074 - 3 Stocks You Can Buy Right Now And Hold For A Decade

Stock picks change pretty often because metrics change all the time.

Sometimes we trim our positions and even sell them outright to get into something that’s better valued and more promising. 

But what if you want a more passive approach? So what can you invest in and hold for the next 5 to 10 years that'll give you good returns? 

We got you covered. 

Tim’s combed through the contenders and came up with 3 stocks that you can buy right now to hold for the next decade.

• BMY
• EPD
• ARCC

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**DISCLAIMER**
Ticker metrics change as markets and companies change, so always do your own research. The content in this podcast is based on personal experience and is for educational purposes, not financial advice. See full disclaimer here.

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Transcript

Welcome to Roaming Returns, a podcast about generating a passive income through investing so that you don't have to wait till retirement to live your passions. Stock picks change pretty often because metrics change all the time. Sometimes we trim our positions and even sell them outright to get into something that's better valued and more promising.
But what if you want a more passive approach? So what can you invest in and hold for the next 5 to 10 years that'll give you good returns? We got you covered. Tim's combed through the contenders and come up with three stocks that you can buy right now to hold for the next decade. Hello.
Don't do that. What's up, guys? So we have been apparently on a roll with these long-term stock holds. Yeah, we have.
Hold on. The cats are feisty. There we go.
Apparently when I come home, chaos ensues. She was gone all day doing something for her parents and the cats were fine. They were all curled up sleeping.
As soon as she got home, they started running around like I don't know what psychos. Demon spawn. Bucking Broncos.
Yeehaw. They take after you. Well, yeah, like she just mentioned, most of our growth ones have actually been doing quite well.
I don't know if you've noticed. If you listen to this, you probably have an idea like the growth we talked about. I mean, the only one that really hasn't done a lot is EXAI.
But other than that, like Intel is doing pretty good. Planeteer (PLTR) is doing remarkable. NVIDIA is doing remarkable.
SoFi. SoFi is just blown up. Chipotle is doing good.
What do you think is going on with EXAI? You think that was being depressed on purpose? I think it's too high tech for them to actually comprehend what's going on. Because if you ask an average person, hey, if you go to the doctor, do you want them just to whip you up something? And they're like, no, I just want medicine. Be my guess.
I don't know. Yeah, I don't know either. I don't know.
But so when I was when I was hooping two weeks ago, I mentioned this last week. I was hooping two weeks ago. We were just shooting around before we started playing.
And one of the people, one of the guys he knows that I do investing and he started babbling about stuff. You mean asking questions? No, he's babbling. I'd like to invest, but I don't know where to start.
How much money do I need? The stuff that we've discussed for the past 14, 16 months, whatever it's been. Then he came. He's like, you do this.
I said, yeah, I do it pretty well. He's like, what do you do? So I explained him the income investing. He's like, oh, that sounds pretty cool.
But he's like, I don't really care about the income as much. What about like what do you do? You have any recommendations for long term? I was like, what define long term? Long term to me is like a year to two years. He is like 20.
He's like, well, five to 10. He said, maybe five. So I said, OK, so I started thinking.
I said, I'll get back to you. So that's where this whole thing spawned from is just a random, rando conversation with the hoop brother. So the caveat to this is if you are buying a stock today because these aren't going to be like the best.
I don't think they'll be like the best ones. Like they're not going to be Hercules Capital or Main Street Capital because they're over price. So if you're buying these today, the valuation is super good.
And they'll actually give you good appreciation in your capital. Plus, they'll give you a good dividend. And we'll get into the three that I came up with.
So I had to put on my Pimp Whizzy Tee hat, a wizard hat on to try to identify what I think will be like the macro trends 10 years from now, which is not as easy as it sounds. That took some time. I have faith in you.
The first one is easy because the first one is simple. There's a lot of stocks in the old person realm. We'll just call it the old person realm.
The population is getting older. So obviously, you're going to either need like real estate that like hospitals or long term living facilities or you're going to need like pharmaceuticals to supply the medicine or whatever. So the first one that I came up with was Bristol-Myers Squibb, BMI.
I like Bristol-Myers Squibb. It's actually in her mother's retirement account. We got it, I think, 12 months ago, 14 months ago.
Like, I think we got it pretty much when we started the podcast, actually. Okay, I was going to say, I thought it was about a year. I like it because of the whole reason that people are getting older.
And when people get older, like they don't want to actually work on their health or their diet. They want to go to the doctor and have the doctor give them pills, which is like that. What's that fat pill called that just came out this summer? Everyone was on Ozepic or something like that.
What? Ozepic or something like that. I don't know. You know, I don't watch TV and commercials.
It's not TV. It's like it's been in all the news. Like people whenever they watch the news, you know this about me, I have no idea.
