This Weird Indicator Led Me To A Contrarian Trade…
Over the past few months, analysts have struggled to gain insights into the economy. This has led them to seek out new, shall we say, unconventional, data sources.
Believe it or not, among the most useful is data from Yelp. The company’s monthly Economic Impact Report offers real-time insight into the pandemic’s impact on small businesses.
To gather closure data, Yelp monitors changes in business hours or descriptions on its app, offering an immediate, localized view of the impact the pandemic has had on small businesses.
As of the end of August, Yelp noted that about 180,000 businesses closed for at least a few days with 97,966 being permanently closed.
This data indicates at least 60% of closed businesses won’t reopen.
Businesses in some sectors have done better than others. While restaurants and clothing stores have been especially hard hit, lawyers, architects, and accountants have fared better.
This is local data, but we are seeing similar trends in large companies. Retailers are struggling while companies with “knowledge workers” are continuing to operate at near-normal capacity.
This is an important finding, and it’s worth keeping in mind as we move forward in the recovery.
Things May Not Quite Be What They Seem
With this in mind, I think this makes Boston Properties, Inc. (NYSE: BXP) attractive as an income investment.
BXP is the largest publicly-held developer and owner of Class A office properties in the United States, concentrated in five markets — Boston, Los Angeles, New York, San Francisco, and Washington, DC.
The company is a fully integrated real estate company, organized as a real estate investment trust (REIT). It develops, manages, operates, acquires, and owns a diverse portfolio of primarily Class A office space. The portfolio totals 51.2 million square feet and 195 properties, including nine properties under construction/redevelopment.
In a presentation to analysts the company delivered earlier this month, BXP noted that 92% of its space is leased with an average of more than 8 years left on the leases. In August, the company received 98% of the rent that was due from tenants in offices. The company even announced new leases totaling 942,000 square feet in the second quarter.
On the surface, this may seem a bit puzzling. It’s easy to assume that because some businesses are struggling, all businesses are struggling. Especially when much of what we may see (closed retail businesses in our neighborhood, friends and relatives working remotely – or out of work) may actually conflict with the larger picture.
The reality is that while small businesses are struggling, large employers are confident they will be returning to offices. Consider these telling remarks from some of the country’s largest “knowledge economy” employers that Boston Properties recently highlighted…
Action To Take
These factors make BXP an attractive income stock. The current dividend yield of about 4.9% is well above the five-year average of 2.5%. The high yield reflects concerns about the safety of the dividend. However, those concerns might be overblown. BXP’s cash flow from operations and net income cover the current payout.
This should all serve to limit the downside risk from a fundamental perspective. Technicals confirm this is a low-risk entry point. The stock is at a six-year low, at a price with significant support.
Rather than simply buy BXP and wait for our dividends to roll in, over at Maximum Income, we just earned our first “bonus dividend” on the stock.
This trade allowed us to earn significant short-term income – about 3%, in fact. And remember, if we hold for a full year, we’d only expect to earn about 5%. But with my “bonus dividend” strategy, we have the chance to earn both. And what’s more, we can repeat another trade like this in the future if we want.
Want to learn more about this simple strategy? Go here now…