Chasing the Yield

I used Google's NotebookLM to create a short deep dive look into ONEOK's post-acquisition of EnLink Midstream and investment into Medallion Midstream. The tool does a good job of explaining the ins and outs and how it effects the company's dividend. The deep dive audio is based on the text below and from other news sources.

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I used Verizon's acquisition of Frontier announcement and a couple other sources to create the following AI conversation about the company and the dividend using Google's NotebookLM. It's a pretty good way to get a layman's examination of news and financial information. See what you think.

Verizon and Frontier Communications FAQ
1. Why is Verizon acquiring Frontier Communications?
Verizon's acquisition of Frontier Communications is primarily driven by the company's goal to expand its broadband network, particularly its fiber optic infrastructure. This strategic move aims to stimulate growth as the wireless phone market approaches saturation.

2. How will the acquisition impact Verizon's financial standing?
The $20 billion deal will moderately reduce Verizon's free cash flow in the short term, likely by about 5%, and increase its leverage ratio by 0.2x to 0.3x. However, Verizon expects to achieve annual cost synergies of $500 million by year three, enabling a renewed focus on debt reduction.

3. What does the Frontier acquisition mean for Verizon's dividend payments?
Despite the acquisition costs, Verizon has reaffirmed its commitment to dividend payments. The company recently announced a 1.25 cent increase in its quarterly dividend, marking the 18th consecutive year of dividend increases.

4. What are the benefits of expanding fiber optic networks?
Fiber optic networks offer significantly faster internet speeds, improved reliability, and greater capacity compared to traditional copper networks and even fixed wireless access (FWA). This positions Verizon to capitalize on the growing demand for data-intensive services.

5. What challenges does Verizon face in expanding its fiber network?
Building fiber optic networks requires substantial capital investment due to infrastructure costs, including laying cables, securing permits, and procuring specialized equipment and skilled labor. Ongoing maintenance and upgrades further contribute to the overall expense.

6. How does Verizon plan to manage the increased capital expenditure?
Verizon anticipates realizing cost synergies of $500 million annually by year three of the Frontier integration. These savings are intended to offset the increased capital expenditure associated with expanding its fiber network.

7. What is S&P's outlook on Verizon's credit rating after the acquisition?
S&P has reaffirmed Verizon's BBB+ credit rating, indicating confidence in the company's ability to absorb Frontier without significantly impacting its financial health. This suggests that the acquisition is not considered a threat to Verizon's creditworthiness.

8. What are Verizon's key priorities for future growth?
Verizon's strategic priorities center around three main pillars: driving growth in wireless service revenue, expanding adjusted EBITDA, and generating robust free cash flow. These priorities underpin the company's commitment to delivering value to shareholders and maintaining its position in the telecommunications market.

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Topics discussed on today's show.

Debt vs. No Debt: Some investors prioritize returns and view having no home mortgage as better. However, debt on real estate has its own benefits.

Real Estate Appreciation: Real estate generally appreciates over time, offering significant capital gain, especially when debt-free. However, mortgages reduce this gain with interest payments.

Debt's Drawbacks: Debt siphons income, limits savings, and can lead to stress, snowballing debts, and repossession.

Alternatives: Explore options before debt. If necessary, choose the best rates, prioritize needs, and borrow responsibly.

Debt as a Tool: Use debt cautiously, prioritize stability, and understand its long-term consequences.

For questions or comments contact me at [email protected]

www.chasingtheyield.com

My annual income increased $25 as a result of dividend increases from Microsoft (+10%), NJR (+7.7%), and 5 other holdings. Meanwhile, there were changes to the Dividend Safety Scores of W. P. Carey, Smucker, and Walgreens.

