I'm Banking On These 8% Yields For A Better Tomorrow

Core Viewpoint - The article discusses the current investment landscape, highlighting the appeal of treasury bonds yielding 4-5% while suggesting that investors may be missing out on equity market opportunities. It presents two investment picks, Chatham Lodging Trust and Capital Southwest, both offering yields above 8% and attractive valuations [2][12]. Chatham Lodging Trust (CLDT) - Chatham Lodging Trust is a self-managed REIT focused on upscale, extended-stay hotels, with 38 properties totaling 5,735 rooms across 16 U.S. states and Washington D.C. [3] - CLDT has a strong EBITDA margin of 35.8%, the second highest among its peers, benefiting from lower operating costs and a focus on cost control [3][4]. - The company has shown resilience post-pandemic, with a record high average daily room rate of $182 in May, surpassing both 2019 and the previous year [4]. - In Q1 2024, CLDT's RevPAR increased by 2% YoY, and free cash flow grew by 10% YoY, driven by strong performance in tech regions [5]. - Management projects a 3.25% RevPAR growth for Q2, supported by strong corporate demand from major clients [5]. - CLDT has a leverage ratio of net debt to EBITDA of 4x, well below the 6x threshold considered safe for REITs, and $382 million in liquidity [5]. - The stock is priced at $8.49 with a forward P/FFO of 7.95, and the preferred stock (CLDT.PR.A) offers an 8.0% yield at a 17% discount to par value [5][12]. Capital Southwest (CSWC) - Capital Southwest is a self-managed BDC with a strong track record of value creation and efficient cost structure, outperforming peers like Main Street Capital and Hercules Capital [6][10]. - CSWC has produced a total return of 406% over the past 10 years, significantly surpassing the S&P 500 and BDC Income ETF [6]. - The portfolio is conservatively managed, with 89% allocated to first-lien secured debt, benefiting from higher interest rates due to 97% of interest-bearing investments being at floating rates [7][9]. - CSWC's operating expenses have decreased to 1.7% of total assets, reflecting improved operational efficiencies [8]. - The company has a strong balance sheet with a debt-to-equity ratio of 0.82x, well below the industry average [10]. - CSWC currently yields 8.5%, with a well-covered regular dividend supported by a 119% NII-to-Dividend ratio [10][12]. - The stock is priced at $26.85 with a Price-to-NAV of 1.6x, which is lower than its peers, indicating relative undervaluation [10][11].