Baby Bonds, Preferreds, And Helping Investors Afford Retirement

Core Insights - The discussion focuses on the appeal of preferred shares and baby bonds as investment options, highlighting their potential for higher yields with relatively lower risk compared to common equity [2][3][4]. Preferred Shares - Preferred shares provide a way for companies to raise capital without the contractual obligations associated with debt, making them a favorable option for issuers [5]. - Investors can achieve higher yields with lower risk through preferred shares, as they are prioritized above common equity in the capital structure [6][7]. - The limited issuance and lower liquidity of preferred shares contribute to their lesser focus in the investment community compared to common stocks [9]. - Preferred shares lack growth potential, which is a significant reason why some investors prefer common equity, especially for retirement income that needs to keep pace with inflation [10][11]. - A recommended preferred share is from Gladstone Land Corporation, which offers a 6% coupon on a par value of 25, currently yielding around 7.5% due to trading at a discount [25][26]. Baby Bonds - Baby bonds are smaller, more accessible bonds that trade on exchanges, making them easier to buy and sell compared to traditional bonds [12][13]. - They are considered lower risk than preferred shares because interest payments must be made to avoid default, providing a more secure income stream [20][21]. - Baby bonds typically have shorter maturities and are issued in smaller volumes, which can lead to lower liquidity [14][18]. - Oxford Lane Capital is highlighted as a company offering baby bonds that provide high yields while maintaining a strong coverage ratio, making them a lower-risk investment option [79][82]. Investment Strategies - The investment approach for preferred shares often involves selecting high-quality companies to mitigate risks associated with weaker issuers [24]. - ACRES Commercial Realty Corp's preferred shares are noted for their potential, as the company is expected to pay a common dividend later this year, enhancing the attractiveness of its preferreds [69][77]. - The discussion emphasizes the importance of understanding the capital stack and the regulatory limits on debt for registered investment companies, which can provide additional safety for baby bonds [81][82]. Market Context - The current investment landscape shows a significant yield spread between preferred shares and U.S. Treasuries, making preferred shares an attractive option for income investors [41]. - The resilience of farmland as an asset class is highlighted, with Gladstone Land Corporation's preferred shares benefiting from a well-diversified portfolio [39][40]. - Brookfield Renewable Partners is presented as a strong investment opportunity due to its diversified renewable energy portfolio and stable cash flow, with a focus on growth and distribution [42][44][61].