The Dividend Hunter - Investors Alley

December 2019 Vol. 6 Issue 7

Happy Thanksgiving

Managing Editor¡¯s Note: It¡¯s at this time of year when many of us take stock (pun intended) in

our finances over the past year and start planning for the next year. Throughout the coming

month Tim will be putting together a full accounting of our investments during 2019 and where

they stand now. This will be included in your January 2020 issue. For many we¡¯re looking for new

strategies to replace or just add to what we¡¯re doing now. One that Tim developed and shared

with readers earlier this year might be helpful to you. The #1 Strategy That Turns $25K Into

Income For Life is quite the aspirational title but it gets to the point of how successful you can

be with a dividend investing strategy that¡¯s carefully planned and diligently followed. And it¡¯s

full of examples of how to start and how to maintain the discipline to be successful. So, while

you¡¯re looking over your 2019 finances and planning for 2020 this report, a free benefit to your

subscription, could be a very good place to start. Click here for direct access.

I

am writing this before the holiday,

but it will hit your email inbox just

after Thanksgiving. I hope you had a

very nice holiday.

In This Issue

Apple Hospitality REIT .................. 4

This is the December 2019 issue of the

Return of Capital Distributions .... 6

Dividend Hunter newsletter. We are

Invesco Bulletshares ETFs ............ 9

entering the last month of what has

Portfolio Update ........................ 13

been a very interesting year. During

the 2018 fourth quarter, the entire

Current Portfolio ............................. 14

stock market went into a deep

correction, fractions of a percent away

from the official bear market territory. The bounce back after the Christmas Eve

stock market massacre propelled most of the Dividend Hunter stocks to have a

very good 2019.

Over the last few months, energy midstream/infrastructure stocks have

experienced a bear market level sell-off.

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December 2019 Vol. 6 Issue 7

From a high in July to the recent bottom on November 19th, the Alerian MLP

Infrastructure Index (AMZI) lost 21% of its market value. MLPs have suffered

through a five-year bear market. The AMZI peaked in August 2014 and is now

worth about half that peak value.

In contrast to the stock market values, over the past few years, the energy

midstream companies, including MLPs, have made great strides to improve their

business results and their balance sheets. Dividends have better coverage than at

any time in the history of the sector. Companies are financing growth with

internal cash flow. MLPs have retired (sometimes at an expensive cost)

burdensome incentive distribution rights.

I may be wrong, but this bottoming of energy midstream stock values feels a lot

like the March 2009 bottom for financial stocks. The financial crisis triggered that

bear market, and the financial sector lost 80% of its value during the two-and-ahalf-year bear market. From that bottom, the Financial Select SPDR ETF (XLF) was

up 160% over the next two years, up 260% five years later, and 420% higher after

ten years. You may not remember, but in 2009 financial stocks were reviled as

energy midstream stocks and MLPs are today.

Now is not the time to panic and sell your energy infrastructure investments. If it

fits into your overall portfolio strategy, don¡¯t be afraid to buy cheap shares to

average down your cost and grow your future income stream.

Remember that we are investing for dividends, so it makes sense to make

dividend income results the primary focus. My ongoing recommendation is to

make sure to track your portfolio income and use those results as your primary

metrics.

Tracking your dividend payments quarter over quarter, year over year is critical

for you to know you¡¯re heading in the right direct. I¡¯ve quoted this before but

¡°you can¡¯t manage what you don¡¯t measure¡± and that goes for dividend

payments.

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December 2019 Vol. 6 Issue 7

You can use a spreadsheet like Excel or just a notebook to record of your dividend

income each quarter. Or even monthly if you have monthly payers like MAIN and

EPR in your portfolio.

As long your income is growing ¨C through owning more shares or rising dividend

payments from companies ¨C the unpredictable share prices we see from time to

time become a much smaller factor in your investment results. And your peace of

mind.