Whatever the pill was, like whatever the medication was, people were overweight and they went to the doctor. The doctor gave him a medication to help him to lose weight. Interesting.
And it made like billions of dollars. How did this miss my escape? I'm like in the health realm all the time. That's funny.
But like that right there is a perfect example of like people don't actually want to put the work in and go to the gym or do the dieting or whatever. So they just want to go to the doctor. The doctor says you have hypertension or you have high blood pressure or whatever.
Here's a pill. So Bristol-Myers Squibb. I actually prefer over Pfizer, even though Pfizer has a higher dividend.
The reason why is Bristol-Myers has raised his dividends for 16 years. I think Pfizer has done longer than 16, but Bristol-Myers has a good track record of raising its dividend. So that's awesome.
I should probably identify like what I'm looking at is potential CAGR. If you remember, we went over CAGR, I don't know, months ago, which is compound. Basically, it's a fancy way of saying that your total returns with your dividends reinvested.
Yeah, CAGR is super important for dividend stocks. So where was I at? Bristol-Myers raised his dividend for 16 consecutive years. It also has a five-year CAGR growth estimate of 17%.
So I couldn't find the 10-year on Bristol-Myers. I would speculate it would be in the 12% to 13% range, which is pretty good. That would mean in 10 years, you've more than doubled your money.
It'd be 120% to 130% actually. Bristol-Myers has had an average dividend increase of 6.22% per year going back the last 10 years. So that's pretty good.
The dividend's small to begin with. It's like 4.5%, 4.4%, 4.6%, whatever the problem is. When I did this, it was 4.5%. I think it actually might be 4.4% now or 4.6%. I don't know because it did go up.
So going back 10 years, you're getting 6% added on growth, whatever you want to call it. So that 4.5% is your starting point. And then after 10 years, you're going to tack on 60% on top of that.
So it's going to be a 64% dividend yield at that point. But that's math that you're better at. Well, that's what's awesome about these.
You're going to have the dividends even if you're not necessarily interested in the dividend. If you turn the drip on and allow it to compound, you're going to be better off than just taking the growth by itself. But I'm not sure how to describe that.
It's going to be a 4.5% dividend. They do do some share buybacks. So there's less shares out there.
I don't think I ever actually touched on that. One thing you can look at when you're looking at potential income investments is to find there's a couple of good sources. I don't have one off the top of my head.
But just type in Google share buybacks. That is a way that you actually get a better return than sometimes you would with the dividend growth stock. If you can find a company that does both, like Bristol-Myers does that, they buy back shares from time.
But buyback shares, what that's doing is they're taking shares off the table. So the shares are more valuable that you have. Yeah, that's the scarcity, supply and demand thing.
That's how they afford. That's how a lot of the larger companies can afford to give these consecutive, like 60 years consecutive dividend increases. They just take shares off the table.
When they pay a dividend out, they're actually paying less than they did the year before, even though the dividend went up because they took like 10 million shares or 20 million shares off the table. That is another thing to consider. So the dividend, yeah, it has an average dividend increase of 6.22 per year going back 10 years.
Actually, the dividend has grown 62% from $0.37 a quarter in 2014 to $0.60 a quarter in 2024. And it actually raised its dividend almost 10% during, can we say that word or is it bad? The vid. The pandemic.
The lockdown period. A lot of companies, if you recall, they actually suspended their dividends or they cut their dividends. But Bristol-Myers actually increased their dividend 10%, which makes sense.
They're a pharmaceutical company and they were making money hand over fist. But currently, Bristol-Myers shares down around 10% over the past three years. It's sitting in what I call a quality buy zone territory.
It's undervalued. So that is why I actually went towards this one compared to Pfizer. Pfizer's share price is down, but then so is their earnings and their revenue and all that stuff.
Whereas Bristol-Myers earnings and revenue have been well, because Pfizer basically relied upon the lockdown medicines. And they haven't got their next thing yet. No.
So they were really good. Pfizer was awesome in 2020, 2021 and 2022. But since 2022, when people actually haven't been getting their lockdown medicine, their revenue has just been wiped out basically.
Okay. Financial show that Bristol-Myers has cut its debt by over 25% in the last four years and their revenue has increased from $42.5 billion to $46.2 billion in that same time. So they've actually been able to take a lot of debt off the table and they've increased their revenue.
That's like 10%, right? About 10% revenue growth in four years. And Bristol-Myers also has had anywhere from $12 billion to $16 billion of free cash flow since the lockdown period. And if you don't subscribe to email, one of the things that I always have on the email is a chart that shows the top 10 things that I think are potential for research for the next week.
I say the top 10 things going next dividend. One of the things on there is the profit margin. Profit margin is basically a fancy way of saying they have cash to cover this and they have cash left over.
