This Unique Stock Is The Perfect “Bonus Dividend” Candidate
In the future, historians and economists will debate whether shutting down the economy was a rational response to the coronavirus. Those debates will be interesting. In part, the question will come down to the success of the reopening of the economy.
For now, investors are sending mixed messages on what they expect in the recovery. Overall, the stock market is moving higher, indicating investors expect a rapid recovery. But not all sectors are participating, indicating there are parts of the economy that could struggle.
Right now, transportation is one of the sectors that is dramatically underperforming the S&P 500.
It’s interesting that this sector is among the market laggards. If the economy’s reopening is going to be successful, transportation stocks should fare well.
Dow Theory Tells Us This Sector Should Rally
Transports are among the most important sectors in the economy. In fact, this sector is normally expected to lead a recovery.
This was first explained by Charles Dow in the late 1800s. Dow created the Dow Jones Averages to track the economy, and the first index he created was the Dow Jones Transportation Average. He recognized that transportation companies move raw materials and products to where they are needed — an integral piece of the economic picture. And that’s still true today.
When the economy is strong, transports do well. This sector must catch up to the broad market, on a relative basis, if the recovery is sustained.
That makes the current weakness an ideal investment opportunity for bargain hunters.
Within the transportation sector, there are subsectors including airlines, railroads, truckers, and shipping companies. Investors could pick companies in each area or buy index funds that provide exposure to one or more of these subsectors.
How I’m Trading For A Transport Recovery
Or, they could invest in my most recent recommendation over at Maximum Income.
I recently told my subscribers about Fortress Transportation and Infrastructure Investors LLC (NYSE: FTAI). This unique company is involved in aircraft leasing, transporting and processing crude oil, operating deep-water ports, and other transportation businesses.
FTIA is part of the Fortress Investment Group. Fortress manages more than $43 billion, according to the latest public filings, but that’s most likely lower now after the market selloff. The company has more than 1,750 institutional clients, and its minimum investments are beyond the reach of most individuals.
Fortress also manages four publicly traded permanent capital vehicles, or PCVs. PCVs are relatively new investments and are used by large managers to create a pool of stable assets. Managers like Fortress can see wide swings in equity when markets sell off as they recently did. The PCV allows the manager to avoid selling at distressed prices and helps the manager, and investors, stick to their strategies in bear markets.
PCVs are often structured as partnerships. That is true for FTAI. Partnerships are treated differently than stocks for tax purposes. (Reminder: Before buying FTAI, it could be best to consult with a tax advisor if you are not familiar with K-1 tax forms.)
I’m excited about FTAI because the recent selloff pushed the price-to-book (P/B) ratio to 0.65. This means we have the opportunity to buy $1 worth of assets for $0.65. Now, the assets could be marked down in the current market environment. But even if the book value is reduced by 25%, FTAI is still undervalued.
The chart below shows that the share price bottomed when the P/B ratio dipped below 0.75 in 2015. At the current level, downside risks are limited.
We’re Going To Extract Major Income from FTAI
FTAI’s current dividend yield of 13.8% is also attractive. While it’s always possible for a company to cut its dividend , FTAI could reduce its payout as much as 75%, to about $0.33 a year, and still offer value.
I expect FTAI to rebound slowly. That will provide multiple opportunities to generate income in the position.
That’s why I told my subscribers to execute a “bonus dividend” trade on FTAI. That way, we’ll be able to collect our regular dividends, but also earn immediate income while we wait for the rebound, thanks to our strategy.
Based on the parameters of my recent recommendation, we expect to earn about 10% before our trade expires in about three months. If we can repeat a similar trade like this, we could earn a 39% return on our capital in 12 months — all thanks to our “bonus dividend” strategy.
I can’t reveal the exact details of this trade out of fairness to my subscribers. But what I can say is that if you’re looking for safe ways to earn extra income in this market, you owe it to yourself to give it a shot. Check out this report to learn more.