Brett Owens

Analysts are reportedly misjudging the real estate market, overlooking a burgeoning "Reno Boom 2.0" that presents a significant investment opportunity. High mortgage rates are prompting homeowners to stay put and renovate, tapping into accumulated equity. The average American home, now 44 years old, also necessitates repairs, driving a projected $518 billion in remodeling spend this year. Home Depot (HD), the world's largest home-improvement retailer, is poised to benefit significantly. Despite this, the stock is currently undervalued, with its dividend yield nearing 3%—a level not seen since 2020. HD boasts $14 billion in annual cash flow and has grown its dividend by 11% annualized over five years. Future catalysts include potential rate drops due to AI-driven deflation, which could transition the market from renovations to new home sales, further benefiting HD. The company's expanded Pro Desk and AI-powered tools are also enhancing contractor efficiency and solidifying its market position, making it a resilient and attractive investment.

Insider buying signals strong confidence, particularly in dividend-paying stocks, as executives invest their own money believing shares are undervalued, despite market highs. Four companies exemplify this trend. RLI Corp., a specialty insurer with a 5.1% yield and 51 years of dividend increases, saw executives buy after a 40% stock decline, despite strong operations. LTC Properties, a senior housing REIT yielding 6.2% monthly, had its CIO buy after a dip. American Assets Trust, a hybrid REIT with a 5.6% yield, saw Executive Chairman Ernest Rady invest heavily, defying skepticism amid improving operations. Lastly, TXO Partners LP, an oil and gas MLP offering an 11.3% yield, saw Chairman Bob Simpson spend over $8 million on shares, reinforcing confidence in its core strategy.

New Fed Chair Kevin Warsh’s hawkish debut has given us a “3-stage” plan for 12% dividends now—and strong gains later.

The Supreme Court recently issued a significant ruling concerning closed-end funds (CEFs) and activist investors. The case involved FS Credit CEFs and activist firm Saba, which buys large stakes in discounted funds to force liquidations or buybacks. Many CEFs employ bylaws stripping voting power from holders exceeding a 10% stake to prevent such actions. Saba challenged these bylaws, arguing they violated the Investment Company Act's one-share, one-vote rule. The Supreme Court, in a 6-3 decision, ruled that Saba lacked a private right to sue, stating only the SEC can enforce the law. This decision protects CEFs from activist pressure, preserving their discounted prices and reliable dividend payouts for long-term income investors. It ensures these "underfollowed" funds remain attractive for value and consistent income, rather than quick liquidation profits. Ironically, Saba's own managed fund, BRW, consistently trades at a significant discount, despite Saba's mission to eliminate them.

Contrary to the maxim that REITs decline with rising interest rates, the sector has climbed 9% this year despite rate hike fears, indicating a nuanced market. REITs, popular for their mandatory high dividend payouts, show a split performance, urging investors to focus on underlying "rent checks." CTO Realty Growth, a retail REIT in fast-growing Southern metros, demonstrates strong performance and a well-covered 7.3% dividend. However, NexPoint Residential Trust, a Sun Belt residential REIT, struggles with historical underperformance and market challenges. Global Net Lease, a multinational commercial net-lease operator, shows a turnaround but has valuation and dividend coverage concerns. Mortgage REITs like Armour Residential REIT and Redwood Trust offer high yields but are more sensitive to rate shifts, facing potential dividend volatility.

Investors are advised to "buy in July," historically the strongest month for stocks, with the S&P 500 averaging a 2.3% gain over 20 years. A longer-term outlook also points to significant gains in the year following midterms, averaging 14% since 1932. Despite current concerns, inflation and interest rates are expected to decline, with an oil glut predicted to fuel growth, creating a favorable environment. Two dividend-growth opportunities highlighted are Illinois Tool Works (ITW), an analyst-disliked but high-margin company with a strong dividend history, and Deere & Co. (DE), benefiting from a booming construction segment and a turning agricultural cycle, both offering robust dividend prospects.

Wall Street analysts vastly underestimated recent S&P 500 earnings, predicting 12% growth when companies delivered 27%. This significant outperformance highlights companies' capacity to return more cash to shareholders, reinforcing the "dividend magnet" principle where stock prices often follow dividend increases. Investors are encouraged to identify and purchase "hidden yielders" before their anticipated summer dividend hikes to capitalize on this trend. Featured companies with rapid dividend growth include Argan, Chemed, Howmet Aerospace, Comfort Systems, and T-Mobile US, all demonstrating strong financials and substantial payout increases. Additionally, established dividend payers like Altria Group, Virtus Investment Partners, and Hess Midstream LP are poised for further dividend growth, with announcements expected soon, offering opportunities for income-focused investors.

Despite investor anxieties over interest rates, fueled by new Fed Chair Kevin Warsh's perceived hawkishness, the article highlights opportunities in monthly dividend funds. It argues that deflationary forces, including plunging oil prices, soft job numbers, and AI's economic impact, will ultimately lead to lower rates. This shift is expected to compel Warsh to ease his stance. Two BlackRock closed-end funds (CEFs) are presented as timely investments. The BlackRock Enhanced Equity Dividend Trust (BDJ) offers a 7.8% monthly dividend from a diversified stock portfolio, trading at a 6.7% discount. The BlackRock Multi-Sector Income Trust (BIT) provides an 11.9% monthly dividend from bonds, with its long duration poised to benefit from falling rates, currently at a 6.1% discount. Both are seen as undervalued, with discounts expected to narrow as rates decline.

An audit of America's six largest monthly dividend payers over the last decade reveals mixed results, with half failing to maintain consistent payouts or deliver strong total returns. EPR Properties and Apple Hospitality both suspended monthly dividends during the 2020 pandemic, with APLE resuming quarterly before returning to monthly. Realty Income, despite its "Monthly Dividend Company" claim, showed a dismal 48% total return. AGNC Investment Corp cut its dividend in 2020 and never restored it, yielding poor overall returns. Agree Realty delivered a strong 135% total return but only recently adopted monthly payments. Main Street Capital emerged as the "monthly champion," consistently paying dividends since its 2007 IPO without cuts, and achieving a 236% total return. Its unique business model, bonus dividends, and high insider ownership contribute to its success.

This is one pricey market, and if you’re hesitant to put new money to work, I am sympathetic. After all, we’re here for the dividends.