Where Steady Income Meets Steady Hands

Patience remains one of the most important virtues of a successful investor. Our bond holdings – Babcock & Wilcox (BW) and B Riley Financial (RILY) have had a rollercoaster year, with widespread speculation of bankruptcy. Yet, at High Dividend Opportunities, we have been diving into the fundamentals to explain to our members that, individually, the companies possess valuable assets that would sell for top dollar to raise capital as needed. Just as we had predicted, both companies pursued divestitures at rich EBITDA multiples and are now in a significantly better liquidity position.

BW may need to pursue additional asset sales, but is well-positioned to tackle the maturities of its baby bonds. BW bonds mature in Feb 2026 (BWSN) and Dec 2026 (BWNB), and offer 8% and 9.1% yields, respectively. Similarly, RILY, through a combination of asset sales and private debt exchanges, is well-positioned to handle its 2026 maturities. RILY baby bonds still offer attractive 6% to 10% yields with staggered maturities through 2026 and 2028.

Investing higher in the capital structure has its benefits. Even if the company faces financial distress and seeks to pursue aggressive alternatives, it must maintain its bond payments in order to remain operational. Those patient members of HDO who seized the market panic not only secured substantial capital gains but also locked yields as high as 20% for the next few years.

Examining HDO’s fixed income portfolio reveals several additional positives. We just had a successful (early) maturity of 9.00% Senior Notes due 07/30/2026 (METCL), and Argo Group International announced a full redemption of its perpetual preferreds (ARGO-A)

There is considerable chatter and speculation about interest rates, with several economists predicting multiple rate cuts in 2025. On the other side of the argument, you have experts saying there is no room for rate cuts and that the U.S. trade policy warrants rate hikes in the future. I am not in a position to influence the rate policy in any manner. Nor do I pretend to be in a position to predict where interest rates will be in the next year or the year after. However, our fixed income portfolio at HDO will continue to pay reliably and repeatably, regardless of how the rate policy evolves. This is because we maintain a rate-agnostic investment methodology to ensure strong income generation across rate cycles.

If you think rate cuts are imminent, then fixed-rate baby bonds make a good fit.

1. RWAY Baby Bonds – Up To 7.9% Yields

Runway Growth Finance Corp (RWAY) is a relatively new business development company that provides senior secured loans to late-stage, venture-backed growth companies, offering investors steady dividends backed by a portfolio primarily built with senior secured loans and some equity holdings. RWAY has two baby bonds offering yields up to 7.9%

• 8.00% Notes Due 12/31/2027 (RWAYZ) – Yield 7.9%

• 7.50% Notes Due 07/28/2027 (RWAYL) – Yield 7.5%

Both are currently callable, but trade at modest premiums to par, which can be easily offset by accrued interest over a single month. RWAYL and RWAYZ mature in July and December 2027, respectively, positioning investors for steady income for up to  2 years. RWAY bonds are rated BBB+ by Egan-Jones.

2. PMT Baby Bonds – Up To 8.9% Yields

• 8.50% Senior Notes due 9/30/2028 (PMTU) – Yield 8.3%

• 9.0% Senior Notes due 2/15/2030 (PMTV) – Yield 8.9%

• 9.0% Senior Notes due 6/15/2030 (PMTW) – Yield 8.8%

PennyMac Mortgage Investment Trust (PMT) is a jack-of-all-trades, pursuing diverse and sometimes contrasting mortgage strategies. While this limits its ability to deliver outsized growth, it provides a reliable source of cash flows. There's almost always a segment facing headwinds—but just as reliably, another benefiting from tailwinds.

This balance works in favor of PMT's baby bondholders, who benefit from steady interest payments backed by a resilient and diversified income stream.

PMT baby bonds offer up to 8.9% yields, with steady quarterly payments for up to five years. PMT bonds are rated BBB+ by Egan-Jones.