Yeah, they have cash to cover their dividend. So they're not. So Bristol-Myers has plenty of money laying around.
So I feel that 16 years in 10 years will be 26 years. I don't foresee them actually cutting their dividend or even having a year without growth. They're actually on that streak now.
That's fair enough. Like I said, it's only 4.5%. But if you actually look at a lot of the dividend growth stocks that all the experts tout, they're like 1% to 2%. So this is way better than those.
Well, and the thing, too, with the dividend growers, if they're consistently growing that dividend, whatever your initial buy-in price is, as the price of the stock goes up over time, you're actually getting a higher yield on those lower-priced shares. You don't see it. I need to do some math or make a chart or make an actual example for people.
But it really is. That's where you're missing it. That was one of the things I completely glossed over in the beginning.
I was like, these don't even make sense. I don't understand the aristocrats. Why wouldn't you take a 12% dividend over a 3%? But if they're dividend growers, you can end up with more than the 12%, depending when you bought the shares.
And that's why we have our portfolio set up the way, in both the retirement and the van life form, we have them set up. We have a core group of dividend growers that I don't touch, for the most part. I may trim them whenever they become too big, like I did with the ABR and Hercules.
But I still keep my core holding, just because they grow their dividend. And we got in at a really good price. So our dividends, we're looking at 18%, 19% dividend, as opposed to the 8% or 9% that they're quoted in all the financial news.
Yeah, because that yield is based on the current value of the stock. Okay. Bristol-Myers.
Bristol-Myers Squibb, currently, it's trading in the 50 to 55 range, like the last year. I think right now it's around 53. I think it's 52.50 or 53.35. I forget.
I'm sorry. But anyway, it's fair market value is in the $80 to $90 range. So you're basically looking at like a 40% gain when it gets back up to where it should be, plus a 6% growth per year, plus a 4.5% current yield.
So Bristol-Myers is one that I would fully buy right now and hold for a decade. Is it my favorite in the medical field? No. But it's the best one that's valued at this current moment in time.
Yeah, valued right now. Okay. That meets all the check boxes.
Checky, checky, checky. The second thing that I came up with was, MacroTrend, was we have a lot of distraction, I guess, with the electronic vehicles and the nuclear power and solar. We haven't mentioned nuclear power on here yet.
I mean, everybody just refuses to talk about oil. They're all talking about everything but oil. But oil's going to be in high demand for the next decade.
Can we segue real quick to the nuclear power? We haven't brought that up on the podcast yet. We've talked a couple of times. And my dad actually brought this up.
And he is like, ostrich in the sand, boomer logic there, if you want to call it. But he brought up my attention that TMI, we're real close to TMI. I'm sure all of you have heard about the, it's kind of like the Chernobyl craft that went down.
But I've always thought, from my engineering background, that nuclear power makes a lot of freaking sense. And it seems like the, what do you want to call them? The big wig companies? It's Google and Amazon and Microsoft and all of them. So we got news that TMI got purchased by Google? Microsoft.
Microsoft, Microsoft. And then I heard through the grapevine that two more nuclear power plants were bought up by Alphabet, aka Google, and Amazon as the other one. So three big power players are actually merging over into nuclear.
Something's about to shift off. So Tim's been looking at closing in funds that actually have, who are the fidgetiest mother fucker tonight? Closing in funds that hold the nuclear socks. Because it's something that we actually think is an alternative to the electric or the solar or potentially a cohort.
What they're doing is they have too much demand for energy with their AI plus their current setup. Yeah, we talked about this in the tech episode. So they're using nuclear power to actually power their AI.
And then they're so they don't have to touch the customer's electric. And that was one of the things that we brought up before. Like, how is it going to go forward? Because are people just not going to be able to use electric or pay more for electric? Because the AI is going to get precedence because it's doing all the work.
So what they did is they just they must have saw the same thing and said, well, we probably should just bring up these power start these back up. I'm going to be really interested if they move the airport here. Which is interesting because like if you recall, I mean, I don't know how old y'all are that listen to us, but like when I was young, TMI happened and they said... My parents were in the thick of it in high school.
Once TMI went down, you can't bring it back up. So it's just like, you know, it's just an eyesore because they can't do anything with it. And they've actually found the way to use to restart old nuclear plants, which is that in itself is fascinating technology.
Yeah. So we got the solar, we got the nuclear and oil, like again, is another way to produce electricity, coal, yada, yada. But that's like say, but the segue was that like, you don't hear about oil anymore because like, I guess oil is a dirty word.
Yeah. People are trying to move away from the old thing and into the new thing. Everybody likes the new, the trendy, the illustrious or the glamorous.
I have a sneaking suspicion that oil will be in high demand for the rest of my life. It's very, very well possible. And I'm 48, 48 now? Yeah.