W.P. Carey Surprises With Plan to Exit All Office Properties; Dividend Could Be Reduced by Around 20%. Downgraded to Unsafe • Sep 21

J.M. Smucker to Acquire Hostess Brands, Increasing Leverage. Downgraded to Safe • Sep 12 

Leadership Changes, Softening Consumer Spending Suggest Walgreens' Turnaround Struggles Continue. Downgraded to Borderline Safe • Sep 1

Casino Expansion, Higher Rates Weigh on Realty Income; Dividend Coverage Remains Healthy. Safe Rating Reaffirmed • Sep 13 

Dominion Nears End of Strategic Review With Gas Utilities Divestiture; Dividend Expected to Remain Flat. Safe Rating Reaffirmed • Sep 7

Enbridge to Become More Diversified Energy Company With Gas Utilities Acquisition; Dividend Remains Safe. Safe Rating Reaffirmed • Sep 6

Brandywine cuts dividend by 21%, as economic headwinds continue to pressure office REITs

Fortis increases payout by 4.4%, celebrating 50 consecutive years of annual dividend growth

Microsoft hikes dividend by 10%, reaching 14th consecutive year of payout growth

W. P. Carey raises dividend by 0.19%

Philip Morris ups dividend by a modest 2.4%, balancing deleveraging goals with payout growth

Realty Income raises dividend by 0.20%
NJR increases dividend by 7.7%, marking 30th increase in 27 years

Verizon raises dividend by 1.9%, reaching 17th consecutive year of annual payout growth

For questions or comments contact me at [email protected]

UGI Mulls Separating Propane Business to Unlock Value, Potentially Causing Jump in Payout Ratio

Dominion's Strategic Review Nears End; Firm Remains Committed to Dividend Despite Rising Payout Ratio

Labor Inflation and Higher-for-Longer Interest Rates Delay Healthcare Realty's Payout Ratio Improvement

Softening Furniture Demand Slows Leggett & Platt's Deleveraging; Free Cash Flow Still Covers Dividend

Altria raises dividend by 4.3%, tracking with goal to achieve mid-single-digit payout growth through 2028

Capital Southwest raises dividend by 3.7% and declares $0.06 per share special dividend

Illinois Tool Works increases dividend by 6.9%, extending streak of paying higher dividends every year since 1972

Main Street grows dividend by 2.2%, continuing an ongoing commitment to a strong payout

Hercules raises dividend by 2.6% and declares $0.08 per share special dividend

For questions or comments contact me at [email protected]

Dominion Energy has been in the energy business since 1898. It’s one of the biggest utility companies in the U.S. and serves about 7 million customers in Virginia, the Carolinas, Ohio, and Utah electricity and gas.

Dominion has steady and predictable income because it is regulated utility. Regulated utilities are like monopolies that are controlled by the government. They spend a lot of money to build and maintain power plants, transmission lines, and distribution networks that cover a large area.

The government limits the competition by deciding which companies can build new power plants. And even though regulated utilities are monopolies, they can’t charge whatever they want for their services. The government sets the price in an effort to make it fair for the customers while giving the utility enough incentive to invest in safe and reliable service.

Dominion’s main business is Virginia Electric and Power Company, which makes more than half of its profits. It operates in Virginia and North Carolina, two states that have good regulatory environments, according to research group called RRA.

These states in which Dominion operates have fast-growing populations and businesses, which makes the regulators want to encourage more infrastructure spending by giving higher returns on capital and allowing higher electric rates over time.

South Carolina, where Dominion has its next biggest business, is also one of the fastest-growing states in the country. This helps Dominion grow its income organically. In short, most of Dominion’s utilities have good relationships with the regulators and good prospects for growth.

But even though Dominion operates in friendly states, it had to cut its dividend in 2020. This ended a long history of paying dividends without interruption for over 90 years.

This happened because Dominion decided to sell its natural gas business, which made about 25% of its profits. Without this cash flow, Dominion would have paid out more than 100% of its income as dividends, which wasn't sustainable. So it had to lower its dividend.

