Post Election Roundtable – Preparing For What Happens On The Dividend/Income Side

We continue our Post Election Roundtable with our authors who focus on dividends, income, high yield, and REITs. We asked our authors the following:

Assuming the U.S. election results stand, how will these affect the investing environment in your area of expertise? Name a few companies or ETFs that you believe will outperform as a result of these developments and explain your rationale.

The answers were compiled as late as Monday, Nov. 16. Feel free to comment below – we’d love to hear your opinions.

Long Run Income by Tariq Dennison: China is the clearest winner from a Biden/Harris win, regardless of the result of the Georgia senate run-off. While Biden will not immediately reverse every shot Trump fired in his trade war with China without some concession in return, almost no one believes Biden would be as firm as Trump in pushing the interests of American business above China’s advances. While the more high profile names benefiting from a Biden “cease fire” would be Tik Tok, Huawei, and Ant Financial (none of which are listed), I would expect even a broad China ETF like (MCHI) or (ECNS) to outperform US benchmarks over Biden’s first term, with more focused ETFs like (KURE) providing plays on specific themes benefiting from a Trump-free China policy.

We are long several individual Chinese stocks held by the above ETFs, but no positions in the ETFs.

Engineered Income Investing by Richard Berger: Elections have very little effect on the markets in reality. That’s not to say policy does not. Policy simply is largely driven by economic realities that lead to any administration working to keep the economy moving regardless of ideology. History simply proves this out. Look at the long-term slope of the major market tracking ETFs through any and all of the past four administrations (from Bush to Clinton to Bush to Obama to Trump). True over longer spans also.

Infrastructure is expected to benefit, but was supposed to under Trump also and never got the programs moving to do so. Electric technology and vehicles, renewable energy are policy beneficiaries expected under Biden, but also may never come to pass with a divided government. One favorite driven by the virus and vaccines is current and continuing for the new administration. The Pfizer (NYSE:PFE) vaccine and it’s German partner BioNTech (BNTX). My report on it is at BioNTech COVID-19 Vaccine Sets Up >50% Annual Yield With 19% Downside Protection and provides actionable high-yield, low-risk ideas that remain relevant now.

I am long BTNX.

The Wheel of Fortune by The Fortune Teller: The election results, combined with the vaccine news, make the world’s economy look more promising going forward. We might have a harsh winter (COVID-19 hospitalizations and deaths), but we can hope for a sunny summer. As such, there’s a reason to be more upbeat about two beaten-up investment themes that deserve to start getting more love – the financial sector and emerging markets.

With regard to the financials sector, a steepening yield-curve would certainly help. In light of the above, we suggested to our subscribers the following trades ahead of the elections: (NYCB) $7.87, (ISBC) $8.70. These are two smaller-regional banks that pay dividend yields of 8% and 5.4%, respectively, and we see a 30%-plus upside potential for each one of those. These picks, naturally, also will benefit from further US stimulus, reforms, and spending that are likely to get a boost after Jan. 20.

For emerging markets, the Biden Administration is expected to be more pro-globalization than the Trump Administration. We suggest (IFN) $16.83 – the India Fund is a great way to get exposed to this fascinating economy. This closed-end fund also is paying a distribution of 10.5%. We prefer India among the major emerging market as it’s likely that Biden will be more friendly with India’s Modi than he is likely to be with China’s Jinping, Russia’s Putin, or Brazil’s Bolsonaro that represent regimes/values that Biden opposes.

*All prices and yields are based on market data as at Nov. 12.

We are long NYCB, ISBC, IFN.

Systematic Income by ADS Analytics: We have tended to be cautious in tilting our portfolio based on the punditry of the “market consensus.” This is because asset prices tend to price in consensus expectation anyway so that chasing market forecasts does not add a lot of value. But more often than not, either the consensus outcome does not come to pass or markets zag when they are expected to zig.

An example of this was the expectation of a Dem Sweep and, consequently, a rise in interest rates. Well, not only was there no Dem Sweep (assuming Republicans keep at least one of the Georgia Senate run-off seats) but interest rates rose anyway – so much for the consensus. So, rather than chasing news and consensus, investors are better off responding to market valuations by allocating in an anti-cyclical way – decreasing their exposure when valuations richen and vice versa.

One advantage of the income investment landscape is the rich number of funds and securities which allow investors to do just that. When risk premia are low such as now (high-yield credit spreads touched 422bps this week – not far from their pre-drawdown levels despite a default rate that is expected to run 3x that of 2019) investors can move toward safer options such as senior securities like preferreds and baby bonds from common stocks and to term CEFs / open-end funds from leveraged, perpetual CEFs.

GDO – a 2/3 investment-grade fund is one attractive option at a 7% yield. Agency mREIT preferreds like DX.PB offer an attractive and resilient profile of 7.7%+ yield. Ultimately, moving toward the higher-quality spectrum rather than chasing yield in this environment allows investors to increase income and total wealth over the longer term.

We are long GDO.

High Dividend Stocks Plus by Double Dividends: The Biden Administration will have a national plan to combat the pandemic, which will include “the wide availability of free testing, the elimination of all cost barriers to preventive care and treatment for COVID-19, the development of a vaccine, and the full deployment and operation of necessary supplies, personnel, and facilities.”

Among the companies that should benefit from the administration’s plan are: Abbott Labs (ABT) (COVID-19 testing kits), Pfizer (PFE) (COVID-19 vaccine), and AbbVie (ABBV), (therapeutic drug candidates and antibody drugs). ABBV yields ~5.25%, ABT yields ~1.25%, and PFE yields ~4%. If you want to have higher yield exposure to all three of these healthcare stocks, consider Tekla Healthcare Opportunities Fund (THQ), a high-yield closed end fund that yields ~7%. THQ holds all three stocks as part of its top 10 holdings. It’s selling at an -8.7% discount to NAV, which isn’t as deep as its three- and five-year discounts, which range from -9.7% to -9.9%, or its one-year average -10.4% discount. That’s because it’s up over 6% in the past month, gaining some momentum from its Healthcare holdings. THQ has an 8.81% return on NAV since its 2014 inception.

I am long THQ.

High Dividend Opportunities by Rida Morwa: Assuming the election results stand, my team and I have been adding strongly to our renewable energy positions. The easiest way to do this is to buy Global X Yieldco index ETF (YLCO). It has a forward yield of 3% currently.

With a Biden Administration, we can expect the US to rejoin the Paris accord and renewed efforts to push clean energy. Worldwide renewable energy has been a focus and companies that hold those assets have provided strong dividend income and growing dividends. This would only accelerate if the US government also was actively encouraging more renewable energy investment.

Yieldcos offer utility like stability with higher dividend yields. Their income is tied directly to long-term contracts that pay off the debt tied to the asset and provide the income for investors. YLCO gives an easy route to get highly diversified in this sector.

I am long YLCO.

High Yield Digest by Jeremy Lakosh: I believe that BDCs will benefit over the next four years as the economy will continue to experience fiscal and monetary stimulus, leading to decreased borrowing costs. mREITs also will benefit by lower interest rates as long as the Biden Administration doesn’t meddle too heavily into housing.

Thank you for reading. If you want to make sure you see those Roundtables as soon as they are published, scroll to the top and click that orange “Follow” button and then choose “Get email alerts.”

As always, we ask that you keep comments to the ideas and stock/ETFs discussed. If you would like to discuss politics, please visit our daily Political Comments page.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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