48. So yeah. So like another 40 or 50 or 60 years, however long I live, but oil is going to be around for a while.
I fully support clean energy agenda because I am not, I'm a tree hugger. I don't like us destroying the planet, but like, let's just do... Practicality stance. It actually is dirtier to create electronic vehicles than it is just to run an internal combustion engine.
That's facts. Yeah. So if you think that you're doing well with your Tesla, you actually look at where your Tesla came from.
Especially if you're in the Northeast. Like if you're plugging those things in, you're burning fossil fuels anyway to charge them. Like you're doing it through the lithium mining and then you're doing it through secondary hand.
Like they do really add up. So oil stocks could be considered, um, when we discussed the tobacco stocks, like how their sin stocks, I think oil stocks at some point are going to fall into the same category. And I have no problem investing in them because whatever.
I'm here to, I'm here to make us and you guys money. And I don't care. Oil is oil.
Well, and even if oil might not be used in America, we're still going to mine it. And we're still going to hoard it because of the OPEC crap that's going down. Cause it's like a power play.
That's what I was reading today. Cause I like, I know I brought it up previously. I don't remember when I brought it up.
I don't remember where I read it. If you, if you use, um, inflation as a guide, like inflation is two to four years, 4% per year. Oil should be like a 250, I mean, between 150 and $250 per barrel.
So what is it now? Cause I'm always off on that. And I'm sure they might not be. Okay.
So it's really, really low by comparison. So they've done so much manipulation with oil. So that's the one caveat.
Whenever you're investing in energy stocks, you have to know that you're getting into a facet of the market that is manipulated. Politically, it's just like crazy. Like it's just manipulated.
Like it should be a lot more than it is. And they've actually suppressed the price because they don't want the people to actually pay how much it should be. Because then no one would ever get elected because they'd be paying like seven, eight, $9 a gallon.
I have another sidebar and maybe we'll cut this out. But so you know how we always talk about herd mentality and like the people who are the trend followers are the ones that are late to the game. And they're the ones left holding the bag and everything.
So my brother is like all about gold. We talked about that ad nauseum. So he just told me that one of his best friends, who he considers basically like the indicator for when to get out of things, because he's always the last one in, just bought gold.
So for whatever that's worth, I think that's absolutely hilarious. I thought we said that like a couple months ago. Like I'm staying away from gold because gold's so bad.
Yeah. But I thought that was funny that Gary's indicator friend actually jumped in finally, which means I don't know what your thoughts are on gold. Gold's overpriced.
Yeah. And like what it's for, it's horrible. But that sounds to me like it is at the last little push before it drops down again.
I was reading somewhere that people say you should have five to 10% of your portfolio in gold, which to me is ridiculous because gold is not a hedge against inflation like people think it is. Well, that wasn't the side thing I was trying to get into. But anyway, so back to the oil, EPD.
EPD, Enterprise. I've, we actually hold this. You guys have heard me talk about it before.
It's awesome. It's probably one of the better. If not, it's one of the better.
I don't know if it's the best, but it's one of the better ones. And its current valuation is awesome. You can basically do Chevron, Exxon Mobil, EPD.
You could do Implex. I mean, you can look up whatever you want right now because oil's been like so just suppressed the last year. They're all on sale.
The fact that they're all on sale is cool because you can get like, Chevron has like 20 or 30 years of dividend growth. Exxon Mobil has 30 or 40 years. I like EPD because it yields 7.2%, whereas those other ones are yielding between 3% and 4%.
And EPD has raised this dividend 25 consecutive years. So it's not slouched. Like it's not like it's only been like three years and like, oh, I'll wait and see.
So that's why I actually gravitate towards EPD. Now we do actually hold EQNR, which is a Norwegian oil company. If you're interested in like oil from outside of America, but it's not what I would recommend to buy right now for 10 years, EPD would be the one.
The reason I like EPD is because the management team is fantastic. I don't know their names like off the top of my head, but everything I read, they're just fantastic. If you did, I'd be surprised.
They basically don't do like what a lot of energy companies do is like, if they see a competitor, they'll buy them up because they're afraid of the competition. EPD sometimes does that, but they don't do as many acquisitions as the other companies. Like if you saw like in the last couple of years, Shell bought up something and ExxonMobil bought up something, Pioneer or whatever it was like, they're buying up all the competition trying to like, they basically they're making a monopoly with like three or four different companies holding all that.
Like when we drove through Texas, we saw the Permian Basin where like all the oil is basically drilled for in the south and it's pretty cool, but that's where they're basically all trying to get their hands in that. So there's like four or five companies vying for all the acreage in Texas and New Mexico and there's a new one, not a new one, but like an area in Colorado where they're actually now on the Colorado plains where they're actually all like migrating up there now. So like basically by the end, within the next 25 years, we're going to have like four oil companies.
