I don't have any more capital to deploy right now but I'm always looking for more stocks I want to add to my portfolio. I currently have 25, and here are 4 more that I would seriously like to add as soon as my finances allow. Many of you can probably relate, I get a weird pleasure out of researching stocks, talking about them, and ultimately buying them. And boy oh boy, seeing that dividend come in is nice. I feel like if I was a child with a lot of money, I would buy dividend stocks! And I like to live my life like a big child (while still being responsible, of course). Anyway, since I can't afford to buy 'em right now, I'll settle for sharing about them.
This is not intended to be a comprehensive analysis of any of these. Consider it an introduction to some names you may not have heard of and an opportunity to go do further research. For those of you who are already familiar with the names it could be a good opportunity for discussion. So without further ado, here's the current list:
- GGB – Gerdau SA. Current Yield: 11.09% (yields according to Yahoo Finance). This is the newest one on my list, I Just learned about it today after picking up some Petrobras (PBR – also worth a look). They're a multinational steel manufacturer headquartered in Brazil. The 30th largest steel manufacturer in the world, they've been a business since 1901 and selling steel since 1948. Free cash flow yield is nearly 30% and price to book is .97. Debt does not appear to be an issue. The business has been expanding rapidly over the past decade, with a CAGR of 7.5%. Even so, the stock has underperformed Brazilian counterparts as well as the Russell 3000 over the last 5 years. I'm not sure why Mr. Market is pricing in such a discount, more research would be required, but I imagine there's emerging market risk as well as a predicted slowdown in steel on the horizon. With such good numbers, however, Gerdau may be well-positioned even in the face of a slowdown. Geopolitical conditions may also provide tailwinds as the West seeks to lessen dependence on China.
- QSR – Restaurant Brands International. Current Yield: 3.66%. This is the corporation that owns Burger King, Tim Horton's, Popeye's, and Firehouse Subs. 90% of revenues at the moment come from North America (US and Canada), but international is a big growth area for them. They currently have over 28,000 restaurants worldwide and are looking to grow to 40,000. Expansion is not their only avenue of growth revenue, however. Global same-store sales were up 9.1% as of last week's earnings (in part reflecting consumer trends as reflected in YUM's earnings). BK international was up 10.3% in terms of same-store sales, and things stabilized in the USA with BK same-store sales rising 4%. BK gets a bad wrap in the USA, but QSR has been undergoing a strategy to reinvigorate the business which seems to be, at the very least, leading to stabilization. I personally live abroad and can attest to the fact that BK international is a popular business, an observation that is reflected in the company's numbers. Tim's, Popeye's, and Firehouse also represent interesting growth opportunities abroad. One risk to be aware of is the debt level – debt to EBIDTA is above 5 at the moment, but interest coverage is strong at 3.9. The business also generates strong free cash flow which is a good sign. The business is also well-protected from inflation risk, as 57% of the mix is from rents and royalties collected from franchises. Finally, the company has been paying a growing and reliable dividend since inception. Do note that at a PE of 22 and an EV / EBIDTA of 15 I would prefer to get it a little cheaper in spite of the growth prospects.
- OHI – Omega Healthcare Investors. Current Yield: 8.52%. This is a REIT that owns skilled nursing facilities (75%) and senior housing (25%) across the US and the UK. There's lots of tailwinds in this industry as the percentage of the US population aged 65+ in 2020 was 17% and is predicted to increase to 22% by 2040. This stock has been punished recently due to occupancy issues caused by the pandemic, in fact 3 operators have failed to pay rent or to pay the full amount this last quarter – but the damage is less than 10% of annualized contractual rent and interest revenue. OHI is currently undergoing a portfolio restructuring and in spite of the underlying issues the last quarter seemed to indicate some stability – AFFO per share of $0.76 remained unchanged from the previous quarter (down from $0.85 in Q3 of last year). The dividend coverage is razor thin right now, at just over 97%, but last year that figure was 85% and the company is assuring that resumed lease paying as well as the restructuring process will ensure dividend safety going forward. Tailwinds to the industry in the long-term should also be taken into consideration despite short-term issues related to the pandemic.
- VGR – Vector Group. Current Yield: 7.55%. Vector Group owns the fourth largest tobacco company in the USA after PM USA (MO), Reynolds (BTI), and ITG (IMBBY). The company is focused on discount brands and has grown market share from just 1.2% in 1999 to a whopping 5.1% as of last quarter, up from 4% in 2021. This is in part due to Korean tobacco company KT+G exiting the US market, but also due to consumers downtrading thanks to inflation. It's rare to see a tobacco company growing on volume rather than price/mix but Vector Group is doing it. Debt is an issue with this company, with a debt to EBIDTA of over 5x, but interest coverage is 3.9x, and the company generates massive free cash flow with an addictive product. Management in the past has been questionable, and the dividend was cut in 2020 due in part to the pandemic. However, the dividend looks much safer now, with a 51% coverage for the year of 2021. The company has no next-generation products (vapes, heated tobacco, etc.), but at least at present seems able to grow organically with traditional cigarettes. I worry about this one decades down the line but for the time being I see it as a decent opportunity and even a different style of investment when compared to other tobacco companies like Altria and BAT. At a PE ratio of just under 10 it is dirt cheap.
That's all folks, hope you liked it and looking forward to the discussion.
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