domoskanonos/iStock via Getty Images Co-authored by Treading Softly I love making long-term plans. I struggle to visualize the future unless I have a clear framework where I can place myself. This means that I need to have an idea of where I am, what I expect to be doing, and what is going on around me.
I like to then set clear incremental goals to achieve this greater vision. This approach has benefited me greatly when it comes to investing in the market or planning for retirement, simply because I have a perspective of what I want to achieve. While I don't need every single detail written down on the dotted line, I do have an idea of what I need to do to get there.
Every year, I review the income coming into my account and compare it against prior years, so I can see a steady incremental growth of the income generated by my retirement portfolio. One day, I will be able to sit back and simply enjoy the income from my dividend portfolio. I don't expect that to come anytime soon because I still absolutely love researching investments, discussing ideas with my private investment community, writing on Seeking Alpha, and engaging with the public.
Today, I want to take a longer-term perspective on investments. You see, as an income investor, I aim to hold every investment I buy for about two to three years at a minimum. I like to hold some investments with the goal of forever, and we've written about several of those before .
I want to take a look at two investments that, I think, are going to set you up for success over the next decade. We'll review each one and discuss why. Let's dive in! Pick #1: THQ — Yield 10.
1% According to estimates from the Retirement Income Institute at the Alliance for Lifetime Income, between 2024 to 2027, more than 11,200 Americans will turn 65 each day. As a significant percentage of America’s population reaches retirement age, the demand for healthcare is set to accelerate, making a strong case for costs outpacing inflation. In fact, healthcare spending in the U.
S. is projected to have risen 7.5% in 2023 to $4.
8 trillion, outpacing the projected annual GDP growth rate of 6.1%. Spending is projected to grow an average of 5.
6% a year through 2032. Employer benefit consultants like Mercer, Aon ( AON ), and Willis Towers Watson ( WTW ) are forecasting employer healthcare costs jumping 5.4% to 8.
5% in 2024 due to medical inflation, soaring demand for costly weight-loss drugs and wider availability (and adoption) of high-priced gene therapies. abrdn Healthcare Opportunities Fund ( THQ ) is a CEF (Closed-End Fund) with a focus on U.S.
-based biopharma companies. While the fund maintains a portfolio of 116 holdings, its top ten holdings represent ~45% of the assets. THQ is actively managed to realize returns for shareholders.
Notice how THQ’s top position is Eli Lilly, representing 9.3% of the assets. This company is experiencing strong tailwinds from the soaring demand for its GLP-1 offerings like Zepbound for obesity treatment, and Mounjaro for the treatment of Type II diabetes.
GLP-1 drugs are in serious shortage across the globe, and patients who are prescribed these to manage their conditions are likely to stay on these drugs forever. As such, the ecosystem of companies manufacturing and supplying these drugs is capitalizing on the demand . Source THQ Fact Sheet THQ’s $0.
18/share monthly distribution calculates to a 10.1% annualized yield. YTD, THQ has paid $1.
35/share in distributions, 17% from short-term gains, 45% from long-term gains, and 38% from Return on Capital. The higher proportion of capital gains is due to the CEF’s active management of holdings that are currently exhibiting robust fundamentals. Since its inception in 2014, THQ has distributed $7.
88/share in total distributions (~39% of the CEF’s IPO price) to date, while delivering a NAV growth of 13.38%. With the assimilation of THQ and other Tekla healthcare CEFs into Abrdn’s portfolio, we expect a stronger focus on current income and NAV preservation/growth from these securities.
Data by YCharts We note that THQ’s monthly distribution was raised by 60% earlier this year, and management is confident about its ability to maintain the increased Stable Distribution Policy for at least the next 12 months, barring significant and unforeseen changes in market conditions. THQ’s discount to NAV is visibly shrinking and lower than its 5-year average, accelerated by the fund’s increased monthly distribution. Data by YCharts However, given the tailwinds for the healthcare sector and the expectation of rates heading lower in the coming months, we see THQ’s ~3% discount level as a buying opportunity.
Medical spending is set to rise as an increasing proportion of the U.S. population crosses the retirement age.