Oh. Those are my roundabout way of getting that. Like the insurance companies and the phone companies.
Yeah. You're going to have four, but you'll have like, I don't know if you know, like if you go to the grocery store, like one of three companies own all the grocery stores. So if you go to like Giant or Albertsons or King Soopers or Safeway or whatever, we're all going to the same place.
That's the same thing that's going to happen with oil. Like if we go, no matter what punk we go to, it's going to be one of like four or five places. Okay.
That caveat. I expect EPD to actually return 100 to 125% within the next five to six years. So we're looking at like 145 to 175 for the next decade.
It yields 7.2 and it's raised its dividend, like I said, for 25 consecutive years. The past 10 years, I've seen the dividend go from 30 cents a quarter to 53 cents a quarter, which equates to a 77 total increase, which is 7.7% per year. So it's actually even better than Bristol-Myers.
So they're raising their shit. Sorry, raising their stuff at a higher clip than Bristol-Myers is. I don't think the next five or six years will the dividend will increase at this rate.
I think three to three and a half percent because oil suppressed. But once oil starts going up again, then it'll be able to gradually get back up to the 7.7 to 8% per year increase. Like if you look at all the energy stocks, like you like even Chevron and Exxon Mobil, they'll have a year where they raise their dividend.
It's only like a 1% gain, but then they'll have like three years down the road, they'll raise it like 6%. Well, what's happening is when they're raising it six, eight, 10% per that year, that's when oil's like a 120 a barrel. So they actually have just money laying around.
They're like, well, I guess we'll give it to the shareholders. Because oil's at $68 a barrel, I think three to three and a half percent is where we'll be until it actually gets back up above 90 to 95. And then they'll actually start doing the bigger increases every year.
With all that being said, the projected CAGR for EPD is between nine and 11%, which is pretty awesome for like this one only is like 20, I wanna say $25 a share. It's not- That's a steal. It's not very expensive at all.
I think nine to 11 is on the low end, to be honest. I'm thinking once the oil prices go back up, we're looking at probably 13 to 17% per year. So I guess between that, so what's nine, that'd be 11.
And 11 to 13% would be my guess. Like if you average out the decade, it would be 11 to 13% per year CAGR growth for a $25 stock, which is fantastic. I looked at the financials and the financials on EPD show, they've only reduced their debt by 4% the past four years.
If you remember when we just brought up Bristol-Myers, they did a lot more than 4%. It was 25%. They've only done 4% because they've actually been doing acquisitions.
They've been acquiring like smaller midstream companies that actually have like the pipes that they want to actually incorporate into their thing. What EPD does for the most part, they actually don't do the drilling. They're what we call the downstream people.
They actually just transport it and they'll ship it, but they actually don't really drill for it. They don't, that's not what most of the money is made from. And most of the oil companies do that as well.
They don't really drill it. They let the little companies drill it. Once they find it, they just buy them up and then they take over everything.
That's kind of how it goes. It's kind of how it goes in the oil world. Once you discover oil, you know you're going to make millions of dollars, but you're not actually going to be the company that actually pulls out of the ground and transports.
The distributors, that has to be more because it's the infrastructure to get it from A to B. Now, there are refiners and if you're not familiar with those, we actually saw a lot of those on our trip down to Texas. You can smell them. When the oil is transported down the pipes or via the train or however they transport it, it goes to a location.
They actually refine it from oil into gasoline and it is stinky, stinky. But the refiners, when oil's at a high price, the refiners make a lot of money. You can almost feel the oil that you're breathing in the air.
It was pretty gross. So the fact that EPD was able to actually reduce their debt by 4% with all the acquisitions they've been doing, it was seven acquisitions in the last seven years. They've done one a year for the last seven years.
That's a pretty respectable 4% decline in debt. Now, from what they were saying in their earnings, they're done with the acquisitions for a few years so the debt will go down faster and their revenue is actually going to go up more but they actually don't have any present data from the revenue going up from all the acquisitions. So the revenue is up 83% over the past four years from $27 billion to almost $50 billion which is an insane rate of over 20% revenue growth per year.
Yeah, that's huge. And that's actually going to get higher because of all their acquisitions. So they're going to be, they're going to, it's probably going to be in the, it's probably going to be in the, I'm guessing $75 to $85 billion revenue per year.
So it's going to go up another, what is that, 50% in the next couple of years. That's freaking crazy. EPD has had anywhere from 2.6 to 4.8 billion of free cash flow since the lockdown period.
So you'd like, if you think of it, so like the fact that they have that debt and they've only, they paid off 4%, they've done all the acquisitions and they still have $5 billion in cash flowing around. They have so much money that they're going to be able to buy back shares and to increase the dividend probably at that 7%. Like I was saying, 7 to 10, once the oil price goes up.
