Category Archives: Dividends

These 3 Funds Are Headed for a Crash. Do You Own Them?

The 2019 rebound has done a lot to revive most people’s portfolios. But there’s a new trap you need to dodge as the market ticks up: the risk you’ll stumble into an overbought stock (or fund).

But don’t take that to mean stocks are pricey—far from it! The S&P 500 is barely up from the start of 2018 and still far from its all-time highs, which is ridiculous when you consider last year’s near-20% earnings growth.

So it’s pretty easy to see that stocks are still ripe for buying.

But there is one sector I am worried about—and it brings me to the first of 3 closed-end funds (CEFs) I want to warn you about today.

I’m talking about energy stocks, which have been on a tear so far this year, as you can see from the performance of the benchmark Energy Select Sector SPDR ETF (XLE):

Energy Gets Ahead of Itself

Trouble is, that growth isn’t supported by earnings! In fact, profits in the sector have actually fallen nearly 6%, according to FactSet. And the CEF I’m going to tell you about now has actually run up even more than XLE, despite massively underperforming the market.

That would be the Tortoise Energy Independence Fund (NDP), which has soared a shocking 37% since the start of 2019. Investors holding this fund probably feel pretty smug about that gain, but they shouldn’t. While NDP’s market price is up big, its NAV (or the value of its underlying portfolio) is up just 7.1%, a fair amount behind XLE’s gain.

Snapshot of an Overbought Fund

The main reason for NDP’s meteoric rise is classic yield chasing: many are enticed by this fund’s astronomical 18.7% yield. But that is a mirage; not only has NDP cut its dividend massively throughout its history, but it is currently under-earning its dividend, which means yet another cut is coming soon.

The fund is also down on a total-return basis (so even when taking dividends into account!) since its inception, no thanks to the 2014 oil crash. But even before that, its returns were less than impressive:

A Perennial Money Loser

For this reason, NDP is my No. 1 must-sell CEF right now.

But it’s not the only one to run away from. The PIMCO Global StocksPLUS & Income Fund (PGP) is a complex bond-and-derivatives fund whose market price has also run far ahead of its NAV, and not by a little, either! PGP has soared 24.5% in 2019, while its NAV is only up 4.5%:

PGP Steps Onto the Precipice

As a result, PGP’s premium to NAV is now an absurd 56%, which means it’s positioned for a crash anytime now.

If this sounds familiar, it should. I’ve written about PGP’s huge premium many times before, noting how easy it is to swing trade this fund for 40% annualized gains if you buy it when its premium gets too low and sell when its premium is too high. Right now we’re at a clear sell point, just like the one I spotlighted in August after recommending investors play PGP for a short-term trade in June. Investors who followed that advice bagged a 39% annualized return in less than three months.

Now we’re at a crest in the wave, so if you have PGP in your portfolio, this is the time to ditch it.

One more fund we need to be wary of: the Virtus Global Dividend & Income Fund (ZTR), which did something unusual just over a year ago: it traded at a premium for the first time ever.

A Suddenly Costly Fund

Although that premium disappeared during the recent market crashes, ZTR investors don’t care. They’re buying at a 5.1% premium for no good reason, since ZTR both underperforms its peers and the Vanguard Total World Stock Fund (VT) over the long haul.

Trailing the Market

Since ZTR’s NAV is up a measly 4.2% in 2019, while its market price is up a shocking 18.6%, it is clearly overbought—which means it’s time to walk away.

Here’s a SAFE 8.5% Cash Dividend for 2019

I don’t know why anyone would play around with looming disasters like ZTR, PGP and NDP when the CEF market continues to throw us bargain after bargain.

In fact, I’ve got 18 of the very best deals in the space waiting for you now! As a group, these 18 retirement lifesavers throw off an incredible 8.5% dividend!

Own These 3 High-Yield Stocks While Experts Flip Flop On Interest Rates

Just a few months ago, bond “experts” were all over the financial news networks predicting the yield curve would soon invert. An inverted curve, where short-term rates are higher than long-term rates, is a reliable indicator that the economy will go to negative growth – a recession. At that time the stock market was setting new records higher, even as the fears of a recession grew. Currently the rate curve is very flat, meaning short-term rates and long-term bond rates are not very different.