If you think rates will remain high for the near term, then rate-reset type preferreds make a good fit for your investment needs. Here are a few preferreds with upcoming rate resets

3.  SPNT-B – Yield 7.9%

• SiriusPoint Ltd 8% Series B Resettable Fixed Rate Preferred Shares (SPNT.PB) - Yield 7.9%

Siriuspoint (SPNT) is a global specialty insurer and reinsurer, formed through the merger of Third Point Re and Sirius Group. As part of that transaction, to bring institutional shareholders to vote in favor of the merger, SPNT offered highly lucrative preferred shares with an 8% yield, a rare cumulative status, and a substantial base coupon for the reset. SPNT-B becomes callable in Feb 2026 (in 6 months), and trades at a slight premium to par. Yet, $1/share in QDI dividends is on the table, providing a good arbitrage opportunity in the short term.

SPNT-B resets at 7.298% plus the 5-year Treasury Rate, and the coupon remains locked for five years. It is quite likely for the issuer to redeem this preferred. If not, then shareholders are looking at yields of over 11%. This presents a potential win-win situation, regardless of the issuer's decision.

4. MTB-H – Yield – 5.6%

• Fixed-to-Float Non-Cumulative Preferred Stock Series H (MTB.PR.H) - Yield 5.6%

M&T Bank Corporation (MTB) is a regional financial services firm with a strong footprint across the Northeastern and Mid-Atlantic U.S. Known for disciplined lending, steady dividend growth, and prudent acquisitions, it was once a holding of Warren Buffett’s Berkshire Hathaway.

MTB has two public preferreds, with MTB-J carrying a rate-reset coupon after its December 15, 2026, call date. This preferred resets at 3-Month SOFR + 0.26% + 4.02%, providing high yields if rates remain elevated. MTB preferreds are rated BBB by DBRS Morningstar

5. NLY Floating-Rate Preferreds – Up To 9.5% Yields

Annaly Capital Management, Inc. (NLY) is one of the largest mortgage real estate investment trusts (mREITs) in the U.S., primarily focused on investing in agency mortgage-backed securities, which are mortgage loans guaranteed by government agencies. This makes their portfolio less susceptible to credit risk and becomes highly sought after during weak economic conditions, such as recessions.

NLY has three rate-reset preferreds, all trading post call dates, and offering dividend payouts that change every quarter based on the 3-month SOFR.

• 6.95% Fixed-to-Floating Rate Cumulative Redeemable Series F Preferred Stock (NLY.PR.F) – Yield 9.2% (3M SOFR + 0.26161% + 4.993%)

• 6.50% Fixed-to-Floating Rate Cumulative Redeemable Series G Preferred Stock (NLY.PR.G) – Yield 8.7% (3M SOFR + 0.26161% + 4.172%)

• 6.750% Fixed-to-Floating Rate Cumulative Redeemable Series I Preferred Stock (NLY.PR.I) – Yield 9.5% (3M SOFR + 0.26161% + 4.989%)

6. USB-H – Yield 7.7%

• Float Rate Series B, Non-Cumulative Perpetual Preferred Stock (USB.PR.H)

U.S. Bank (USB) is one of the largest regional banks in the United States, with a national presence in consumer and commercial banking, payments, wealth management, and trust services.

USB has several preferred securities, but USB-H is a rate-reset type, with its payout changing every quarter based on the 3-Month SOFR ("Float Rate Coupon is the greater of (3.50%) or (3M SOFR + 0.26161% + 0.6%). At current prices and interest rate conditions, USB-H offers a 7.7% yield at a large discount to par. ‘

USB-H has been callable for over fourteen years, yet remains outstanding—a sign of its low-cost benefit to the issuer. With its low base coupon, redemption remains unlikely, making it a rare fixed-income security that consistently delivers CD-beating returns across interest rate cycles. USB preferreds are rated BBB+ by Fitch Ratings.

Conclusion

At High Dividend Opportunities, we are constant buyers of income, and interest rate uncertainty doesn’t deter us. We've just added a perpetual fixed-rate preferred and a baby bond to our portfolio – join us to see these new additions and how they are boosting our income.

Market sentiment can be fickle, and price action often tells a misleading story. We like to dive into the details, assess the fundamentals, and take data-driven decisions that secure our income stream.

Business fundamentals are grounded in reality, and dividends and interest payments are real, and once they're paid, they can’t be taken back. This is the beauty of our Income Method, and the power of Income Investing.

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