Yeah, I think they've got some kind of strategic plan in here to just shoot this thing off. Okay, EPD is currently trading around its fair market value, but it's, so it's not a huge discount, but you're actually getting into this one before like all the revenue is being priced into like. And their growth, yeah, that growth component for the acquisitions isn't priced in.
So fair market value now is before really that. So like they're going to have revenue growth and EPS growth, earnings per share growth between 50 and 75% for the next 10 years. So if you tack that on to the 7% dividend, you're looking like I said, like it's going to be like 130 to 150, 130 to 150% total return cager for the next 10 years.
So this is a really, really good one if you're interested in holding any oil. I actually did recommend this one off the top of my head to the basketball bro I was talking to. I was like, do you have a problem? I said, do you have a problem with oil? He said, no, I'm cool with that.
He's like, I was thinking about getting into, I think he said something. I said, don't do that. That's dumb.
You want to get into this one. He's like, oh, and then he looked at it and then we play Tuesday, Thursday. He came back on Thursday.
He said, that's a really good one. I said, I know what I'm doing, dude. Yeah, well, a lot of people don't.
I don't know for a hundred percent fact if because it's MLP, if you're getting a K1 or if you're getting a 1099. So just be prepared for that. You might want to look into that before you pull the trigger.
If you're anti K1. If you're not familiar with K1, it's fun. I don't know.
I am because of this whole accountant crap. Like we haven't gone into that whole dissertation, but our accountant kind of got stupid and screwed up our tax returns by putting my brokerage crap under Tim and he's under a payment plan for student loans or for a low income. So that might jack stuff up.
We have to do a resubmittal and he's being like Houdini in the wind type deal. So I apparently need to figure out how to or how do I want to say this? I got so frustrated by the situation that I started reading tax books and tax planning books. So stay tuned because.
That's going to be all her. That's going to be a day you guys don't have to hear me talk at all. I'm literally about to blow the lid off this freaking thing.
Because I don't care about taxes. I have a dude for that. Yeah, I actually don't think it's going to be as hard as everybody makes it out to be.
They're like, because I know one of the things that if you subscribe to different places or you listen to different people, they all say K-1s are a nightmare. So they always try to recommend 1099s. But like I found the tax advantages I found through the years that the better ones to get are the ones with the K-1s.
K-1, yep. And they're actually tax advantage on your end despite the fact you have to go through a little more work. But it's worth it come tax time.
From what I gather, now correct me if I'm wrong. If you get a K-1, like if you hold it for five years, it actually lowers your total tax due. I forget what the number is.
You'll have to go back and watch the actual MLP/LP episode. It's right in the beginning. Whereas if you hold like one that does a 1099, like you're still going to have your capital gains at whatever percentage it's at.
But if you hold like a one that's in a K-1, you actually get a tax decrease if you hold it for so many years. So like if you're going to be holding EPD for 10 years, you're actually within 10 years, you're only going to be paying like. Well, you get a portion of depreciation of the assets of the company transferred to the individual.
Like it's freaking juicy. So like you're not going to be paying like anything on tax in this other than state. Yeah.
If you hold it for 10 years. So like this is a really, really good one to think about. And the last one, we're on the third one.
Third and final. Third one's going to shock the shit out of people because all the ones I've talked about in this area that are not the one that I go, the last elephant. Because they're all elephants.
I said the elephant in the room, like people are getting older. That's an elephant in the room. We have to just embrace it and make money from it.
Oh, you're talking about sector wise macro. So the last elephant is businesses need money and banks won't lend to them. BDCs will.
So the third one's going to be a BDC. Now there's so many good BDCs. You got Hercules Capital, you have Trinity Capital, you have Capital Southwest, you have Main Street Capital.
Other ones are OCSL, Fisker, FSK. There's so many in the BDC area that actually will give you good returns. But the one I went with was the actual biggest one by market cap, which is ARCC.
There's so many. And they support really high yields. We're going to get to why I think ARCC.
And like ARCC doesn't have a high yield like Trinity or Capital Southwest or Hercules. It's more along the Main Street Capital. I actually like Main Street Capital better than ARCC, but Main Street's overpriced.
And Hercules, I love. You guys know I love Hercules Capital, but it's way overpriced compared to ARCC. So why did I pick this one? It's all about valuation.
It's currently priced. Hercules is currently 77% over its NAV price. So that means all of Hercules assets and their loans and everything, it is 77% over what they're worth.
Main is 76% over NAV and Capital Southwest is 55% over NAV. Trinity Capital is only 6% over NAV and ARCC is 11 overpriced over NAV. So actually Trinity is a better valuation than ARCC, but Trinity Capital is not near as good as ARCC.