The interest rate news in late 2018 helped push the stock market into a steep decline. So, what is it to be? An economic recession with higher stock prices or a strong economy with lower stock prices? Or market and economic activity no one predicted? Will the yield curve flatten or steepen? What will they say next week?

The point is that an investor who invests based on the latest “expert” opinions is likely to get whipsawed into losing money in the stock market. In December, the stock market went into a deep correction. Many financial pundits took this as a prediction of an economic recession and continued stock price decline into a bear market. Stocks did just the opposite and so far, have gone up every week in 2019.

If you are an investor, and not a trader, and want to grow your portfolio value, you need an investment strategy that accounts for market corrections. Over the course of 2018, there were lots of predictions that a correction was coming. Now we have experienced the mental stress that comes with a steep market drop.

My plan, which I regularly share with my Dividend Hunter readers, is to focus on owning higher yield dividend stocks with potential for dividend growth. A dividend focused investment strategy provides three advantages when the stock market corrects.

  • Quality companies will continue to pay dividends. You will earn dividend income right through the correction and recovery.
  • Dividends are additional cash to put to work when share prices are down. Investors say they are waiting for a correction to invest. Reinvesting your dividends allows you to do that.
  • Buying income stock shares when prices are down boost your portfolio yield, which you will continue to earn for as long as you own the shares.

Now that the major market indexes have lost almost 20%, there are lots of dividend stocks at very attractive valuations. However, my editor likes for me to highlight some attractive stocks with each article. Here are three that have monthly dividends and will pay well through a correction and provide you with nice gains when the market recovers.

EPR Properties (NYSE: EPR) is a very well-run net lease REIT that has done a great job of growing the business and generating above average dividend growth for investors.

With the triple net-lease (NNN) model, the tenants that lease the properties owned by EPR are responsible for all the operating costs like taxes, utilities and maintenance. EPR’s job is to collect the rent checks.

Typically, NNN leases are long term, for 10 years or more, with built-in rent escalations. EPR Properties separates itself from the rest of the triple net REIT pack by the highly focused types of properties the company owns. The EPR assets can be divided into the three categories of Entertainment –movie megaplex theaters, Recreation – golf and ski facilities, and Education – including private and charter schools, and early childhood centers. EPR just increased its dividend for the ninth consecutive year, boosting the payout by 4%.

The shares yield 6.1%.

Main Street Capital Corporation (NYSE: MAIN) is a business development company has been a tremendous stock for income focused investors.

A BDC is a closed-end investment company, like closed-end mutual funds (CEF). The difference is that a CEF owns stock shares and bonds, while a BDC makes direct investments into its client companies. A BDC will have hundreds of outstanding investments to spread the risk across many small companies. MAIN uses a two-tier approach to its portfolio. This unique strategy allows Main Street to generate a high level of interest income and capital gains from equity investments.

This company is one of just a small number of BDCs that has grown its dividends and net asset value per share. The monthly dividend has been increased five times in the last three years. MAIN has also been paying semi-annual special dividends that boost the realized yield above the current yield.

The stock currently yields 6.3%.

The Reaves Utility Income Fund (NYSE: UTG) is a closed end fund manage by Reaves Asset Management, an investment manager firm that solely focuses on the utility, telecom and infrastructure sectors.

I recommend UTG over individual utility stocks because it pays monthly dividends and has a higher yield than the typical utility stock. The UTG dividend has never been reduced. It has increased steadily and is now 75% higher than at the time of the fund’s IPO in 2004. No portion of the dividends paid have every been classified as return-of-capital.

Utilities are viewed as a safe haven stock sector, and UTG is a great way to invest in that sector.

Current yield is 6.5%.

1 Click for 35% Gains and 7.2% Dividends in 2019

If you’re like most people, you’re wondering one thing right now: can stocks keep soaring following December’s nosedive—even after spiking 8% in January?

The answer? Absolutely.

To get at why I’m so sure, we’ll first go a couple steps further than headline-driven “first-level” investors do. Then I’ll give you a way you could double (or more) your rebound gains thanks to a terrific closed-end fund (CEF) yielding 7.2%—and “spring loaded” for 35% returns this year.

