Over the last five years I have developed what I view as the core to The Dividend Hunter investing philosophy and strategy. My recommendations on how to build and manage an income focused stock portfolio is a very different path compared to from mainstream investment advice, which is concerned with entry prices, exit prices and stop losses. It is my opinion from years of experience, that market timing strategies are a tough way to make money and an easy way to lose significant portions of a nest egg.
My philosophy with my Dividend Hunter newsletter, and really all dividend stocks that I research, is that shares of stock are purchased to start, maintain and build an income stream. This leads to the first rule of being a dividend focused investor:
You can’t earn dividends unless you own shares of stock. This means to get started you buy shares and don’t wait for a timing signal.
This fact leads to the corollary that as Dividend Hunters we will always own shares. Through down markets and up. Which gives us rule 1A:
We measure investment results by tracking the dividend income earned each quarter and each year.
Dividend earnings are the one facet of stock market values over which investors have the most control. If you can build a dividend income stream that is stable to growing year after year, your principal value will be fine in the long run.
A focus on building an income stream lets us be willing to buy shares when prices are down, and others are fearful. Dividend Hunters can also take profits on stocks that have done well, and the sales proceeds can be used to enhance the income stream.
To be a successful Dividend Hunter I recommend that you work towards these goals:
Build a portfolio that includes all the stocks on the recommendations list. I developed the list to provide as much diversification as possible while still generating a high dividend yield.
Have your own strategy on how much weight you want in each stock. It is OK to overweigh some stocks or types of stocks if that is part of your strategy. We all have favorites. However, the strategy must push you to buy all the Dividend Hunter stocks when the holdings get out of balance with your plan. Personally, I keep it simple and aim to own a balanced dollar amount of each stock.
Your plan should include the reinvestment of at least a portion of your dividend earnings. If you are in the building your portfolio stage, 100% of the dividends can be reinvested. With an 8% average yield on the Dividend Hunter stocks, this will grow your dividend income by 8% plus per year. If you are drawing an income, don’t take all your dividends. Reinvest 20% to 25% of your earnings to keep the dividend stream growing.
Have a system to track your dividend income. Most brokerage accounts don’t include dividends in their return calculations. When you know how much you earned each quarter and can see the stability and growth of your income stream, the Dividend Hunter system makes sense. It will give you peace of mind that you are on the right path. (You should check out the online tracker I helped build: click here for details.)
Finally, when one of our stocks goes into a steep decline, I will closely analyze the company to evaluate its ability to generate the cash to support the dividend. If the dividend looks secure, we are comfortable adding at a lower share price to increase our portfolio yield.
Get your hands on my most comprehensive, step-by-step dividend plan yet. In just a few minutes, you will have a 36-month road map that could generate $4,804 (or more!) per month for life. It's the perfect supplement to Social Security and works even if the stock market tanks. Over 6,500 retirement investors have already followed the recommendations I've laid out.
Get your hands on my most comprehensive, step-by-step dividend plan yet. In just a few minutes, you will have a 36-month road map that could generate $4,804 (or more!) per month for life. It's the perfect supplement to Social Security and works even if the stock market tanks. Over 6,500 retirement investors have already followed the recommendations I've laid out.
The stock market has racked up high returns for the first half of 2019. The second-quarter corporate earnings reports so far have not been stellar. So far it’s tough to envision a scenario where the major stock indexes tack on another 10% to 15% in gains for the second half of the year. I think it’s likely that what performs well in the second half of 2019 will be much different from what made investors money in the first half.
While growth stocks have done well so far this year, a lot of high-yield stocks have lagged the major market indexes. High-yield is a different world. The primary investor concern is whether a company can continue to pay those big dividends. High-yield comes with what I call the binary outcome potential. On one side is the company will continue to pay the dividend.
This is the desired outcome, and the significant yield becomes your expected return. The flip side is the dividend cut the market has priced into the shares. A high-yield is the indicator that the market has built in the probability of a dividend reduction. A dividend reduction cuts twice, first your income gets reduced, and second, the reduction usually produces a significant share price drop.
Your goal as an income stock investor is to seek out higher yield stocks where you have conviction the dividend is secure. If you can find stocks with 10% plus yields and the dividends keep coming, you have a good chance to outperform the stock market for the rest of 2019. To find “good” high yield stocks, you need to understand how the individual companies generate cash flow to pay the dividends.
Further, you’ll need to monitor each company every quarter to make sure the dividend is secure. If you like high-yield, but don’t want to become a corporate accountant or Wall Street analyst, consider signing up for my Dividend Hunter service.
To get you started, here are three stocks with yields over 10% where currently the dividend looks secure. They are good ideas for where to begin your research.
GasLog Partners LP (GLOP) is a publicly-traded partnership that owns a fleet of 15 liquid natural gas (LNG) carrier vessels. Most of the fleet is on long term lease to Royal Dutch Shell plc (RDS.A). The leases provide predictable cash flow, and even with its high yield, GLOP has been growing its dividend by 3% to 5% each year.
The danger is that dividend coverage is very tight, with a first-quarter distributable cash flow of just 1.03 times the dividend. Global LNG trade is a growth business, which is positive for the long-term success of GasLog Partners. The stock currently yields 10.1%.
Global Net Lease (GNL) is a $1.6 billion market cap real estate investment trust (REIT). The company focuses on sale/leaseback transactions, where it buys commercial properties and leases them back on triple-net leases to the selling company.
Portfolio properties are evenly split between the U.S. and Europe, with 55% of the portfolio being office buildings. The danger for GNL is after the initial lease period expires if the tenant company doesn’t renew, the expense to retrofit and release will be very high. The shares currently yield 11,2%.
New Residential Investment Company (NRZ) is a finance REIT which has operations in the various phases of the residential mortgage market. Its primary investments are in mortgage servicing rights (MSR). These are fee stream paid on every individual residential mortgage.
