Market Analysis for Jun 13th, 2021

'Make Income While You Sleep' Buffet Says, 2 Dividends For Peaceful Dreams

Passive income should be your priority whether you are retired, on the verge of retirement, or have just begun your professional career.

“If you don’t find a way to make money while you sleep, you will work until you die” - Warren Buffett

Passive income is crucial because it provides stability, security, and flexibility in your financial life. In addition, passive income is not constrained by your time or effort. As a result, it can have a significant and beneficial impact on your ability to accumulate wealth over time.

Passive income demands initial investments as well as extensive research and analysis. These revenue streams begin to expand and self-sustain after years of hard work, delivering you consistent income with no effort on your part. Dividend income is a legitimate form of passive income that allows investors to receive consistent, rising income, enabling them to achieve the financial independence you've always desired.

Mr. Buffett is one of the few people who has consistently compounded his wealth at high rates of return for nearly 70 years. It's no secret that he favors dividend growth equities. In 2020, his top ten dividend picks paid out over $4.2 billion. Mr. Buffett's investment portfolio is a real example of dividend power.

You don't have to build, manage, or grow your dividend portfolio on your own. Our immediate income and value investing ideas help you choose the right entry range, suggested allocation, risk levels, diversification, and overall portfolio hygiene to protect your income while also ensuring long-term growth.

Investors are typically rewarded with a significant rise when dividend-paying companies perform well throughout the year. Today, we'll look at two high-yielding stocks that have the potential to offer long-term growth.

Pick #1:  MPW

Medical Properties Trust (MPW) - Yield 5.1%

Last week there was a "short report" on MPW that was making some news and we think it is worth addressing those concerns.

The two core issues brought up are:

1: MPW's FFO (funds from an operation) is inflated by their long-term contracts which have a large amount of straight-lined rent which is rent recorded as revenue but will be collected in future years.

2: MPW has a strong relationship with their largest tenant Steward and Cerebus Capital Management, the PE firm that created Steward. The report alleged that Steward was having financial issues.

For #1: MPW isn't the one responsible for creating the rules to calculate GAAP straight-lining or FFO. They have zero power to determine how those numbers are presented, that is up to the SEC. MPW reports the numbers as they are legally required to do so.

GAAP requires that rent is "straight-lined" meaning that if the contract calls for rent to increase, the landlord has to report revenue as if they received equal payments throughout the life of the lease.

MPW also provides AFFO (adjusted FFO), which management routinely discusses and relies on when talking about their results. This is a non-GAAP metric that they can determine how to calculate and MPW does appropriately remove all straight-lined rent from this metric. This is the metric we rely on for assessing MPW. There is absolutely nothing wrong or inconsistent with REIT peers in how MPW reports AFFO. You can see MPW's calculation for last quarter below:

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       Source: MPW Q1 Supplement

$0.11 is a large portion of their rent, and that is because MPW has very long-term leases that have regular rent increases. This means that MPW will be receiving more rent in the future! That is a good thing, not something nefarious.

For #2: Cerebus is no longer involved in Steward at all; they sold their position last year. Steward is now 90.1% owned by the physicians who work there and is the nation's largest physician-owned hospital system, and MPW retains 3 equity tranches equaling 9.9%. So the warnings of MPW being taken advantage of by a PE firm are now in the past. The tenant concentration was indeed a concern, it was stated by Moody's as the largest reason they couldn't get a credit upgrade. 40%+ in any one tenant simply creates a lot of risk if that one tenant fails. Today, Steward is closer to 20%, and that number continues to dwindle. When that gets below 10%, MPW will be a much more diverse and lower-risk investment. They are taking the steps to make that happen, so to us that is a buy signal. MPW identified a problem weighing on their valuation, they are actively solving the problem. That is when you want to be buying. After they solve the problem, you're too late, the price went up.

While we believe it is always important to consider the bearish argument for our holdings, we found nothing in this report to be persuasive. MPW's concentration in Steward is well known, and it is something that MPW has been actively diversifying away from, buying billions in properties around the world. The best part is that as MPW expands, shareholders win through higher prices and a growing dividend!

Pick #2:  AM

Antero Midstream (AM) - Yield 8.6%

Antero Midstream has positioned itself for growth. With its reset dividend, AM will be able to fund all current and backlogged projects through 2025 with FCF (free cash flow). This means that AM will be able to grow earnings without taking on more debt or issuing more equity. The best part is that they can do this while paying a very generous 9% yield.

With inflation running hot, natural gas prices are high and are likely to remain high. We have seen AM and Targa Resources (TRGP) benefit from high gas prices, with both currently trading above pre-COVID levels.

These names will continue to be an excellent investment as the combined impacts of inflation, growing demand, a weaker U.S. dollar, and other factors provide strong tailwinds to energy prices.

AM is in an unusually strong financial position that they can fund their cap-ex, deleverage, buy back stock and pay a 9%+ yield on their dividend!


 You put in a lot of effort to save money for your retirement. So don't let your money remain dormant! Allow your savings to generate a steady source of income for you. As Warren Buffett wisely stated, this is one of the secrets to getting wealthy. We've included three terrific dividend investments in our study that will work for you 24-hours a day. Both of these picks are on track to increase their earnings! What's even better? Reinvesting your dividends can help you increase your income even more. Your income will grow faster if you reinvest more!

You may relax knowing that your income stream is stable and ever-flowing with dividend stocks, regardless of the market's volatility. Small streams and rivers frequently dry up and disappear during droughts. However, they emerge during flooded seasons! Developing a dividend income stream isn't like building a small stream that will eventually dry up; instead, it's like creating a raging river like the Amazon, which never stops flowing and has no end.


Want to access our full report, all our top picks, and portfolio?

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Rida Morwa is part of the High Dividend Investing (HDI) team at EWT, currently offering a 15-day free trial.