Anthony Speciale Stock Market Analyst

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My Two Top Picks for a Better Retirement

Interest rates may well rise in 2022. All of my models and math say that’s probably going to happen.

When we talked earlier this year, as Jerome Powell finally said the Fed would let inflation run a bit hot because it’s been running so far below average, I told you that inflation can be a dragon that’s very difficult to get back in its cage.

That has indeed proven to be the case, as we’re seeing inflation at 40-year highs. That’s going to drive up interest rates a bit.

The problem is that, if you’re an income investor, the yield on the 30-year bond is still going to be less than 4% even if it doubles from here.

And that’s just not high enough to get the returns that enable you to live the life that you worked so hard to build as you go into retirement.

So, today, I’ve got a couple of high-yielding ideas where insiders, the people running the company, are also big believers in the futures of the companies.

Ready Capital Corporation

First up is Ready Capital Corporation (RC), which is a real estate investment trust (REIT) that I’ve been big on for years. It was an interesting ride in 2020, but the stock has since recovered very nicely.

They’ve got some unique business lines, including a traditional residential mortgage banking operation, but they are also one of just 13 small balance commercial real estate lenders that are registered with Freddie Mac.

Usually, these are loans of less than $10 million, smaller properties and a very specialized type of lending. Indeed, that’s one of the highest growth drivers at the company, with that business growing by about 32% a year for several years now.

They take a very conservative approach to this and are looking for the strongest economic sectors in the best markets. They’re so careful that in spite of this rapid growth rate and a strong focus, they’ve never had a loan loss in this lending division.

That’s how careful and cautious they’ve been. Not too many REITs can say that about any portion of their portfolio.

They’ve been growing very smartly, and organic growth has been present as they keep expanding and originating more loans. They’re also doing small business real estate loans and regular small business administration loans, including a lot of PPP loans in 2020.

So, there are a lot of growth opportunities, but they’ve made five acquisitions since 2016 to help grow the business. What we’ve got here is about a $1.1 billion company with a diversified portfolio and several specialty lending programs.

They’ve now survived several vicious lending cycles, including the decline and recovery of 2020, and management has proven they can execute under a very diverse range of circumstances.

So, we’ve got double-digit growth for the next five to 10 years via acquisition and organic growth, along with a 10.2% dividend yield.

As a REIT, 90% of the cash has to flow through to us as investors. So, as the business grows, the dividend is going to grow as well. We can jump in here, get a 10.2% dividend yield and a fantastic stream of alternative income.

Insiders have been very consistent buyers, including the CEO, in the open market in recent months. That is a very good sign of good things to come.

BlackRock TCP Capital Corp.

We’re also seeing some insider buying at BlackRock TCP Capital Corp. (TCPC). This is a higher-yielding business development company with a very conservative approach and low loan losses since their 2012 IPO.

They’ve also covered their dividend out of cash flows each and every quarter since that initial public offering about seven years ago. That’s pretty impressive in this space.

They’ve got a $1.8 billion portfolio spread out over 106 companies, 90% of which are senior secured loans. And about 94% of the loan portfolio is floating rate, which gives us a good measure of protection from inflation and rising interest rates.

If rates go up, the rates on these loans are going to go up as well, so everything should remain fairly stable. The company has a really great valuation right now, it’s got an 8.7% dividend yield and insiders have been actively buying over the last several months.

It’s going to be difficult to find ways to meet your income needs, but stick with me because I’ll keep proving income ideas that can provide you with a better way to wealth.