (T) and Verizon (VZ) over the past five years… that’s the S&P 500 up top, in orange:

At some point these stocks probably get cheap enough, particularly those US name brands that we are all so familiar with, but the performance has been awfully rough — not one of those particular stocks has a positive total return over the past ten years. Being indispensable doesn’t always mean being profitable.

Maybe there are some other ~$11 providers with ~9% yields that I’ve missed in this scan of the telecom industry — if so, feel free to let us all know with a comment below.

And the other two he highlights are even less specifically hinted at…

“A $12 natural gas pipeline and storage company that pays out over 7.5% and has raised its dividends three times in a row…”

That “three times in a row” could be either a quarterly or annual reference, and in both cases the best match is likely to be Energy Transfer (ET), which is up to about $13.50 now and pays a yield of about 9% at the moment… at times, earlier this year, it has been closer to $12 with a trailing yield in the 8% neighborhood. The dividend has been raised five times in just the past two years, which includes several “three in a row” hikes, and has also been raised three years in a row — though like with some other energy companies, it was also cut in 2020 when oil prices collapsed, so much of that raising was just getting the distribution back to where it was in 2019.

I’d be somewhat inclined to go with the steadier Enterprise Products Partners (EPD) among the giant pipeline MLPs, though it doesn’t match those particular clues ($27 share price, 7.5% yield these days), but ET is a solid higher-yield choice as well. I mostly stick with the Alerian MLP ETF (AMLP) for coverage in this sector, personally, just because I don’t want to put in the time to learn enough to distinguish the persistent values among the pipeline companies — MLPs are pretty attractive income investments, and they’ve grown in popularity, but getting “average” in that group is OK with me, as is trading the tax benefits of the MLP structure, which allows much of the tax on your partnership distributions to be deferred until you sell, for the “no K-1” ease of AMLP at tax time.

And one final one…

“How to collect a 9.5% yield from a $14 company that deals in commercial real estate.”

Well, that’s too general for me to even responsibly throw out a wild guess. There are lots of stocks that look fairly cheap in the world of commercial real estate, from the managers to the owners of those properties, and that’s largely because investors are freaking out a bit about empty office buildings and worrying about how real estate will be repriced in this new higher-rate world (most commercial real estate is on an endless cycle of interest-only loans that are refinanced every 5-10 years, not many of these buildings carry the 30 year amortizing mortgages that you and I are used to).

So you can throw out your own favorite in this space. Personally, if I wanted to place a bet on commercial real estate, I’d just buy more Brookfield (BN) — it doesn’t pay much of a yield (only about 1%, so certainly wouldn’t fit with Rapier’s strategy), but the stock is valued right now as if its commercial property assets (roughly half of their net asset value) are worthless.

That’s just my take, though, I’m happy to listen to yours — feel free to share with a comment below. Don’t worry, we don’t bite.

Disclosure: Of the companied mentioned above, I own shares of Brookfield Corp. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.