The Ignored Connection Between Jobs and Stocks

To get at what’s in store for the markets in 2019, we have to go back to 2009 and zero in on one thing: jobs. Because the crisis back then triggered a lost decade that only ended in 2017, when the unemployment rate finally got back to pre-crisis levels.

Then something strange happened—unemployment kept falling. In January, payroll data rose to one of the highest levels ever, blowing away even the rosiest estimates.

In such a job market, inflation seems like a sure thing. After all, when everyone who wants a job can get one and more jobs are created every day, employers will need to pay higher wages to keep the workers they have. And consumers will open their wallets, confident they’ll be earning more. But we’re not seeing that:

Inflation Defies Expectations

This has stumped many economists, because it’s normally a given that lower unemployment stokes inflation. But there’s a simple explanation for what’s happening today, and it comes back to folks who are unwillingly out of the workforce.

Here’s what I mean: the government measures unemployment by looking at what percentage of people are in the labor force, then looking at what percentage of those people don’t have jobs. But people can choose to be in or out of the labor force at any given time—and plenty of people have made an exit in the last decade:

US Workforce Shrinks—Till Now

For much of the 2010s, the unemployment rate wasn’t falling because more people were getting jobs—it was falling because more people gave up on getting jobs. But workforce numbers flat-lined since 2015 and began rising in late 2018. In short, Americans who’d thrown up their hands are getting back in the game.

That means inflation could be a risk in the future, when all those who left the labor force have come back, but we’re a long way from that.

In sheer numbers, think of it this way: 66% of 306 million people were in the labor force in 2007. That’s 202 million men and women. We’re now down to 63.2% of 327.16 million, or 206.8 million people. Another way to think about it: in the last 12 years, our labor force is up just 1.6% while our population is up 6.9%.

This is unsustainable: America needs more workers to keep up with its bigger population.

“A Rare Time When You Can Buy Stocks at a Discount”

This all means the market recovery will likely continue, because there’s too much demand for workers—and workers have too much money to spend—to cause a market hiccup. Better still, we’re at a rare time when you can buy stocks at a discount—and an even bigger discount is on the table for us, thanks to closed-end funds (CEFs).

Let me explain.

CEFs slipped in 2018, only to start recovering in early 2019:

CEFs Tumble … Then Bounce Back

But as you can see, CEFs still haven’t fully recovered—and there’s still a big gap between their 2018 peak and where they are now, even though CEFs’ year-to-date recovery has beaten the S&P 500’s 9.1% bounce, with the CEF InsiderEquity Sub-Index up 11.1% in 2019.

That tells me that this could be another year where CEFs outperform, as they did in 2017. And they’re likely to do so for the same reason: they were oversold in the prior year.

The One Fund to Buy for 35% Gains (and 7.2% Dividends) in 2019

Which brings me to the Dividend and Income Fund (DNI), which focuses on bargain-priced US stocks like Apple (AAPL), Intel (INTC) and the Walt Disney Company (DIS). DNI is now signaling that it’s in the early stages of a huge recovery. Look at its outsized return in 2019 so far:

The Rally Is On!

But DNI still falls short of where it was in early 2018, so it has plenty of runway ahead:

DNI’s Ride Is Just Beginning

How high can DNI go? If we track its 2017 performance from when it got absurdly oversold at the end of 2016 (as it was absurdly oversold at the end of 2018), we see that a 35% return was in the cards:

History Looks Set to Repeat

And since DNI’s decline in ’16 wasn’t as severe as in ’18, there’s a good chance this year’s return will be even bigger than 35%.

One reason why I’m confident is that the fund’s unusually large 23% discount to net asset value (NAV, or the market price of its underlying portfolio) means that, just to sustain that discount, for every 1% its NAV gains, DNI’s price will have to go up 1.3%. If the market wants to make that discount disappear (as it did in 2017), its price will obviously have to go up much more than 1.3% for every 1% of NAV gains.

The kicker? DNI yields an outsized 7.2% now, so you’re getting around 20% of your potential 35% return in cash here.

Better still, DNI is far from your only choice: there are many other CEFs yielding as much or more than this fund and also look set to clobber the S&P 500. And these income wonders invest in similar top-notch (and cheap) US companies.