The danger to NRZ is that high refinancing activity will deplete the MSR payments stream. To counter this, New Residential has diversified into other sectors of the mortgage business. The shares currently yield 13.1%.
Get your hands on my most comprehensive, step-by-step dividend plan yet. In just a few minutes, you will have a 36-month road map that could generate $4,804 (or more!) per month for life. It's the perfect supplement to Social Security and works even if the stock market tanks. Over 6,500 retirement investors have already followed the recommendations I've laid out.
If this were any “normal” time, we’d be able to buy safe bonds and collect enough income on our nest egg to fund our retirements. Unfortunately, this is the “new normal” where the Fed is not the friend of us current and hopeful retirees!
Jay Powell is afraid for his job, which means he’s going to cut rates and keep them low for a long time. This means we must look beyond traditional bonds for meaningful income.
What about blue chip dividend-paying stocks? Well, an 11-year stock market rally has ruined that idea. Anyone putting new money in a pricey dividend aristocrat is “buying and hoping” that the stock continues to levitate while the firm dishes its dividend.
And about that dividend. Blue chips don’t pay more than 2% or, at most, 3% today. On a $1 million portfolio that’s less than $30,000 in annual income. Not enough to retire on!
Fortunately, there’s a better way. I’ve developed the Perfect Income Portfolio to safely double, triple, and even quadruple the payouts on your 2% payers. You can turn these misers into 6%, 7% and even 8% yields (for $80,000 on that million bucks) without doing anything risky.
And oh by the way, you can grow your capital base, too! Whether it’s $250,000, a million or $2.5 million (or anywhere lower, higher or in between) you can bank these big yields and enjoy price appreciation to boot.
How do I know? Because we’ve done it. In the four years I’ve been managing our Perfect Income Portfolio, our investors have enjoyed 11.4% returns per year since inception. This means they’ve collected their 6%, 7% and 8%+ cash yields while enjoying additional price appreciation on their investments.
Our “secret” has been three safe yet lesser-known income vehicles. Their obscurity creates opportunity for us contrarian income seekers. I’ll explain by showing you how we buy bonds for less than their face value.
Perfect Income Vehicle #1: Buy $1 in Bonds for Less
Many investors believe bond ETFs are a convenient way to add a basket of bonds to their portfolio. Problem is, they’re not getting any deals buying them.
ETFs never trade at discounts. Their sponsors simply issue more shares to capitalize on any increased demand, which means anyone who buys one of these popular vehicles always pays list price.
But we don’t have to pay full price for a bond. Ever. Which is why we should look past ETFs and consider underappreciated closed-end funds (CEFs) instead.
The “closed” in CEF means that the fund’s pool of shares is fixed. Which is why these vehicles can have wild price swings above and below the values of their actual assets. (Good for us contrarian income seekers – we can buy below fair value to maximize our yields and upside.)
They are also “closed” in their actual communications with the financial world. Fund information is often limited (sometimes to one-page fact sheets) and it’s difficult to get management to talk to you.
(Also good for us, because it makes bargains more prevalent in this “mysterious” corner of the income world. Especially for us persistent types).
Plus, we can hire the best bond managers on the planet to handpick our bond buys for free!
Take the DoubleLine Income Solutions Fund (DSL), the vehicle run by the “bond god” Jeffrey Gundlach himself. Its holdings pay plenty, boasting coupons of 7%, 8% and even 9% and higher!
Granted, DSL’s bond holdings are a bit obscure (63% foreign corporate bonds, for example). But there are deals to be had and that’s exactly why we hired Gundlach to search the globe for us for big fixed income payments. He’s the man in Bondland and often gets the first phone call on new juicy deals. You and I can’t buy these bonds as individual investors, but the bond god can buy them for us.
My income subscribers have indeed enjoyed 61% total returns (including dividends) courtesy of Gundlach’s DSL.
When We Were Bond Gods
And they make CEFs in more traditional bond flavors, too. Some provide you with ways to trade in your mere “common” shares for preferred stock that pays more.
Perfect Income Vehicle #2: One-Click to Double Your Yields
Not familiar with preferred shares? You’re not alone—most investors only consider common shares of stock when they look for income. But you can double your yields or better and actually reduce your risk by trading in your common shares for preferreds.
A company will issue preferred shares to raise capital, just as it offers bonds. In return it will pay regular dividends on these shares and, as the name suggests, preferred shareholders receive their payouts before common shares.
They typically get paid more and even have a priority claim over common stock on the company’s earnings and assets in case something bad happens, like bankruptcy. They are “preferred” over common stock and come after secured debt in the bankruptcy pecking order.
So far, so good. The tradeoff? Less upside. But in today’s expensive stock market that may not be a bad substitution to make. Let’s walk through a sample common-for-preferred exchange that would nearly double your current dividends with a simple trade-in.
As I write, the common shares from JPMorgan (JPM) pay 2.8%. But the firm recently issued Series DD preferreds paying 5.75%. JPMorgan shareholders looking for more income may be happy to make this tradeoff.
Meanwhile, Bank of America (BAC) common pays 2% today. But B of A just issued some preferreds that pay a fat 5.88%. That’s a 194% potential income raise for shareholders who want to trade in their garden-variety shares. But how exactly do we buy these as individual investors? Which series are we looking for again?
A big problem with preferred shares is that they are complicated to purchase without the help of a human broker. So, many investors attempt to streamline their online buys and simply purchase ETFs (exchange-traded funds) that specialize in preferreds, such as the PowerShares Preferred Portfolio (PGX) and the iShares S&P Preferred Stock Index Fund (PFF).
After all, these funds pay up to 5.9% and, in theory, they diversify your credit risk. Unfortunately, many ETF buyers have little understanding of preferred shares, let alone how a particular fund invests in them. Should we entrust the selection of preferred shares to a mere formula baked into an ETF?