So we went with ARCC specifically from a valuation perspective and that it's the biggest and best. Texas style. It doesn't have a streak like the other two that we mentioned when it comes to dividends, but it raises them when it has cash.
I like that approach. What that means, like a lot of the BDCs, you'll recognize if you do the research that they actually will raise their dividend like the 10 or 12 or 15 years, but they can't afford so they actually have to borrow money. So they're borrowing money at a higher interest rate right now to pay dividends so they can keep increasing their dividend, which rather than just cut the dividend or like pay the same price and ruin the dividend streak, they don't do that.
Whereas ARCC, they do that. Like if they have cash, they give you money. They give it back to the shareholders.
If they don't have cash, they'll keep the dividend at the same price it was a quarter before. Currently ARCC has a payout ratio of 79% and if you recall with BDCs, they have to take 90% of their profit and pay it back to shareholders. So the fact that their payout ratio is 79% the management team is spot on.
We'd love to see that. ARCC yields 8.9%. So it's like I said, it's not as much as Trinity, which is 13. Capital Southwest is 12.
Hercules is 10. Main Street is like 8%, but Main Street, overvalued again. Sad to say, but it's overvalued.
Main Street was the same valuation as ARCC. We'd be talking about Main Street Capital, but it's not. Yeah, that one got trendy.
When you invest in BDCs, I don't think I've actually ever touched on this. BDCs, you're not really expecting too much in capital appreciation. You're basically investing in them for the dividend and if the price goes up, awesome.
If the price doesn't, well, you've invested for the dividend. That's why you want the dividends that are 10, 12, 14% because that way you are guaranteed to at least make 10% on your money. ARCC's dividend is super safe.
All the sources that I could find give ARCC at least an A when it comes to dividend safety and most of them have it as an A plus because of that payout ratio of 79%. That's unheard of. If you've done any research in BDCs, a payout ratio of only 79% is one of the lowest, if not the lowest.
So that is awesome sauce. That's why we went with this one for new investors that I don't try. When I talk to new people, I don't give them the riskiest stuff.
I give them the stuff that I know will work because then they're more apt to stay in the game. Yep. Okay.
The five-year CAGR forecast for ARCC is 13.3% so that's not too shabby. So that's actually putting in a 4% price appreciation on top of the 9% dividend. And revenues projected to grow 14% per year for the next five and net incomes projected to grow 17% per year for the next five.
So all things are pointing to this one being shebang. I have the fair market value of ARCC based on all the financials around 25 and it currently trades for about 21.50 so it has a little bit of room to grow. Not a lot.
What is that? That's three times four, 12%. That's not shabby, I guess. But 12% compared to the other ones.
That's why I love the low price stocks. They move a couple of dollars and it's like a whole crap ton of percent. ARCC has a current PE of 8.1 compared to the 22.5. Average for the sector of capital market, if you're not familiar, capital market is basically the BBC sector.
There's 44 of them, I think. 43 or 44 of them and they all, if you average them out, their PE is 22.5. So it's very undervalued compared to its peers. So awesome.
ARCC has been growing its earnings 19% per year over the past five years and its EPS has been growing at 12% per year over the past five years. The capital market averages, again, BDC average over the last same time was 8% revenue growth and EPS growth 4.3. So it is just beating the crap out of all of its peers. So it's awesome sauce.
The one area where its peers actually do a better job is dividend growth. The BDC capital market sectors forecast to have a dividend growth of 6% to 7%. Whereas ARCC is only forecast to grow its dividend 4% per year over the next five years.
But I'm cool with that. If you're getting a safe 9% yield with 4% growth, you would take that over a, you don't know, with a 6% to 7% growth. So I mean, that's why we went with this one.
Yeah, hands down. The BDC sector as a whole is forecast to have an 8% to 10% CAGR growth the next five years. So that is pretty good.
I know we've been beating the table on BDCs. They are going to flip at some point here. That's pretty good.
But then ARCC is at 13.3. So you're getting more bang for your buck than you would if you invested in like, I know there's closeted funds and ETFs that basically just pull together all the better BDCs. So I think this is one of the few times where I would actually prefer to hold ARCC over a closeted fund that actually holds all the BDCs because ARCC is actually going to perform better. Actually, did I misspeak? Do BDCs pop off except for just Hercules and Maine? Or is the whole sector depressed though as a whole? As a whole, they popped off.
All the ones we were in popped off at the beginning of 2024. But they've actually started to come back down. But Main Street and Hercules kind of haven't yet.
But they all report earnings here soon. So we could actually be talking about a completely different situation here after they all report earnings. Well, I was just going to say, usually if these are like the leaders, typically when a sector shifts, the leaders are the first ones, that's why they're called leaders, are the first ones to show the price differentiation, swing up or down, whether it's, excuse me.