Which brings me to …

Source: Contrarian Outlook

Quiet Shift Reveals Huge 8.8% Cash Payout

It happened so quietly, you may not have even noticed. But the script has flipped on interest rates—and today I’m going to give you my favorite way to profit. (hint: this buy pays an 8.8% dividend—enough to hand you $8,800 a year in cash on every $100k invested—and is poised for quick 10% price upside, too!).

Let’s start at the beginning.

A Low-Key 180

I’m sure I don’t have to tell you that the big story of the last three years has been the Fed’s aggressive rate hikes. But the big story of the next three years will likely be a lack of aggressive rate hikes.

The change happened fast—at just one Fed meeting in January—and the market now expects zero hikes in 2019. Funny thing is, our best buy for this new world is a group of investments that, if you relied solely on the headlines, you’d think are some of the worst things you could own now.

I’m talking about floating-rate loans, which should rise in value as rates go up. But the Fed’s move to no hikes this year has actually created a great contrarian buying opportunity here.

Floating-Rate Loans Have Been a Wildcard

Floating-rate loans were touted as a way to profit from higher rates since the Fed started hiking in late 2015, but there’s been a problem: reality kept butting against this theory.

Floating-Rate Loans Freeze Up

Despite the rising-rate cycle kicking off in December 2015, the benchmark iShares Floating Rate Bond ETF (FLOT) went nowhere following a brief, small bump in early 2016. And investors were no doubt frustrated with the 1% gain they got in the years they held FLOT, before kissing most of that gain goodbye in the late-2018 market panic.

In short: floating-rate loans, for much of this period, didn’t work as planned.

But now is a great time for floating-rate loans, even though the Fed rate is likely to flat-line. Because just as theory didn’t translate to reality by using these loans to profit from higher rates, the theory that their value will go down in value as rates fail to rise is equally unrealistic.

That’s because the recent fall in floating-rate-loan values has nothing to do with interest rates.

The floating-rate loan market saw a huge drop in late 2018 for two reasons: 1) There was a record number of loans in the market, due to lenders choosing floating-rates over corporate bonds (thus increasing supply and limiting price growth); and 2) There was a panic as investors feared lenders would default on their loans due to bankruptcies caused by an economic crash.

The second fear is already proving to be nonsense: not only is there no crash, but employment and corporate earnings seem likely to keep improving in 2019, even after a strong 2018. The first issue, however, is also disappearing—but many people don’t know about it.

Instead of using floating-rate loans, as they did in 2018, more US companies are going back to raising cash by issuing corporate debt in the form of bonds. They are even doing this in unusual and unexpected situations. The Financial Times tells the story of TransDigm (TDG), an aircraft-component manufacturer that used corporate bonds instead of floating-rate loans to fund its $3.8-billion acquisition of aerospace-component maker Esterline.

Commenting on the deal, TwentyFour Asset Management Head of Credit David Norris told the Financial Times: “I would typically have expected a company like this, doing an acquisition, to go to the loan market. But they didn’t do that. There are opportunities right now in the high-yield bond market.”

With the decline in the number of floating-rate loans, demand for those still in existence (and the few new ones coming to market) will likely drive up prices, especially since overblown default fears have kept floating-rate loans below their pre-crash levels.

That means there’s a huge buying opportunity for savvy buyers—especially if we get our floating-rate-loan exposure through closed-end funds (CEFs).

Floating-Rate Confusion Hands Us an 8.8% Cash Payout

Since CEFs often pay huge dividends, your chance to grab 7%+ yields from floating-rate funds is now. But which funds to pick?

One of the most discounted floating-rate funds also has one of the biggest yields: the Ares Dynamic Credit Allocation Fund (ARDC) pays a massive 8.8%. It also gets “bounce-back” upside from its 13.1% discount to net asset value (NAV, or the what its underlying loan portfolio is worth). That’s well below the 7.2% discount it achieved in the past year.

As you might suspect, the fund’s name comes from its management team: Ares Management, which runs a number of funds and companies that provide credit to medium-sized businesses, including its business-development company, Ares Capital Corporation (ARCC). Ares Capital is the biggest BDC, with $12.3 billion in assets under management.