Again, no! Another problem with the ETF model is that it doesn’t account for credit risk as accurately as an expert human can. Which means a better idea is — you guessed it! — to find an active manager to handpick your preferred portfolio. Buying a discounted closed-end fund (CEF) is the best way to do this.
Here’s a Perfect Income Portfolio favorite outperforming its more popular ETF cousins since we bought the CEF in late 2015:
Why We Prefer CEFs
When we’re shopping in the preferred aisle, it’s a “no brainer” to go with the CEF concierge service. They yield more, they appreciate in price more, and again, the money manager is free when we buy at a discount.
Perfect Income Vehicle #3: Doubling Your Money with Dividends
We’re going to switch gears and jump into stocks. But don’t worry, these aren’t overpriced, underpaying blue chips that the Wall Street fanboys push. No, these are hidden gems that get no coverage from the (lame) mainstream financial media.
We can thank the giant firms that manage most of the investment money in the US for these bargains being available. Think Wells Fargo, Morgan Stanley, Merrill Lynch, your neighborhood Edward Jones, and even Fidelity, Schwab and Vanguard.
These firms serve hundreds of thousands of clients, with millions and millions of dollars, around the country and the world. They offer the same approaches for people of similar situations, which means they can only buy stocks which there are “enough of” (have enough liquidity) for everyone.
That means one simple thing. The familiar names can’t recommend our high-income producers to you. Instead, they stick you in pretty much what everyone has.
Apple has a market value of more than $900 billion. And shares yield just 1.5%. Convenience, familiarity, and liquidity come at the expense of the stock’s current payout.
Let’s contrast Apple with hospital landlord Medical Properties Trust (MPW). The firm pays a generous 5.4% on the capital you invest today, 3.5X as much as Apple! And its focus, the hospital, is arguably even more indispensable than the iPhone (which does have competition from Samsung and others).
But MPW the stock isn’t large enough for the big pension funds to buy or for the brand-name money managers to pile into. With a modest market cap of $7 billion, MPW is plenty liquid for you and me—and exclusive enough to provide us with this generous yield premium!
Plus, just like Apple, it raises its dividend every year. And dividend growth is, over the long haul, the main driver of higher stock prices. We added MPW to our Perfect Income Portfolio stock in November 2015 and received three dividend raises over the ensuing three-and-a-half years. The result? We enjoyed 105% total returns and really crushed the broader S&P 500:
Perfect Income Vehicle #3: Dividends with 100%+ Upside
The Perfect Income Portfolio also adds years to our lives. We don’t need stock prices to stay high to retire! Most investors who sell shares for income spend their days staring at every tick of the markets.
You can live better than this, generate more income and even enjoy more upside by employing our contrarian approach to the yield markets. We live off dividends alone. And we buy issues when they are out-of-favor (like right now) so that our payouts and upside are both maximized.
Plus 8% Dividends, Paid Monthly, Make Retirement Even Easier
And by the way, you can even use my “no withdrawal” strategy to make sure you’re:
Banking 8% annual dividends,
Enjoying additional price upside, and
Getting paid monthly to boot!
If this interests you, I’d recommend starting with my all-star retirement portfolio. It contains 8 of the absolute best-preferred stocks, REITs and CEFs out there.
If you’re scratching your head at these terms, you’re not alone. These are investments that you won’t hear about on CNBC or read about in the Wall Street Journal. Which is why we have these fantastic opportunities available in this “no yield” world.
I’ll explain more about them in a minute. I’ll also show you why my 8% eight-pack is well diversified across all types of investments and sectors, and the cash flows funding these dividends will do well no matter what happens in the broader economy or stock market.
Editor's Note: The stock market is way up – and that’s terrible news for us dividend investors. Yields haven’t been this low in decades! But there are still plenty of great opportunities to secure meaningful income if you know where to look. Brett Owens' latest report reveals how you can easily (and safely) rake in 8%+ dividends and never worry about drawing down your capital again. Click here for full details!
Successful dividend investing is simple, though not necessarily easy. There are nuances which trip up many investors (including most professionals!) These twists and turns create “yield alpha” opportunities for contrarian-minded income investors like us.
If everyone else in the market were perfectly grounded and calculated, there would be no chance for us to make above-average returns. After all, the 11.3% and 17.5% annualized returns that my Contrarian Income Report and Hidden Yields readers are earning would be snapped up in a perfectly efficient market.
Thanks to these inefficiencies, we are able to bank big yields and price returns in Dividend Land. Ready to retire on dividends? Follow these seven steps and we’ll do it together. Let’s start with an obvious yet underappreciated rule for income investors.
Step 1: Count Your Dividends
Since we focus on high yield, most of our returns come from the “yield” component of stocks. So let’s not forget about them when figuring out our returns!
For example, we added this preferred stock fund to our portfolio in October 2015 and its price-only returns look quite pedestrian:
Don’t Fixate on Price Alone…
We’ve gained 51%, while the price is up only 13%. The majority of our fat 51% gains have been delivered via cash dividends. So let’s make sure we add in the orange (top) line below to reflect the big driver of our profits!
… Remember to Add Those Dividends!
Step 2: Find Price Upside, Too
While we could build a portfolio that’s 100% invested in these types of safe bonds and do just fine, we’re better off putting 50% or so of our cash in stocks. The upside is too good to ignore.
Dividend growth is, over the long haul, the main driver of higher stock prices. We added this stock in November 2015 and received three dividend raises over the ensuing three-and-a-half years. The result? We enjoyed 105% total returns and really crushed the broader S&P 500:
Why We Buy Dividend Stocks, Too
Step 3: Monitor Dividend Coverage
A dividend hike is the ultimate sign of dividend safety, so I prefer stocks that consistently raise their payouts. The likelihood that a company is going to raise its dividend (or cut it) is directly related to its payout ratio or the percentage of its profits (or cash flows) that it is dishing out to shareholders as dividends.
