24/7 Wall Street Insights
- Inflationary prices on all goods and services over the last 3 years remain unabated.
- Dividend stocks are one source of passive income worth consideration to help defray increased expenses.
- For investors seeking dividends, click here for a free report on two high dividend stocks.
Inflation Sticker Shock Throttles Summer Vacation Spending
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As we enter June, the summer season is officially here. Family picnic outings, beach trips, amusement park rides, hiking, and other summer activities are certainly in the plans of thousands, if not millions of North Americans. To the dismay of many of them, their vacation budgets will not stretch nearly as far as in the past, due to inflation’s grossly increased prices. Flights, fuel, lodging, activities, and food have all undergone continual price hikes, and though the rate of increase has slowed, the sticker prices continue to rise as costs escalate.
Take “fast-food”, which, by design, is supposed to be inexpensive. A McDonald’s Big Mac burger that cost $3.99 in 2019 rings up as $7.49 now at the register. A Taco Bell burrito that used to be $1.69 now costs $3.69.
On a larger scale: a 2019 one-day ticket for Disney World’s Magic Kingdom was $109. A 2024 Magic Kingdom ticket is $169. Inflation has hiked prices on everything.
Dividend Stocks For Passive Income
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Families that decide against a staycation and still wish to travel will inevitably be faced with higher prices. They can opt to cut back on less expensive accommodations and entertainment, or see what can be done to cover the shortfall. If the family has some savings that can be used as long as they can be replenished in upcoming months, passive investment income, if sufficient, might be the win-win solution. One of the best options to consider for passive investment income is dividend stocks, for several reasons:
24/7 Wall Street has an enormous database of dividend stocks and has frequently published articles detailing various offerings. The following selections represent three different “flavors” of dividend stock types: a REIT, a BDC, and a conglomerate. For the sale of reference, share prices and dividend income calculations are based on a hypothetical $10,000 investment per stock at the time of this writing.
Modiv Industrial, Inc.
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Stock # : Modiv Industrial, Inc. (NYSE: MDV)
Yield: 7.67%
Shares for $10,000: 670
Annual Dividend Income: ~$767.00
Based in Reno, NV, Modiv Industrial, Inc. is an SEC-registered Real Estate Investment Trust (REIT). For tax purposes, REITs are required to remit 90% of profits to shareholders.Therefore, investors not only get the benefit of real estate income and diversified property ownership, pro rata, but at a greatly reduced admission price.
Modiv Industrial, Inc. has built a $587 million real estate portfolio of single tenant, net lease commercial properties, primarily in the industrial manufacturing sector. Most of the leases are for an average of 14 years, $39,000 per annum, with ~2.5% annual rent increase. Modiv owns a total of 42 properties totalling 4.5 million square feet, across 15 states. Its 28 manufacturing tenants are based in a variety of industries: metals, infrastructure, aerospace, automotive, metals, energy, industrial products, technology, plastics, food production and medical are all represented, along with a Cosco as the sole retail tenant.
Additionally, Modiv pays dividends monthly, rather than quarterly, which can be helpful for general household budget income augmentation, not just for covering summer vacation expenses.
As one of the few REITs in the niche single tenant net lease commercial space, Modiv has caught the attention of several analysts, who have lauded its dividend consistency and focus. Among its analyst fans are EF Hutton, Ladenburg Thalmann, Alliance Global Partners, and Janney Montgomery Scott, who all have given Modiv a “buy” rating.
Main Street Capital Corporation
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Stock # : Main Street Capital Corporation (NYSE: MAIN)
Yield: 8.54%
Shares for $10,000: 206.5
Annual Dividend Income: ~$854.00
Main Street Capital is a Business Development Company (BDC) operating out of Houston, TX. BDC’s play a crucial role in the private debt and equity arena; they supply short term financing to thousands of private corporations for refinancing, management buyouts, acquisitions, and a host of other corporate activities that would be considered too risky for conventional banks.
Main Street Capital has financed over 200 different companies since opening its doors in 2007. It will make equity investments between $2 million and $75 million for middle and lower middle market companies with revenues between $10 million and $150 million. For debt financing, Main Street Capital will entertain between $5 million and $50 million for qualifying companies with EBITDA between $1 million and $20 million. It has an agnostic policy towards industrial sectors, and assesses potential client companies on a case-by-case basis.
Thanks to its consistent cash flow, Main Street Capital has grown its AUM to over $7 billion, and also pays dividends on a monthly basis.
Icahn Enterprises L.P.
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- Stock # : Icahn Enterprises, L.P. (NASDAQ: IEP)
- Yield: 24.13%
- Shares for $10,000: 605.6
- Annual Passive Income: ~$2,413.00
Some billionaire investors follow the Warren Buffett and Charlie Munger approach of investing in companies with management they trust, and will offer advice when asked. Others believe that their experience and financial know-how are the missing ingredients to turn around corporate underperformance. They will often try to take a hands-on approach towards controlling board votes to steer the company in the investor’s intended direction. Carl Icahn is one of the Wall Street legends who epitomize the latter model.
For over a half century, Carl Icahn has been involved in a number of landmark investment plays, starting with Trans World Airlines, which made him lots of money, although it ultimately did not accomplish his vision. Icahn Enterprise, L.P. is the public vehicle that Icahn uses for managing portfolio assets acquired with an intent to hold.
As a conglomerate with a number of subsidiaries acquired over the decades, IEP is separated into seven sectors:
- Energy
- Investments
- Automotive
- Food Packaging
- Pharma
- Real Estate
- Home Fashion
The Energy sector handles fuel and fertilizer assets. Automotive is involved with maintenance services and replacement part distribution. The Food Packaging division manufactures casings and other types of packing materials for processed meats. The Pharma sector manages products and services. Real Estate manages a country club and various real estate properties, along with a single-family home construction and sales branch. Finally, IEP’s Home Fashion division manufactures, sources, and markets home consumer products.
For the most part, IEP contains long term assets and businesses. While some of its holdings might be publicly traded securities, it does not include some of Icahn’s speculations or stock plays, such as his stake in JetBlue Airlines, which justified control over two board seats earlier this year.
The massive 20%+ dividend is certainly very attractive; however, it does not come without risk. Icahn has made enemies in the financial world. These enemies have no qualms about shorting the stock if it could hurt Icahn, and the stock has traded in a roughly 90 point range over the past decade, a roller-coaster for the not-so-faint-of heart.
Conversely, Icahn has deep pocketed fans as well. Icahn Enterprises LP recently successfully closed a $750 million, 9% coupon Senior Notes offering.
Summer will soon be here, and many tentative vacation and travel plans may still be accomplished if passive dividend income is a part of an overall investment plan, if that is not an asset class already held. Happy travels!
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