But, by selling its natural gas business, Dominion became a more focused with one of the best growth rates in the industry. It also plans to increase its dividend by 6% every year until 2026.

Dominion’s business is more aligned with the trend of clean energy, and its income has become more predictable with regulated utilities making up 90% of its operating earnings.

For questions or comments contact me at [email protected]

TC Energy, a company that develops and operates energy infrastructure, announced that it plans to spin off its Liquids Pipelines business into a separate company. The decision was made after a two-year strategic review and is expected to be completed in the second half of 2024. The spinoff will create two independent, investment-grade, publicly listed companies that will focus on their own growth objectives and operational excellence. TC Energy will become a diversified natural gas and energy solutions company, while the Liquids Pipelines Company will be a critical infrastructure company that connects supply and demand markets for oil and other liquids. The spinoff will unlock shareholder value by providing both companies with more flexibility and efficiency. The spinoff will also enable both companies to contribute to the energy transition and security by providing reliable, lower-carbon energy sources. The spinoff is anticipated to be achieved on a tax-free basis for TC Energy shareholders.

The spinoff will create two independent, investment-grade, publicly listed companies that will focus on their own growth objectives and operational excellence. This will allow investors to choose the company that best suits their risk and return preferences, as well as diversify their portfolio.

The spinoff will unlock shareholder value by providing both companies with more flexibility and efficiency. TC Energy will be able to optimize its capital allocation and pursue opportunities in natural gas and energy solutions, while the Liquids Pipelines Company will be able to leverage its existing assets and expand its market access and customer base. Both companies will also benefit from lower costs of capital and improved financial metrics.

The spinoff will also enable both companies to contribute to the energy transition and security by providing reliable, lower-carbon energy sources. TC Energy will continue to invest in renewable power generation, hydrogen production, carbon capture and storage, and other emerging technologies. The Liquids Pipelines Company will transport oil and other liquids that are essential for various industries and products, as well as support the development of low-carbon fuels. Both companies will also strive to reduce their environmental footprint and greenhouse gas emissions.

The spinoff will create uncertainty and complexity for TC Energy shareholders, who will have to decide whether to hold or sell their shares in the new Liquids Pipelines Company. The spinoff will also require regulatory approvals, shareholder votes, and other conditions that could delay or prevent its completion.

The spinoff will reduce TC Energy’s diversification and exposure to the liquids pipelines sector, which has been a stable and profitable source of cash flow for the company. The Liquids Pipelines Company will face competition from other pipeline operators, as well as environmental and social challenges that could affect its operations and growth prospects.

The spinoff will also impact TC Energy’s credit profile and financial flexibility, as the company will lose access to the cash flow and assets of the Liquids Pipelines business. TC Energy will have to rely more on its natural gas and energy solutions segments, which are subject to market volatility and regulatory uncertainty. TC Energy may also have to incur additional debt or equity financing to fund its capital expenditures and dividend payments.

For questions or comments contact me at [email protected]

It's well known that Americans like to buy stuff. I know this first hand being an American with a wife that, I believe, single handedly pulled the United States out of the 2008/2009 Great Recession. Back when my kids were young and we lived in a modest 3 bedroom split-level in a Chicago suburb we rented a storage unit. We stored all our old stuff and seasonal items. We had that unit for about 10 years until we put an addition on to our house which created more space for all our stuff. That broke the cycle of addiction.

Storage is so profitable thanks to two key factors: month-to-month leases, in which the rents can be raised on short notice, and human nature. It doesn’t much matter what someone pays when they move in. Most stays outlast introductory rates. 

“Statistically, once a customer stays with us for a year, they end up staying for five years,” Public Storage CEO Joseph Russell Jr. said. 

Is There a Limit to Americans’ Self-Storage Addiction? Billions of Dollars Say Nope - WSJ (no paywall)

As a former addict I can affirm it's much better being on the other side. Instead of paying a storage company to hold my stuff I invest in them others who pay to store their stuff are now paying me. I have a ways to go to break even from a decade of renting a storage unit but every quarter I get a little closer.