That size is important, because it means Ares has deep connections with many borrowers and knows which can pay their bills and which can’t. That has meant an impressive run-up for ARDC since interest rates started rising:

“In the Know” Management Delivers

While investors typically reward ARDC with a steadily rising market price to match its portfolio’s fundamental strength, the fund’s price return is still lagging:

A Rare Buying Opportunity

The takeaway? Now is a great time to tap ARDC for its 8.8% income stream and hold while my expected 10% capital gain from both a strengthening floating-rate-loan market and the fund’s shrinking discount start to appear.

Source: Contrarian Outlook

Buy These 3 Stocks in the Safest High-Yield Sector

Over the last four months, the U.S. stock market has turned ugly and the fear of an economic recession is in the air. There are a lot of recession predictions coming out in the financial media.

I have seen forecasts for an economic slowdown this year, next year, or further out on the future. Timing of the next recession is for entertainment value only.

However, since the economy does go through growth and recession cycles, you can be fairly positive that the economy will go through a period of negative growth at some time in the future.

To get through an economic downturn, income stock investors want to own stocks that won’t cut their dividend rates when business conditions turn rough. The easy path is to go with Dividend Aristocrat types of stocks, but the trade-of for that level of safety is low yields, with this group currently averaging around 3%.

Today I want to discuss a group of stocks that currently pay yields of 7% to 9% and have business models built to be successful through the full range of economic growth and contraction.

Finance real estate investment trusts (REITs) are companies focused on the finance side of the real estate sector. They originate or own mortgages, mortgage backed securities, or related investment securities. The finance REIT group can be further divided into those that focus on residential mortgages and those which are in the commercial property mortgage business. Interestingly, the former group are risky and a danger to your portfolio, while the commercial finance REITs provide a high level of dividend income safety.

Here are the reasons why a commercial mortgage REIT stock tends to be a solid dividend income investment.

  • Most commercial REITs are mortgage originators and keep the loans in their portfolio. This allows these companies to use less leverage to get attractive returns on capital.
  • Most commercial mortgage loans have adjustable interest rates. A commercial REIT can match its borrowings to its loan portfolio and generate steady returns through both ups and downs in market interest rates.
  • Commercial REITs lend at very conservative loan-to-value ratios. This means property owners will be highly motivated to keep making their mortgage payments if they want to protect their equity. If the REIT forecloses on a property, its likely the real estate can be flipped for an amount greater than the outstanding loan balance.

Here are three commercial mortgage REITs that are well run, and the stocks carry attractive yields.

Blackstone Mortgage Trust (NYSE: BXMT) is a REIT that makes mortgage loans on commercial properties. They make loans up to $500 million on a single property, which puts them in a very small group of financial companies that will write very large loans on commercial properties.

The commercial mortgages issued by Blackstone Mortgage are retained in the company’s $13.8 billion investment portfolio. This is a conservatively managed business, with an average loan-to-property value of 62% and 2.3 times debt to equity leverage. Income is the interest earned from the mortgage portfolio minus the cost of the debt.

The portfolio is 95% floating rate loans, with debt rate matched to each loan. The result is that as interest rates increase, so will Blackstone’s profits.

BXMT currently yields 7.4%.

Ladder Capital Corp (NYSE: LADR) is the only commercial finance REIT listed here that is internally managed. Management also owns 12% of the stock.

Ladder has a three prong investment strategy where it owns a portfolio of commercial loans, a portfolio of commercial mortgage backed securities, and it owns commercial real estate. The balance sheet loan portfolio accounts for 76% of the total assets.

In contrast to BXMT, the average loan size for Ladder Capital is $20 million. Total company assets are $6.4 billion, which includes a $1.2 billion real estate equity portfolio. The $4.2 billion loan portfolio has a 68% loan-to-value.

The current dividend is well covered, at just 66% of core EPS.

LADR currently yields 8.3%.

Starwood Property Trust (NYSE: STWD) is another commercial finance REIT. It originates mortgage loans for commercial properties, such as office buildings, hotels, and industrial buildings.

Starwood has two commercial lending businesses. One is to make large dollar loans to retain in its portfolio. The company also operates a fee-based CMBS origination business. The $8.0 billion commercial loan portfolio has a 62% LTV.