As a rule of thumb, a payout ratio below 50% is a sign of dividend safety. Some capital efficient firms can pay more and real estate investment trusts (REITs) can pay up to 90% of their cash flows as dividends.
It depends on the company (and if you don’t feel like following the payouts and cash flows of 20 stocks and funds yourself, I’ll gladly do it for you as part of your subscription!)
Dividend cuts are no fun. Not only are they a monthly pay cut for us, but (worse) they destroy capital. Take the case of CenturyLink (CTL), which has been writing its investors dividend checks that it couldn’t cash since I called out this “paper telecom tiger” in May 2016 (and many times since!)
At the time, CTL was paying out 135% of its earnings as dividends. The company wasn’t growing profits, either, so the payout eventually had to go. Mr. Market eventually sniffed this out and CTL’s management team finally made the inevitable cut earlier this year:
Stocks Rise and Fall with Their Dividends
Remember the rising dividend that drove our gains in step two? The opposite happened to unfortunate CTL investors here, as their stock’s price dropped 59% while they received a 54% pay cut!
Step 4: Don’t Fight the Fed
“Don’t Fight the Fed” was chapter four in investing wizard Martin Zweig’s legendary book Winning on Wall Street. Here’s why we’ll make it step four here.
Zweig devoted 40 thoughtful pages to teach readers why they should “go with the flow” with respect to the Fed’s trend at any given moment.
Is the Fed raising rates? Then we should favor floating-rate bonds because their coupons (and values) tend to tick higher as rates climb.
Has the cycle topped? When the Fed is prioritizing “easy money,” we should trade in our floaters for fixed-rate bonds, which gain in value as rates fall.
Step 5: Favor Out-of-Favor
What did our winners in step one and two have in common? Two things:
They were well run, and (most importantly)
We bought them when each was out-of-favor.
Contrarian investing should be uncomfortable. We want to buy stocks when their yields are high with respect to their norms. To put it plainly, we want to buy this stock when our “dividend per dollar” (as reflected by the orange line) is high. It means the price is low!
High Historical Yield Meant Low Price
And likewise, we want to purchase closed-end funds (CEFs) when they are trading at discounts to the value of the assets on their books. This is a unique feature of CEFs because they trade like stocks, with fixed pools of shares. They can and will trade at premiums and discounts to their portfolios, which means we can sit back and wait for bargains.
Step 6: Get (and Stay) Fully Invested
The stock market goes up about two-thirds of the time. Permabears miss out on compounding and it’s not as easy to be a part-time bear as it sounds.
To illustrate this let’s consider a study by Hulbert Financial. The firm looked at the best “peak market timers”–the gurus who correctly forecasted the bursting of the Internet bubble in March 2000 and the Great Recession in October 2007.
These were the clairvoyant advisors who had their clients out of stocks and mostly in cash when the S&P 500 was about to be chopped in half. Surely their clients did great over the long haul, given their capital was largely intact at the market bottoms, right?
Wrong. None of these advisors turned in top performances. The reason? While they were good at timing tops, they were terrible at timing bottoms! The bearish advisors didn’t get their clients back into stocks anywhere near the bottom. They had their capital intact, but they didn’t deploy it–and they largely missed out on the epic bull markets that followed these crashes.
Think about the advisors and investors who sold in late December when the “bear market” became official. They moved to cash at the worst possible moment and have been on the sidelines waiting for a low risk “retest” of the lows. Mr. Market loves to confuse the most amount of people, and he really outdid himself this time!
Barely a Bear Market…
… And Right Back to a Bull!
We can be smart about staying in the market by focusing on “pullback-proof” names.
Step 7: Prepare for Pullbacks
Where’s the market going from here? Well, if you own pullback-proof dividend payers, you probably don’t care.
My readers are often asking for safe income ideas. For stocks that pay dividends and never drop in price. It’s a very difficult task, but not quite impossible.
For most long-term investors who want big dividends–I’m talking 6%, 7% and even 8%+ current yields–I recommend holding safe dividend-paying bonds and funds through any market turbulence.
Big dividends are the rubber duckies of the investing world. Wall Street hysteria may push their prices underwater for days or weeks at a time, but as the months and years pass these stocks bounce back to the surface. Let’s revisit our dividend machine from steps two and five. Did its investors even realize we had a market collapse in the fourth quarter of 2018? No.
Q4 2018’s Dividend Rubber Duckie
There’s nothing quite like a pullback-proof dividend machine! And if it’s “2008-proof” then even better. After all, we’re 11 years older now and few of us can afford a 50% drawdown.
If you need big income without the drawdowns, I do love the short and long-term prospects for five 2008-proof dividend payers yielding an average of 7.5%. If you’re worried about a repeat of 2008 (and again let’s be honest, who isn’t), here are five solid payouts you can purchase today without worrying about an overdue pullback (or worse, an all-out crash).
Introducing the “2008-Proof” Income Portfolio Paying 7.5%
The “cash or bear market” no-win quandary inspired me to put together my 5-stock “2008-Proof” portfolio, which I’m going to GIVE you today.
These 5 income wonders deliver 2 things most “blue-chip pretenders” don’t, such as:
Rock-solid (and growing) 7.5% average cash dividends (more than my portfolio’s average).
A share price that doesn’t crumble beneath your feet while you’re collecting these massive payouts. In fact, you can bank on 7% to 15% yearly price upside from these five “steady Eddie” picks.
With the Dow regularly lurching a stomach-churning 1,000 points (or more) in a single day during pullbacks, I’m sure a safe—and growing—7.5% every single year would have a lot of appeal.
And remember, 7.5% is just the average! One of these titans pays a SAFE 8.5%.
Think about that for a second: buy this incredible stock now and every single year, nearly 9% of your original buy boomerangs straight back to you in CASH.