Storage owners compete fiercely to get customers in the door. They duke it out online with algorithmic one-upmanship and move-in specials. But once someone signs up, the battle for their business is over.

“The only thing that competes with an existing customer is the trash can,” said Spenser Allaway, storage analyst at real-estate research firm Green Street. “No one says, ‘This sounds like a fun way to spend a weekend, I’ll beg my friend to borrow their truck and move my stuff into another unit to save $10 a month.’ ”

Even savvy storage investors become ensnared. “I’ve had one six years,” said Christopher Merrill, CEO of $56 billion property investor Harrison Street, which owns 119 storage facilities and is looking for more. “I’ve probably paid for the stuff six times over.”

Is There a Limit to Americans’ Self-Storage Addiction? Billions of Dollars Say Nope - WSJ (no paywall)

I bought Public Storage (PSA) back in 2019. While the stock price has held steady, which is my preference, it has paid me roughly 3.5%, on average, in annual dividends over that time. Public Storage is one of the largest self-storage companies in the world and has paid an annual dividend since 1981.

If you're interested in investing in self-storage REITs there are other companies besides Public Storage. They pay a higher yield but are not as well capitalized and are not as safe a bet. They all look pretty solid though. Check them out.

Public Storage (PSA) - 4.42%

CubeSmart (CUBE) - 4.76% yield

Extra Space Storage (EXR) - 5.13% yield

National Storage Affiliates Trust (NSA) - 6.91% yield

For questions or comments contact me at [email protected]

I'm old. 56 to be exact. I didn't start investing my money until I was in my mid 40s. And then I didn't know much about what I wanted to do. I never learned anything about money from my parents and the only courses I took in school were accounting and economics. There was nothing about investing.

At first I did what all the financial columnists suggested. I put my money in index funds. And it was fine while I was working. The money grew at a moderate pace but didn't provide me any income. Then I read an article about investing for income and that took me down the rabbit hole of dividend investing.

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That one column pushed me to learn about passive income and how it would allow me to live a decent life while leaving the hamster wheel of regular life. I retired from working a 9 to 5 job 4 years ago. Had I known about dividend investing years ago I may have retired much sooner or had a larger nest egg to retire with. Here's what I wish I knew in my 20s.

What is personal profit? Personal profit is paying yourself. It's a cliché these days and is called "pay yourself first." Some suggest to set aside 10% of your take-home pay and put in savings or in an investment account. I don't necessarily subscribe to that method. It's easier said than done. Figure out the bare minimum you need to survive then pay yourself out of what remains. The key is to put aside the maximum you can. It will pay dividends (pun intended) later on down the line.

It doesn't take a lot of work to figure out what you can pay yourself. You don't even need a computer or smartphone. Start with a piece of paper and put your average paycheck amount at the top. Then start listing your necessary expenses below that. Necessary expenses are expenses you must pay to survive. Think food, clothing, and housing. Then list supplementary expenses. Supplementary expenses are what it sounds like, they supplement your necessary expenses. These are things like utilities and transportation. Then list discretionary expenses. Discretionary expenses are wants, not needs. They're things like dining out (or take-out), concerts, sporting events, or other items of entertainment and/or hobbies. Subtract your expenses from your paycheck, and that gives you your personal profit.

If the amount is in the negative you're not alone. When I was in my 20s, I definitely spent more than I made. I got married when I was 19 and had my first child when I was 20. We bought a condo, had two cars, and had to pay for daycare. Money was flowing out of my wallet like water over Niagara Falls. As a result of not understanding basic budgeting and the need to take personal profit, I spent about 20 years crawling out of debt. Credit card debt, mortgage debt, and auto loans. I had no savings and had nothing to invest.