To further diversify the company has acquired a portfolio of stable returns real estate assets and has added an infrastructure lending arm. The final piece of the pie is a special servicing division, which will turn very profitable if the commercial real estate sector experiences a downturn. Large commercial loans account for 55% of net earnings. The diversified businesses bring in the balance.

Investors can expect to earn the dividend, which currently gives the shares a 9.5% yield.

Source: Investors Alley

My No. 1 Market Forecast for 2019

With the market on the rise from its Christmastime lows, it’s natural to wonder if you’ve missed out on the rebound.

Good news: you haven’t—and today I’m going to tell you why we’re still looking at a terrific buying opportunity, even though stocks have gained more than 5% since bottoming in late December:

The Recovery Is Here

The 5.3% jump since the start of 2019 isn’t the result of fundamentals (those haven’t changed), new news (there haven’t been any significant developments) or an end to political gridlock (the shutdown has remained in effect). Instead, it’s been a clearly psychological change: with the new year, the market has a new attitude.

When it comes to short-term trends, psychology is by far the most important factor. People sell when they panic and buy when they’re greedy—which is why the contrarian, seeking long-term profits and a stable income stream, does the opposite and buys when people panic (because they’re overselling cheap assets) and sells when people are greedy (because they’re overbidding assets beyond their true value).

And that’s the biggest reason why bear markets aren’t to be feared—they’re to be embraced in a bear hug your portfolio will eventually enjoy.

Another Reason to Love the Bears

That isn’t the only reason to not fear bear markets, however. There’s one key factor you should cling to during every downturn—and take into account when you’re on the hunt for contrarian bargains: the length of a bear market.

First, the facts.

On average, bear markets have lasted 14 months from beginning to end since World War II, with the average decline being 33% from top to bottom.

However, on average, bear markets have recovered to their pre-bear-market high in an average of 14 months—meaning that the average investor who ignores short-term volatility will find that their portfolio fully recovered in about as much time as they saw it weaken.

Let’s dig deeper. Since 1945, we have had a total of nine bear markets with an average 35.8% decline among them. Also, unsurprisingly, the longer the bear market, the deeper the decline:

Note how the biggest decline of them all was the most recent: the 2007–09 Great Recession is the sort of once-in-a-lifetime event we aren’t likely to see again anytime soon. That didn’t stop many Americans from bailing on stocks during its depths, meaning they missed out on the 48 months of recovery that followed it and the 290% gains in the decade since:

Buying in ’08/’09 Led to the Ultimate Payoff

Of course, we can’t only buy stocks when they’re at their weakest—but every bear market is a clear buying opportunity, because it’ll take just about a year for the market to recover to its pre-bear-market levels—which means massive profits for people who bought when stocks were at their bear-market lows.

How Will 2018’s Bear Market Be Remembered?

My table above doesn’t include the 2018 bear market, for one reason: it isn’t over yet.

If the market continues on its uptrend, we can say that the bear market itself lasted a total of three months (really a bit less, since the market bottomed on December 24 after starting to fall on October 3).

And if we assume the same rate of recovery as we’ve seen since the market’s Christmas low, a very rough estimate would say that we’re halfway through the recovery after it lasting about a month. That would mean the total recovery time will be two months in total, shorter than the length of the downturn and far too little time in the long haul to get worked up about.

So what’s the key takeaway now? Simply this: the time to buy stocks is now—before this bear market’s short-term low prices have fully disappeared.

On that note, I want to show you …

4 Red Hot Buys for 20% GAINS (and 8%+ dividends!) in 2019

You’ll do even better if you buy the 4 closed-end funds (CEFs) I’m pounding the table on now.

Closed-end what?

Don’t worry if you’ve never heard of CEFs. Because there are only two things you really need to know about these retirement-altering cash machines:

  1. These funds throw off GIANT dividends: Safe yields of 8% and up are common in the CEF space, and …
  2. The selloff has knocked CEFs to ridiculously cheap levels. And because CEF investors are always slower to react to market shifts than folks who buy big-name stocks, we’ve still got a terrific opportunity to rack up BIG profits here.

How big?

Each of the 4 incredible funds I’ll show you when you click here is locked in for 20%+ in “snapback” gains in 2019 alone as their silly discounts revert to normal.