If that’s not the very definition of safety, I don’t know what is. These five stout stocks have sailed through meltdown after meltdown with their share prices intact, doling out huge cash dividends the entire time. Owners of these amazing “2008-proof” plays might have wondered what all the fuss was about!
These five “2008-proof” wonders give you the best of both worlds: a 7.5% CASH dividend that jumps year in and year out (every year), with your feet firmly planted on a share price that holds steady in a market inferno and floats higher when stocks go Zen.
Editor's Note: The stock market is way up – and that’s terrible news for us dividend investors. Yields haven’t been this low in decades! But there are still plenty of great opportunities to secure meaningful income if you know where to look. Brett Owens' latest report reveals how you can easily (and safely) rake in 8%+ dividends and never worry about drawing down your capital again. Click here for full details!
July marks the start of the 2019 third quarter, and in a few weeks, earnings season starts, with a flood of quarterly earnings reports. With income stocks, quarterly earnings often are closely led or followed by dividend announcements.
Common stock dividends are note sure things until they are announced. It’s even better when a dividend announcement comes with a payout rate increase.
If you expect a dividend increase is coming soon, you can put the stock on your watch list to pick up shares during any price dip in the weeks leading up to the announcement date. Today I am giving you lead time warning on some projected dividend increases for next month.
Real estate investment trusts (REITs) pay attractive current yields and regularly increase their dividend rates. I maintain a database of about 140 REITs, out of which about 100 have histories of dividend growth.
Most of these companies increase the quarterly dividend once a year, and then pay the new rate for the next four quarters. Even though individual REITs increase their dividends just once a year, those announcements are spread across almost every month of the year.
To capture those share price gains, you want to buy shares a few weeks to a month before the next dividend increase announcement is published. Now in early July, it is a great time to look at those REITs that should increase dividends in August.
Here are a few REITs from my database that historically have boosted their payouts in August.
Federal Realty Investment Trust (FRT) is a $10 billion market cap REIT that owns, operates, and redevelops high quality retail real estate in the country’s best markets.
FRT has increased its dividend for over 50 consecutive years, the longest growth streak of any REIT. Over the last 5 years, the average annual dividend increase has been 6%. Last year the dividend was increased by 2.0%. Based on management guidance, an increase close to the 5% annual average is in the cards for this year.
The company announces its new dividend rate in early August. The ex-dividend date will be in mid-September with payment about a week later.
This is a very high-quality REIT. The stock yields 3.1%.
Eastgroup Properties Inc. (EGP) is a $4.3 billion market value REIT that focuses on development, acquisition and operation of industrial properties in major Sunbelt markets throughout the United States with an emphasis on the states of Florida, Texas, Arizona, California and North Carolina.
The industrial properties sector is currently one of the best performing real estate sectors.
The company has increased its dividend for 23 of the last 26 years, including the last seven in a row. Last year the payout was increased by 12%. This year my forecast is for a 5% to 7% increase.
The new dividend rate should be announced in late August or early September, with a mid-September ex-dividend date and end of the month payment date.
EGP yields 2.5%.
Healthcare Trust of America, Inc. (HTA) is a $5.7 billion REIT that acquires, owns and operates medical office buildings. The company reduced its dividend in 2012 and 2013, which was followed by small increases in each of the next four years.
Last year the dividend was bumped up by 1.7%; comparable to the increase of the previous year. In 2018, the funds available for distribution per share increased by 1.2%, and for the 2019 first quarter, FAD per share was flat compared to a year earlier.
Management has been very conservative with the dividend growth and I expect a small increase comparable to the last couple of years. Last year the new dividend rate was announced in early August, with an end of September ex-dividend date and early October payment date.
The stock currently yields 4.5%.
Bonus Recommendation:
Weyerhaeuser Company (WY) is a $20 billion market cap company that converted to REIT status in 2010. The company owns forest land and generates revenue by harvesting trees and processing the trees into lumber and pulpwood products.
Since the REIT conversion, the dividend has steadily increased, but not on a regular schedule. The current rate has been paid for four quarters, so an increase is due with the next announcement.
Last year the WY dividend increased by 6.3%. The next dividend announcement will be in late August with mid-September record date and end of September payment.
Get your hands on my most comprehensive, step-by-step dividend plan yet. In just a few minutes, you will have a 36-month road map that could generate $4,804 (or more!) per month for life. It's the perfect supplement to Social Security and works even if the stock market tanks. Over 6,500 retirement investors have already followed the recommendations I've laid out.
The trade-war panic is in full retreat—and it’s left us three ridiculously cheap funds set to soar even higher than the market in the coming months.
Best of all, we’ll bag some very nice dividends from this trio: I’m talking outsized yields up to 7.4%!
Before I show them to you, let’s talk about why the market looks set to head higher.
Right now, the SPDRS&P 500 ETF (SPY) is up 18.3% for 2019. This sounds too good to last, but keep in mind that this jump started near the depths of the late 2018 correction—a low level.
That makes the year-to-date number misleading; a longer-term view shows signs of consistent and slow recovery from 2018’s major volatility:
A Steadying Market
There are a lot of reasons for this, but the two most important ones are good signs for stocks.
For one, US GDP growth is strong, up 3.1% in the first quarter, and second-quarter growth is forecast at a still-robust 1.9%, according to the Federal Reserve. That means the recession fears that were priced into stocks in 2018 were wrong—and stocks still need to rise to fully price in this current growth clip.
Speaking of the Fed, the market now expects the central bank to cut interest rates, and the Fed itself has said as much. Why? Because even with strong growth, inflation is stubbornly low, so there’s no reason to keep raising rates, as the Fed has already done over the last five years.
So if America’s economy is growing and interest rates are about to fall again, we should expect American stocks to benefit the most. But which will be the biggest winners?