Most of what I spent money on in my 20s, 30s, and 40s was in the discretionary bucket. As my income rose with age, so did my discretionary spending. It's human nature. The money we spent on stuff may have temporarily made us feel good, but it was really nothing more than feeding a societal addiction to keep up with everyone else. I look back on those years with a little regret, thinking how much I would have been able to take as personal profit for my retirement years.

The bottom line is, I wish I new to only do what's necessary, spend as little as possible to support what's necessary, and cut out discretionary spending to the extreme.

Passive income is the best kind of income. It should require little to no work on your part once things are set up. At the very minimum, your initial investment (principal amount) should be stable while that investment pays you on a regular basis. If you're young you want growth. Especially if you're still working and you can make regular contributions to your investment portfolio.

The simplest of all passive income generating methods is the interest-bearing savings account. This bank account is the most passive way to earn income and the safest. As long as your deposit is below $250,000 for an individual or $500,000 for a joint account, the account is insured by the Federal Deposit Insurance Corporation (FDIC). Did, or do, you have a savings account? When I was a child, we had what was called a "passbook savings account." It was called that because when you opened it, the bank gave you a passport-sized booklet where your deposits, withdrawals, and interest would be printed at each bank visit. The savings account has come back in vogue because of the Federal Reserve's interest rate policies to curb inflation. High-yield savings accounts now will earn you 4.5% to a little over 5% of annual interest. Who knows how long this will last.

Real estate ownership is not passive income. It's semi-passive. Yes, you put in a sizeable investment, and that investment generally remains stable or grows, but almost all income-generating real estate requires maintenance. If you've ever owned a house, you know you're always fixing something. Commercial real estate requires work as well. You need to stay on top of your tenants, keep common areas in good shape, keep your building in good shape, and collect the rent. Don't get me wrong. Owning real estate is a solid investment, but unless you're doing most of the maintenance on your own, the subcontractors you'll have to hire will cut into your profits. I don't discourage it, but I know it's not for me. It's more passive than a 9 to 5 job in an office or factory, but still not totally passive.

In the middle, between totally passive and semi-passive lies dividend and partnership distribution income. It still requires work. You have to research the companies' stocks before you purchase and you have to devise a strategy. But once you do those things, you mostly sit back and watch the monthly income roll in. Mind you, it's not all cherries and roses. There are times when you'll doubt yourself or worry when the market plunges. But, by and large, if you choose a strategy you're comfortable with, then you don't have to do much after your initial account set up and investment.

I have three different portfolios representing the relative risk I'm willing to take. You can look at all my portfolios here. I have low yield, medium yield, and high yield portfolios. Each one is designed with their relative safety in mind. In general, the higher the yield, the higher the risk. That's why I have less invested in my high yield portfolio. When it's doing well, it's fantastic. When a company cuts its dividend, I have to scramble a bit to replace it. So far this year, I made four trades in my medium portfolio and three trades in my high yield portfolio. It's not day trading. It's more strategic trading. I trade based on the risk of dividend cut, the potential to take some profits and offset losses, and the potential to increase my dividend yield without compromising safety. It's a learning curve but once you get comfortable, it's quite nice.

I wish this was taught in school. High school would have been nice but definitely should be a basic college level course requirement.

When I was young, I was very curious. I remember being about 9 or 10 years old and hearing something about taxes somewhere. I asked my father what they were, and he simply told me, "Don't worry about it." We didn't have the Internet back in the 1970s, and the closest public library was more than 2 miles from my house. There was no way to learn about it. I knew about sales taxes but didn't think about it or connect it to the grander taxes we all pay for just about everything. So, I didn't worry about it... until I got my first paycheck.

The first paycheck is about the time most people learn about taxation. I didn't know taxes were withheld from paychecks and it was a shock to learn the $3.00 an hour I was making as a teen only translated to about $2.40 or so. It was disheartening. I asked the payroll manager (there were no HR departments either back then) why so much was taken out of my check and he told me, "Welcome to the real world." Also disheartening.