One of these picks, for example, trades at an unusually large 13% discount to net asset value (NAV, or the value of its underlying portfolio). That simply can’t last, especially when you consider that this discount was as narrow as 5% in August 2017 and has been near (and above) par many times in the past!

Don’t Let This Deal Get Away

Now is the time to buy this one—before it makes its next move higher.

Source: Contrarian Outlook

How to Get $3,329 in Dividends Every Month (from just $470K)

Think you can’t retire on anything less than a million bucks?

Many people would answer that question with a “yes.” If you’re one of them, I have great news: the “million-dollar myth” is just that, a myth.

I’ll tell you why in a second. Then I’ll reveal 4 buys throwing off a safe cash dividend yielding 8.5%—letting you fund your golden years on a lot less.

(These 4 are the tip of the iceberg, by the way. At the very end of this article, I’ll give you 20 more retirement lifesavers paying gaudy 8% average dividends, as well!)

A Million-Dollar Retirement … on $470K!?

So how much smaller of a nest egg am I talking about here?

How does $470K sound? If you’re keeping track at home, that’s 53% less than the suits say you need if you want to spend your golden years above the poverty line.

Better yet, our 4-buy “instant” retirement portfolio will pay us in equal amounts every month. It’s just like getting a regular paycheck, but you don’t have to do a thing—besides log into your brokerage account and pick up your cash!

Beyond the Big Names

A big reason why the million-dollar myth exists is that most folks predict their future income stream based on the pathetic yields popular stocks, like the so-called Dividend Aristocrats, dribble out today.

And it is true that traditional dividend plays don’t come close to the 8.5% average payout thrown off by the 4 off-the-radar buys I’ll show you in a moment.

Let’s take a 4-pack of typical Dividend Aristocrats and map how much they’ll pay investors (based on that $470K nest egg I mentioned earlier) in the next few months.

4 Clicks to Smooth, Safe Monthly Payouts

The best part is that this strategy isn’t capped at $470,000. If you have managed to save a million bucks, you can buy more monthly payers like these and kick your monthly income to $7,083.

So let’s move on to the 4 stocks I have for you now—well, they’re not stocks, exactly, but closed-end funds (CEFs).

CEFs are muscular income plays that give us two advantages: outsized dividends (CEF payouts of 8%+ are common) and big discounts to net asset value (NAV), a powerful upside predictor far too few people watch.

Your Monthly “4-Pack” for an 8.5% Average Dividend

The Western Asset Emerging Markets Debt Fund (EMD) yields a gaudy 9.1% today and trades at a 13.1% discount to NAV as I write.

In English: we’re getting its portfolio of emerging market corporate and government bonds for 87 cents on the dollar!

The upshot here is that plateauing US interest rates (traders betting through the futures markets have the Federal Reserve pegged for zero hikes this year) will send income seekers abroad for higher yields—and that’s great news for EMD.

Either way, management has shown its chops since the current rate-hike cycle started three years ago, with the fund’s price (in orange below) slipping just 2.3%. But add in that monster dividend and its total return jumps to 26%!

EMD Shrugs Off Rate Woes

And EMD pulled this off in a tough time for emerging-market debt! But now, with US rates on hold and EMD’s absurd discount, the fund is poised to deliver some nice price upside, on top of its 9.1% monthly dividend.

Now let’s come back home to another sector primed for gains thanks to slowing rate hikes: US real estate. We’ll ride that trend with the Cohen & Steers Total Return Realty Fund (RQI), and its 8.5% monthly dividend.

US real estate underperformed last year, due to the same rate-hike fears that hobbled emerging-market debt:

Rate Fears Hogtie REITs

But I sensed that the Fed was about to change tack during last fall’s stock-market meltdown, which is why I pounded the table on RQI on December 28. Since then, the CEF (in red below) has dominated the benchmark Vanguard Real Estate ETF (VNQ), in blue, and the SPDR S&P 500 ETF (SPY), in orange.

Not Too Late to Grab This Winner

Sure, that rise has thinned RQI’s discount, but you’re still getting an 8.5% payout here, and the current discount (8.7%) points to more upside: just under a year ago, RQI traded at just 1% below NAV. A rise to that level (a certainty, in my view) would give us a 6% price gain while we pocket that huge payout.