It is hard for the average investor to decipher medical research data to determine successful drugs and treatments and project the market opportunity for specific drugs while balancing the investment risks associated with failed clinical trials, lawsuits, and loss of exclusivity due to patent expirations. Hence, THQ presents an investment where healthcare professionals are at our employment to do the due diligence and actively manage a portfolio of fundamentally sound companies. Pick #2: RNP — Yield 7.
7% Higher-for-longer interest rate policy has weighed down on several sectors, with REITs being a notable victim due to their typical capital-intensive operating model and higher debt levels. But in the current climate, we don’t see weakness in the fundamentals of these companies. Plenty of REITs have strong balance sheets, growing NOI (Net Operating Income), and cash flows, given the supply-demand dynamics are favorable in many markets.
While fundamentals differ among different REIT sectors, they still project health as landlords have successfully passed on price increases, demonstrating that this asset class has long-term inflation-beating capabilities. There are particularly promising segments of the REIT market that are doing very well amidst the rapid surge in data center deployments to cater to the massive AI adoption that is striking corporate America. We also note that the occupancy rates of industrial, apartment, and retail REITs continue to exceed 95%, validating the tight supply-demand situation.
Source REIT Website Cohen & Steers REIT & Preferred Income Fund ( RNP ) is one of the largest real estate CEF’s with $1.4 billion in assets under management. The CEF’s largest allocations are in the top-performing REITs discussed above, with telecom, industrial, and data center operators.
Its top 10 holdings are blue-chip REITs, representing 32% of the fund’s assets. Source RNP Fact Sheet RNP ’s active management strategy, which focuses on top-performing holdings, has led the fund to outperform the real estate-focused Vanguard Real Estate Index Fund ETF ( VNQ ) over the past decade. Data by YCharts RNP comprises 291 holdings, but REITs only represent 52% of the portfolio.
The remaining 48% is invested in fixed-income securities of non-REIT companies. 91% of this fixed-income segment of the CEF is built with banking, insurance, utility, and pipeline company preferreds. RNP pays monthly distributions, and in the six months of FY 2024, 100% of these payments are estimated to be from NII (Net Investment Income), and averaging about 35% QDI during the past 4 years.
Its $0.136/share monthly distribution calculates to a healthy 7.7% yield.
RNP uses 31% leverage as part of its investment strategy, and 81% of it has fixed interest rates for a term of 2.3 years. The CEF has a 2.
4% weighted average cost of all financing, positioning it well to handle the higher-for-longer environment while delivering solid total returns. Conclusion With THQ and RNP, we can benefit from two funds in two very different sectors that are benefiting from similar situations. THQ can benefit from the aging of the American populace.
We see more people enter retirement age but fewer births per family; we are seeing that America's age is shifting upwards. This is driving the need for enhanced healthcare infrastructure and spending, something that THQ can capitalize on by having vast exposure to this sector. RNP invests in various REITs all across America that hold valuable and essential real estate.
They will benefit from declining interest rates, allowing for lower leverage costs for the fund and its underlying holdings. REITs also benefit from the recent spike in inflation, which helps drive rent prices higher for their tenants, providing a dual benefit for this sector. When it comes to retirement, you need a steady supply of income.
I wish as many of you as possible to have a wonderful and long-lived retirement supported by cash-generating investments like these two funds, which are well-positioned to provide you income for a decade or even longer based on the seismic shifts within our society. You can collect wonderful income as it rains in from these investments month after month to make your retirement simpler and more relaxed. That's the beauty of my Income Method.
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99 via this link only: Sign Me Up!! Rida Morwa is a former investment and commercial Banker, with over 35 years of experience. He has been advising individual and institutional clients on high-yield investment strategies since 1991. Rida Morwa leads the Investing Group High Dividend Opportunities where he teams up with some of Seeking Alpha's top income investing analysts.
The service focuses on sustainable income through a variety of high yield investments with a targeted safe +9% yield. Features include: model portfolio with buy/sell alerts, preferred and baby bond portfolios for more conservative investors, vibrant and active chat with access to the service’s leaders, dividend and portfolio trackers, and regular market updates. The service philosophy focuses on community, education, and the belief that nobody should invest alone.
Learn More. Analyst’s Disclosure: I/we have a beneficial long position in the shares of THQ, RNP either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions.
I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Treading Softly, Beyond Saving, Philip Mause, and Hidden Opportunities, all are supporting contributors for High Dividend Opportunities.
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