I didn't learn the difference between how earned income and capital gains income were taxed differently for decades. I was a paycheck to paycheck guy just getting by on my bi-weekly salary.

In my 20s, I bought a condo and got a quick lesson in property taxes. I had no idea that people had to pay the government for the privilege of owning property. Back in the mid-1980s, the property taxes in the northern suburbs of Chicago weren't too bad. Over the next 30 years, however, that would change drastically. Property taxes on a $65k condo were nothing compared to what I paid in property tax on my house. Over a period of 35 years, my property taxes on my home went from about $3,000/year to almost $12,000/year. I never imagined I'd have to rent my house from the state for $1,000/month.

Taxes was the impetus for my move to Georgia. State income tax in Georgia is higher than where I was living in Illinois (5.75% and 4.95% respectively)... for now. Georgia has legislation that will reduce the state income tax to 5.49% in 2024 and 4.99% in 2029. But the property tax savings is huge. Moving cut my property taxes by 60% all while enjoying a larger house and larger property. I used to live in Cook County Illinois where the sales tax was about 10% compared to 6% in Gwinnett County Georgia. Other expenses like gasoline and utilities are probably break even. I've lived in Georgia for 3 years now. I recouped the cost of moving in the first two years with the property tax savings alone.

Taxes are insidious. They're everywhere. You will never avoid taxes but you can do your best to minimize what you pay.

At an early age, I wish I knew how these three topics would fit into my life. Personal profit, investing for passive income, and minimizing taxes would have gone a long way towards building wealth. The earlier you start, the better. And starting now is better than starting never.

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ChasingTheYield.com and Kevin Bae are not registered investment advisors, brokers or dealers. Kevin Bae may have positions in any financial instrument, product, or company mentioned on chasingtheyield.com or on the Chasing the Yield podcast. Information provided by chasingtheyield.com and the Chasing the Yield Podcast is provided for information and entertainment purposes only and are not intended as advice or a recommendation or an offer or solicitation for the purchase or sale of any security or financial instrument. All opinions are based upon sources believed to be accurate and are provided in good faith. No warranty, representation, or guarantee, expressed or implied, is made as to the accuracy of the information contained herein. Past performance is not an indicator of future results.

I'm reviving my podcast. This is a short episode just to bring this back to life.

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Join me next week where I pick this up on a regular basis. Don't forget to donate to the show or send a boostagram with your new podcast app. Send whatever value you get from this show.

Thanks and I look forward to continuing.

This is a Podcasting 2.0 compatible podcast. This means if you're listening to this podcast on a Podcasting 2.0 compatible app you'll have access to transcripts, chapters, and chapter images that accompany each episode. Please go to podcastapps.com to download and support these independent apps and go to podcastindex.org to support Podcasting 2.0.

Use the apps below to directly support independent podcasters. It's easier than you might think to stream fractions of bitcoins to this podcast or any other podcast that is compatible with the Value 4 Value model. This cuts out the need for advertising.

Or go to podcastapps.com to find an app that works for you.

The Value 4 Value streaming payments system enables listeners to send Bitcoin micropayments to podcasters as they listen, in real-time. Go to valu4value.info for what you need to know to begin directly supporting your favorite podcaster.

For questions or comments contact me at [email protected]

ChasingTheYield.com and Kevin Bae are not registered investment advisors, brokers or dealers. Kevin Bae may have positions in any financial instrument, product, or company mentioned on chasingtheyield.com or on the Chasing the Yield podcast. Information provided by chasingtheyield.com and the Chasing the Yield Podcast is provided for information and entertainment purposes only and are not intended as advice or a recommendation or an offer or solicitation for the purchase or sale of any security or financial instrument. All opinions are based upon sources believed to be accurate and are provided in good faith. No warranty, representation, or guarantee, expressed or implied, is made as to the accuracy of the information contained herein. Past performance is not an indicator of future results.