Instead of picking them one by one, let’s look at three funds that not only choose stocks well, thanks to smart strategies, but also pay out above-average dividends to investors from the capital each fund earns.
Dividend Fund #1: Playing 2 Disrespected Sectors for Big Gains
The first fund playing this economic growth right is Source Capital (SOR), which has put a quarter of its assets in companies like Broadcom (AVGO), United Technologies (UTX) and American International Group (AIG)—three stocks that alone account for 10% of SOR’s assets. Those holdings are up 24.5% since the start of the year, but we’ve only seen tech and financials begin to recover from their 2018 weakness—setting us up for more gains ahead.
Monster Gains for Source’s Wise Picks
More importantly, SOR trades cheap, which means you get these stocks at a discount. That’s because SOR is a closed-end fund (CEF), a type of fund that often trades at market prices below their net asset value (or NAV), another name for the liquidation value of a CEF’s portfolio.
And right now, SOR’s market price is 13.7% lower than its liquidation value, so you’re getting these stocks cheaper than if you got them through an index fund like the Invesco QQQ Trust (QQQ), or if you bought them one by one.
Dividend Fund #2: A 6% Dividend From a CEF All-Star Team
There is a downside: SOR’s dividend yield is just 2.8%, which is low for a tech-heavy CEF. If you want more income and top-performing tech stocks, the BlackRock Science and Technology Trust (BST) might be for you. It yields 5.7%.
BST has a dividend yield over five times higher than that of QQQ and it’s still able to outperform the index fund by a huge and growing margin.
How does it do it?
The answer may surprise you: management. BST’s managers have consistently picked winning stocks that outrun the well-known stalwarts of the tech world.
What this means is that, beyond the FAANG stocks you’d expect (those account for 25% of BST’s portfolio), the fund’s managers have shrewdly picked and timed purchases in breakout names like top holdings Alibaba (BABA), Salesforce.com (CRM) and Tencent (0070).
That strong record usually comes at a price, though; thanks to its market-beating returns, BST has attracted a high valuation in the past and recently traded at a 9% premium to NAV. But today it’s trading at a rare 1.5% discount, which means the premium could very easily return in the coming months.
Dividend Fund #3: Greater Income, Greater Safety
If 5.7% still isn’t enough of a dividend yield, I have just the fund for you: the Eaton Vance Tax-Advantaged Dividend Income Fund (EVT), which trades at its NAV and pays a huge 7.4% dividend yield.
EVT has given investors a monster 29% total return over the last year, versus just 19% for the S&P 500, making it yet another market outperformer.
That’s not surprising; EVT’s biggest holdings are popular S&P 500 names like JPMorgan Chase (JPM) and Johnson & Johnson (JNJ). This fund is very balanced, with about 10% or less of its assets in sectors such as tech, industrials, healthcare, energy, utilities and real estate.
Its biggest exposure is to the financial sector, which is up 15.4% in 2019 and set to keep going higher thanks to the booming economy.
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For me, there are few things more patriotic than earning fat dividend checks from U.S. companies. I like dividends more than apple pie.
For some fun today, I want to highlight a few attractive, dividend paying stocks with at least a plausible tie to an All-American theme.
I hope you have some fun plans for the 4th of July. It is one of my favorite holidays. I think it comes from my time in the U.S. Air Force and because it comes right in the middle of summer. This year, with the holiday falling on a Thursday, I am sure if your holding down a job, there will be temptation to turn this into a four-day holiday weekend. That’s my plan!
Let’s get to my Independence Day themed list of stocks going.
What could be more American than the Ford F-150 pickup truck. As Ford Motor Company (F) is proud to remind us in their ads, the F-150 has been the top selling vehicle for 42 consecutive years.
I find it an interesting fact, considering how much the investing public is focused on electric cars. Unfortunately for electric car manufacturers, two-thirds of vehicle sales are trucks and SUVs, with the percentage of cars declining each year.
According to CNBC, Ford is forecast to be selling 90% trucks and SUVs by 2022. Ford shares are a solid dividend investment.
The current yield is 5.9% and the dividend has been increased for seven straight years.
One thing Americans like to do when they drive their F-150’s is to go shopping. While the financial media may be convinced that e-commerce is taking over America, the U.S. Census Bureau reported than in the 2019 first quarter e-commerce sales accounted for 10.2% of total sales. My math calculation from that says that almost 90% of retail still occurs in brick-and-mortar stores and shopping centers.
Tanger Factory Outlet Centers (SKT) is the only shopping center REIT that is a pure play outlet mall investment. The Tanger share price has been hit hard over the last three years on the e-commerce will take over the world theme. I think the numbers show that belief is not backed by data.
Tanger has increased its dividend for 26 consecutive years.
The current low share price means SKT yields 8.75%. This is a great turnaround story.
Another theme tied to the 4th of July, or at least to summer, is air conditioning. I am sure you know how your power bill goes up as you keep your home cool this time of year.
NextEra Energy (NEE) is the world’s largest utility company one of the best dividend growth utility stocks. NextEra primarily provides power in Florida, operating as Florida Power & Light Company.
The NEE dividend has been increased for 24 straight yields. Dividend growth has been at a 9.5% compound growth rate for the last decade and increased at 13% compounded for the last three years. Current yield is 2.4%.
The dividend growth rate is the force to power the stock higher.
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Your 2% bonds are going to make you broke. You need to buy these safe, higher paying dividends instead.
We’ll get to these “real yields” (up to 9.3%!) in a moment. First, let’s recap. Treasury yields just took their biggest bath in weeks, sending the 10-year T-note to 2%. Less than a year ago, the 10-year was flirting with (a not exactly nosebleed) 3%.
And now that Fed chair Jay Powell has fallen in love with the doves (whether by choice or by force), he’s going to keep rates low for a long time. Which means bonds will have no place in a retirement portfolio geared towards income.
