When the Enhanced High Yield Porfolio was set up our intention was to have 1 REIT or MLP in the portfolio with potential to add a capital gain component to the fixed income mix. With this in mind we purchased 300 shares of Whitestone REIT (NYSE:WSR) to “enhance” the return of the portfolio. All other issues in the portfolio were either baby bonds or preferred stocks.
At the time of purchase WSR shares had fallen from the $15/share area to around $12/share which is where we made our purchase.
Almost immediately we questioned the wisdom of the purchase–reviewing an investor presentation after the purchase and comments from our reader “Bea” made us wonder if this purchase was a mistake. Within the investor presentation the company made it clear they want to reduce leverage–this is code (to us) that they may want to issue more shares and use the proceeds to reduce debt instead of investing in additional properties. In the case of Whitestone the last time they sold shares it sent shares $3/share lower
On March 1st earnings were announced and while they were respectable investors did not like them at all–shares fell from the $12.40 to as low as $10 a few weeks later.
Obviously the issue that had been added to the portfolio to “enhance” returns was “destroying” returns. The choice was to sell out and book the loss or simply hold since the dividend was around 10%.
Of course we held and were rewarded today when we sold the shares for $12.50. This means we collected dividends 38/cents per share and have a capital gain of 46 cents so in total a return of just shy of 7% in about 140 days.
So the sale brings the portfolio back up to a 30% cash position which is too high from which to earn a reasonable return. We will add 1 additional long term holding to the portfolio later this week (unknown what it will be at this point in time). Additionally we will be watching for a new issue to replace WSR–a REIT or MLP which has potential to add not only a high dividend, but which also will produce a capital gain within a few months.