I strongly encourage you to check out the Divcaster software I released earlier this

year. It was developed for the very purpose of dividend tracking for Dividend

Hunter readers. It tracks your dividends and even forecasts future payments so

you can know how much you¡¯re getting every month. And one of the best

features is you can import all of your dividend stock data from your brokerage. No

rekeying like some programs require. Click here for details and the

demonstration video.

I hope you are looking forward to an enjoyable end of the year and Holiday

season. I am looking forward to the holidays and also tallying up the full-year

results from the Dividend Hunter recommended investments. On average, the

recommendations list has posted very good returns so far into 2019.

In this issue of the Dividend Hunter newsletter, I review a couple of the more

conservative investments in the list. I think 2020 could be a very volatile year,

especially if things get interesting as the election approaches. Think about setting

aside money into the conservative BulletShares ETFs, or building your monthly

income with additional investments in Apple Hospitality REIT (APLE). I also cover

the confusing topic of the return of capital (ROC) tax characterization of

dividends. I think it will clear up any questions.

Land, Fly or Die,

Tim Plaehn

Editor

The Dividend Hunter.

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December 2019 Vol. 6 Issue 7

Apple Hospitality REIT

As a result, the hotel business tends

to track the economy, with profits

growing when the economy is and

profits shrinking during recessions.

I added Apple Hospitality REIT (APLE)

as a new stock on the Dividend

Hunter recommendations list in

September 2018. I want to have a

hotel REIT as a recommendation due

to the sector¡¯s unique relationship

with the economy. However, all the

REITs in the sector tend to move

together, so one stock from the

group is enough. With Apple

Hospitality, we pick up a very

attractive yield from a financially

strong company.

This means lodging/hotel REITs can

generate attractive returns in a

strong economy. The U.S. economy

continues with its slow but steady

pace of growth, so I am happy to

have one of these REITs on the

Dividend Hunter recommendations

list.

Hotel REITs have also historically

followed a boom and bust profits

cycle due to overbuilding when the

market is hot, and then ending up

with too many rooms when the

economy cools off. The preceding five

of slow economic has resulted in flat

results for the hotel REITs.

Lodging/Hotel REITs

These are REITs that own hotel

properties. The hotels are managed

by third-party operators, but the

owning REIT will participate in the

financial results. Hotels are unique in

the commercial real estate space in

that they can change room rates

every day. Also, the occupancy levels

fluctuate from day to day. Other REIT

sectors own properties that have

longer-term leases, from one year for

residential properties up to 20 years

or longer for the triple net lease

REITs.

At the same time, the companies

have not added a lot of new hotels,

so a faster-growing economy should

produce growing profits for at least

the next few years.

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December 2019 Vol. 6 Issue 7

Apple Hospitality REIT

Apple Hospitality exclusively owns

hotels with either a Hilton, Marriott,

or Hyatt brand. The company is one

of the largest owners for both Hilton

and Marriott.

Apple owns a portfolio of selectservice hotels. This type is defined as

a hotel without restaurants or

banquet facilities, the services and

amenities offered to guests of

limited-service hotels are typically

simple (such as offering

complimentary continental

breakfast). This is the most efficient

type of hotel, as defined by the

EBITDA margin.

Financial Considerations

With a $3.7 billion market cap, Apple

Hospitality is the third largest out of

the even dozen hotel REITs. Here are

some of the company¡¯s financial

metrics:

? Debt to Capitalization: 27%.

Low debt load means the

company will not be stressed

during financial slowdowns.

? Dividend as a percentage of

AFFO: 67.3%. Low payout

percentage means the dividend

is secure.

? Current yield: 7.6%. A great

yield from a financially

conservative monthly dividend

paying REIT.

Apple reports a 2019 year-to-date

EBITDA margin of 38%, compared to

an average 30.9% from the REITs

owning other hotel types. As of its

last investor presentation, the REIT

owns 235 hotels, with 30,101 guest

rooms, located in 34 states. This is a

very young portfolio with an average

age of just four years.

Apple management stays busy

recycling the portfolio, selling

underperforming hotels, and

acquiring or developing new portfolio

investments. Currently, the company

has 59 hotels in development with

"take out" contracts.

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