They're the first ones to go up. They're the last ones to fall. So that very well could.
So I found this tidbit. This was on Sure Dividend. They're actually, I remember we had a podcast episode about like where I find my info.
Sure Dividend, they're really good. They have a team of like 75 people that do what I do. So they have more people.
So they can actually obviously do more research, dig into more and more companies. But they actually said this. So I'm going to give them credit because awesome.
If the price of ARCC went nowhere and stayed at 21.50 for the next six years, you would still have an 80% gain in this company just from collecting the dividends alone. So realistically, ARCC should return 150, 175 over the next decade, even more. Like this is a really good investment.
If you think that companies are still going to be borrowing money, which they are, but that's for you to determine. But these are three that I would recommend. And you might be able to look at the BDCs and come up with one that you like better.
You might be able to look at the energy sector and just say, I'm an EPD. I'm not a fan of that. But these are the three that I would start with right now at the current prices and make a shit ton of money in the next 10 years.
So that's that. And all of Tim's wisdom. I hope that helps.
Now, if you guys like this, let us know because I was looking at preferred shares today. I'm doing something similar, like finding the three best preferred shares based on valuation. Because if you recall, preferred shares are second in line to get money behind the initial investors.
What? It goes initial investors, you know, like whenever the company does a startup. Oh, like the IPOs? Yeah, the startup investors. The way you worded that sounded stupid.
Startup investors get paid their dividends first and then the preferred shares. And then it's the common stock people. So if you recall, preferreds actually get, they're actually better.
They get preferential treatment. They're better. If you don't get to vote on stuff.
But how many of you have actually done that? I get emails all the time. They're like, hey, we had this meeting. Do you want to vote on this? I'm like, I'm good.
Right? I love when they get crap in the mail and I'm like, uh. Like the only one that I even looked at was one that was a BDC and they wanted to go into our REIT. And I was like, well, that doesn't even make sense.
How would you do that? No clue. But so that's that. Next week, I don't know what we're going to do.
I don't know what we're going to do for a podcast. I don't really know. Yeah, maybe we'll do the credit thing.
Maybe we'll do the preferred share thing. If you have any other ideas that you'd like to hear about, leave us a, drop us a comment somewhere. Drop us a comment.
But I mean, like it might not be next week's podcast depending on when we get the comment because I have to start doing the research like a few days ahead of time. So if I had a, if I had a worker monkey, I could do it the same, like the same week. But I don't have a worker monkey.
You wouldn't even trust the worker monkeys or shut face. But that's, that's that. I am.
You have been incredibly twitchy tonight. I thought you were tired. I'm itchy.
Like incredibly fidgety. Sorry. But if you guys want to do a similar project, what you basically have to do is you have to think about 10 years from now, what are going to be the sectors where the money is going to be made.
And then once you determine the sectors, then you can actually extrapolate the better investments in the sector. So it's, it's a fun, it's a fun. Thought process.
Thought, thought process. Project, experiment, research. Experiments, whatever to do like it's to help you get better as investing.
Because like I mentioned before, investing is about knowing the trends before the trends happen. Well, and some of it's fun. Like digging into the tech and AI stuff.
I think it's fun. So whatever, whatever projects you need to do to actually get yourself better at predicting trends is awesome. Because that's how you make money.
You don't want to react. You want to proact. Yeah, like when Warren Buffett starts talking about what he's in, like he's been in for six, eight, 10 months.
And it just happened like that. Like this last quarter, Warren Buffett cut his Bank of America and he cut his Apple shares and everyone panicked. And it's like, well, dude, like Apple was overvalued.
We said that in the podcast a couple episodes back or whatever the heck. I don't know. It's crazy that that's, but that's how like that's why 90 some percent of investors don't make money is because they're reacting to the news.
You want to actually be proactive and actually come up to the, come up with the sectors or the investments that you want to get into before anyone else. I mean, right now it's energy and it's reach. That's where I would start.
And even if you're a little bit wrong, that's the dividend. Save your butt. They put that safety margin in there.
It's pretty fantastic. So this is like training wheels. I love this kind of investing and I've done so many different kinds.
Didn't even know this one existed. So happy Tim freaking brought it up. And then I got, went research mode and I was like, yep.
How did I miss that? I didn't know there were different kinds. Go figure. That's that.
That's where I would start though. Reads and energy. All right, guys.
Hopefully you like this and we will see you next week. It was good. Good.
Good. Good while it lasted. Now it's time for me to go to bed because it's like 10 degrees outside.
It's horribly cold and I'm such a puss. Oh my God. It was the same temperature this morning.
You just weren't even whatever. I still have the windows open though. Rock on.
You're such an idiot. I swear to God. See you guys.