Buying A Cash Machine At A Discount
Today, we are officially adding a brand-new stock to the High Yield Portfolio.
It’s got a great underlying business that undergoing a massive cleanup.
Management is selling off non-core divisions to wipe away hundreds of millions in debt, leaving behind a lean cash machine.
Here is why this opportunity is so exciting:
8%+ Starting Yield: A huge payout that is safely covered by recurring cash flows.
Hidden Growth: This company has revenue under contract that hasn’t started flowing yet.
Aggressive Buybacks: Management is skipping expensive new projects to buy back their own cheap shares instead.
When the market finally wakes up to the improved balance sheet, simplified business, and safe dividend yield, the multiple re-rating could be significant.
But with the starting dividend yield we’re buying at, we don’t need multiple expansion to generate attractive returns.
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One Dividend At A Time,
-TJ
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Fiscal.ai: Financial data
High yield names with durable cash conversion screen well in late cycle, but the relative trade has gotten interesting only since the long end started selling. Spread compression vs 30Y is the cleanest tell of when dividend payers stop acting like bonds.