It wasn’t always this way. Decades ago, bonds rightfully earned their reputation as a source of not just safe, but substantial income that could actually support a high-quality retirement.
But Times, They’ve Been A-Changin’
But for nearly a decade, investors subject to traditional wisdom have been put in peril. They’ve been told that bonds are safe, that they’re “wealth preservers.” However, they now yield so little that their income is almost completely gobbled up by inflation, and their paltry coupons don’t even support basic necessities.
Put another way: If you rely on plain-Jane bonds in retirement, you’ll be underwater paying for even the most bare-bones lifestyle.
The table below shows the monthly income from a $1 million nest egg 100% invested in Treasuries, as well as the average Social Security paycheck, stacked up against a list of basic retirement costs compiled by NerdWallet.
Bond investors come up $380 shy each and every month under this low-frills budget. And even if they didn’t spend a penny in “entertainment,” they’d still be broke.
This “new normal” requires a different set of income strategies. You need better yields and substantial payout growth to make sure you’re ahead of the inflation curve.
Of course, you’re not going to get those from Uncle Sam at 2%. You will, however, find them in this five-pack of bigger paying bonds.
BlackRock Core Bond Trust (BHK) Type: Multi-Sector Distribution Yield: 5.6%
The BlackRock Core Bond Trust (BHK) closed-end fund (CEF) lives up to its name, providing a core collection of primarily investment-grade bonds. Investment-grade corporates make up about a third of the portfolio, with double-digit holdings in U.S. government bonds, junk debt and agency mortgages. It also holds developed- and emerging-market debt, securitized products, bank loans and more.
About three-quarters of the portfolio is rated BBB or above, so quality is no issue. And you even have roughly 15% exposure to international debt, which gives you a splash of geographic diversity.
A core ETF such as the iShares Core Aggregate Bond ETF (AGG) will offer typically a little better overall credit quality, but less than half the yield. That’s the power of closed-end funds, which can use leverage and wily active management to juice returns and distributions.
A 7% discount to the fund’s net asset value (NAV) would seem to cinch the deal. After all, who wouldn’t want broad bond-market exposure with 2x the yield for 93 cents on the dollar?
The problem is that there are better options. BHK has delivered 7.1% in annual total returns since inception, versus a 7.6% category average. Plus it has underperformed in most other time periods, too.
Luckily, BlackRock has more to offer, as I’ll show you in a minute.
Calamos Convertible & High Income Fund (CHY) Type: Multi-Sector Distribution Yield: 9.3%
Calamos offers another type of somewhat-blended fixed income, though it’s far from the “core” allocation you’d get via BHK.
The Calamos Convertible & High Income Fund (CHY) invests in a portfolio of convertible securities and other high-yield fixed income instruments. Convertible securities are the lion’s share at 57%, followed by corporate bonds at 32%.
Convertible bonds get very little press. They’re like traditional bonds in that they make regular, fixed coupon payments. But as the name implies, they can be converted–into common stock. So, you can enjoy the income of bonds with the potential upside of equities.
While convertibles’ yields are typically less than regular bonds, CHY’s other holdings, as well as a hefty amount of leverage, help fuel a massive distribution of more than 9% despite a slight reduction in the payout late last year. Its 7.7% annualized total return since inception is in line with the category average.
A 3% discount to NAV is a bargain considering CHY has traded at a premium on average over the past year.
Convertibles Are Cruising in 2019
BlackRock Taxable Municipal Bond Trust (BBN) Type: Taxable Municipal Distribution Yield: 6.1%
It’s hard to read “taxable municipal bond” without doing a double-take. Isn’t the whole appeal of a municipal bond the fact that you get to pull a fast one on the IRS?
Sure, tax-free munis can offer smaller yields thanks to that tax benefit. But what happens when you collect that income in a tax-advantaged account like an IRA?
That’s right: You lose municipal bonds’ primary perk.
Enter the BlackRock Taxable Municipal Bond Trust (BBN), which invests at least 80% of its assets in taxable munis, including Build America Bonds. The fund can, if necessary, invest in other assets, from Treasuries to even tax-exempt bonds, but it mostly stays faithful to its charge.
There’s plenty to like here. BBN is able to juice a 6.1% yield its taxable municipal bonds, which it has converted into a 9.4% average annual total return since inception. That’s better than the category mark by 50 basis points. And you can purchase that outperformance at a tidy little discount of about 4% to NAV right now.
That makes BBN an unorthodox but nonetheless attractive buy.
High Taxable Muni Yields Get BBN Over the Hump
Cohen & Steers Limited Duration Preferred & Income (LDP) Type: Preferred Distribution Yield: 7.6%
I love preferred stocks. These under-covered, under-loved “hybrid” securities fall well off the radar of many investors. But for those in the know, they’re a dependable source of high yield.
Cohen & Steers skims a lesser-traveled area of the preferred world with its Limited Duration Preferred & Income (LDP) closed-end fund, which, as the name suggests, invests in low-duration preferreds. Just like many investors will duck into low-duration bonds to fight off interest-rate risk, they can tap into this fund when they’re worried about rising rates.
Given the Fed’s current disposition, that’s a big strike against it for now. So is a mere 2% discount that sits below its 52-week average discount of about 5%. (In other words, we’re likely to see this fund trading at a bigger bargain down the road.)
But I always make sure to have a plan for every market condition, and that includes an eventual return to rising rates, whenever that might be. Under that condition, LDP and its collection of about 150 holdings–including preferreds from JPMorgan Chase (JPM) and Bank of America (BAC)–will be the right way to play this asset class.
BlackRock Corporate High Yield Fund (HYT) Type: High Yield Distribution Yield: 8.1%
Junk debt has looked less like a fixed-income product and more like a hard-charging blue chip in 2019. That has led to stellar returns for the likes of the BlackRock Corporate High Yield Fund (HYT).
BlackRock’s HYT: Don’t Throw This Junk Away!
HYT’s more than 1,100 holdings aren’t exclusively junk debt, of course. While 83% of the fund is dedicated to junk, another 11% of assets are piled into term loans, with a peppering of collateralized loan obligations, preferred stocks and other assets.
This closed-end fund takes chances, too. Only a little more than a third of the fund is in the highest credit-quality level of junk (BB); much more is in B (45%), and another 14% is dedicated to CCC-rated bonds. That’s much farther down the ladder than what you get in typical junk index funds such as iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK). BlackRock’s managers double down on those risks, too, with a healthy 28% leverage ratio.
The chutzpah is worth it. BlackRock Corporate High Yield has stomped its category return, 8.3%-6.7%, since inception. And anyone who steps into the fund today can buy HYT’s high-performing assets at a 9% discount.
How Retirees Can Collect $3,125 Per Month in Dividends Alone
These CEFs all have one important trait in common: They distribute cash to shareholders not every quarter, but every month.
That’s a boon to retirees who will have to pay all their monthly bills with retirement income.
But how much will you need every month to get by?
The experts at Merrill Lynch say you need a $738,400 nest egg to retire. The talking heads on CNBC and Fox Business will tell you the magic number is $1 million or $1.5 million. Suze Orman collectively dropped our jaws when she said “You need at least $5 million, or $6 million. Really, you might need $10 million.”
$10 million?
They’re right—if you invest in low-yield bonds or the types of so-so-yielding blue-chip stocks that the financial media deems as “safe.” But there’s nothing safe about collecting so little income in retirement that you have to start taking large chunks out of your nest egg, which in turn saps your income potential even more.
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I receive a lot of questions concerning the different investments on closed-end funds (CEFs); particularly the category of high yield investment types. A lot of investors see the yields and monthly dividends and decide to jump into CEFs without understanding what they are buying.
You can find several danger signals that will tell when to stay away from particular funds. Today I will discuss one such signal.
A closed-end fund is an actively managed investment portfolio whose shares trade on one of the stock exchanges. The closed part comes about because after an initial IPO a fund’s sponsor does not issue new shares.
The amount of capital in a CEF only changes by the investment results and dividends paid.
These funds cover the gamut of investment types. Tax-free municipal bonds funds are a popular category.
The CEF Connect website shows 83 municipal bond focused CEFs. Taxable income funds cover a wide range of fixed income investment types including convertible bonds, high-yield bonds, preferred stock funds and senior loan funds.
The website shows 144 funds in taxable income category. U.S. Equity has 13 sub-categories including sectors such as MLPs, commodities, real estate and health/biotech. This category includes 134 funds.
Lastly, there are the non-U.S. funds, with global funds and area specific funds. You will find 70 CEFs in this group.
With this broad mix of investment types and very loose rules governing the category, there are a lot of ways a poorly managed CEF can lead to investor losses.
In this article I cover one danger signal related to the basic nature of a closed-fund. Since a fund’s sponsor won’t redeem shares, and the shares only trade on the stock exchange, it is common for CEF’s to trade at premiums or discounts to their net asset values or NAV.
The NAV is the real value of a share if the fund was liquidated and the proceeds paid out to share owners. If you buy a CEF trading at a discount, you are paying less than the share is currently worth.
Paying a premium means you are paying more than the current real value.
Here are five closed-end funds trading at big premiums to NAV. There is no reason to buy one of these and if you own one, a collapsing premium would cost you money even if the fund is performing satisfactorily.
PIMCO California Municipal Income Fund (PCQ) seeks to provide current income exempt from federal and California income tax.
Since October 2018 the premium on PCQ shares has expanded from under 11% to the current 34.3%. A return to the previous premium would offset five years of the current 4.9% tax free yield.
I guess California based investors really don’t want to pay taxes!
Oxford Lane Capital Corp. (OXLC) is a senior loans fund that seeks to achieve its investment objective of maximizing risk-adjusted total return by investing in debt and equity tranches of CLO vehicles.
Investors are attracted to this fund due to the 15% distribution yield.
OXLC is a CEF that could be the poster child for closed end fund dangers, and the 34.8% premium to NAV is just one of the problems with this CEF.
Stone Harbor Emerging Markets Income Fund (EDF) primary investment objective is to maximize total return, which consists of income on its investments and capital appreciation.
The Fund will normally invest at least 80% of its net assets Emerging Markets Securities.
In regular speak, this is an emerging markets debt securities fund. It owns bonds issued by countries such as Argentina, Indonesia, Russia and Ghana.
The fund launched in 2010 and has produced an average 2.8% annual return on NAV. Not a good reason to justify the 15% distribution yield or 35.4% premium to NAV.
PIMCO Strategic Income Fund (RCS) seeks high current income with capital appreciation through investments in global sovereign debt securities.
Despite the “global” in its stated investment goals, the fund has over half its assets in Fannie Mae mortgage backed securities.
While most CEFs limit themselves to 25% to 30% leverage, this fund is 67% leveraged, doubling the equity with borrowed money.
I see a time bomb when interest rates start to rise. RCS currently trades at a 35.5% premium to NAV.
Gabelli Utility Trust (GUT) invests primarily in foreign and domestic companies involved in providing products, services, or equipment for the generation or distribution of electricity, gas, water, and telecommunications services.
The primary claim to fame is the fund is run by celebrity investment manager Mario J. Gabelli, CFA.
Neither his management, the 6.78% 5-year average annual return nor the 8.6% yield justify this fund’s 37.8% premium to NAV.
Get your hands on my most comprehensive, step-by-step dividend plan yet. In just a few minutes, you will have a 36-month road map that could generate $4,804 (or more!) per month for life. It's the perfect supplement to Social Security and works even if the stock market tanks. Over 6,500 retirement investors have already followed the recommendations I've laid out.