Moving along, let’s add some top-quality finance names through another CEF from Cohen & Steers: the Cohen & Steers Limited Duration Preferred & Income Fund (LDP).

As the name suggests, LDP bypasses finance companies’ regular shares in favor of their preferred stock.

Think of preferreds as stock/bond hybrids that can trade on an exchange, like stocks, but do so around a par value and dole out a fixed regular payment, like bonds.

Their biggest appeal? Outsized payouts. And you can boost those dividends even more if you buy through a CEF like LDP, which pays an outsized 8.3% now.

Another great thing about CEFs in general (and LDP in particular) is that CEF investors tend to be slow to respond to investor mood swings, which is why we can grab LDP at 5.4% below NAV—but your shot at buying cheap is evaporating!

LDP’s Buy Window Is Closing

Finally, let’s tap the Tortoise Power & Energy Infrastructure Fund (TPZ) for its 8.1% payout, while we can still do so at a 7.8% discount.

TPZ holds stocks and bonds issued by oil and gas pipelines, storage and processing firms—mostly master limited partnerships (MLPs)—plus some utility stocks:


Source: Tortoise Advisors

Most MLPs will kick you a K-1 tax form around your return deadline and annoy you and your accountant. But TPZ gets around this by issuing you one neat 1099.

Since MLPs pipe energy, they tend to trade with oil prices. But TPZ’s management has done a great job of dampening oil’s drop since the fund’s inception in 2009.

Below we can see that TPZ’s market price (orange) has dipped 8.1% since launch, but that’s way better than the goo’s 21% crash (in red). And when you add in TPZ’s big dividend, you can see that management has handed investors a solid 81% return in just under a decade.

TPZ Bucks the Oil Plunge

The kicker? The whole time, this dividend has been a picture of serenity:

Oil Crash? What Oil Crash?

Source: CEFConnect.com

Of course, no one knows where oil will go from here, but I expect it to find a bottom in 2019. That means now is the time to make a move—because we could easily look back years from now, at the high yield and nice discount TPZ sports today, and wish we’d pounced.

5 Stocks That Could Be the Next Amazon

Winning the Cloud War Is Not the Best Reason to Buy Amazon Stock
Source: Shutterstock

[Editor’s Note: This article was originally published in September 2018. It has been updated to reflect changes in the market.]

Amazon (NASDAQ:AMZN) has been one of the more impressive stocks of the past 25 years. In fact, AMZN now has returned well over 100,000% from its initial public offering (IPO) price of $18 ($1.50 adjusted for the company’s subsequent stock splits). A large part of the returns has come from two factors. First, Amazon has vastly expanded its reach. What originally was just an online bookseller now has its hands in everything from cloud computing to online media to groceries. And its shadow is even larger …

Amazon’s buyout of Whole Foods rattled the retail market. Similarly, its entry into healthcare by buying PillPack — as well as its healthcare partnership with Berkshire Hathaway (NYSE:BRK.B) and JPMorgan (NYSE:JPM) — sent ripples through the healthcare sector. In response, Microsoft (NASDAQ:MSFT) teamed up with Kroger (NYSE:KR) to “build the grocery store of the future.” And this week, MSFT and Walgreens (NASDAQ:WBA) announced a partnership to fend off Amazon.

Secondly, as a stock, AMZN has managed the feat of keeping a growth stock valuation for over two decades. I’ve long argued that investors can’t focus solely on the company’s high price-earnings (P/E) ratio to value Amazon stock. But however an investor might view the current multiple, the market has assigned a substantial premium to AMZN stock for over 20 years now, and there’s no sign of that ending any time soon.

It’s an impressive combination, and one that’s likely impossible, or close, to duplicate. But these five stocks have the potential to at least replicate parts of the Amazon formula. All five have years, if not decades, of growth ahead. New market opportunities abound. And while I’m not predicting that any will rise 100,000% — or 1,000% — these five stocks do have the potential for impressive long-term gains.

Stocks That Could Be the Next Amazon Stock: Square (SQ)

5 Stocks That Could Be the Next Amazon Stock: Square (SQ)

Source: Chris Harrison via Flickr (Modified)

Admittedly, I personally am not the biggest fan of Square (NYSE:SQ) stock. I like Square as a company, but I continue to question just how much growth is priced into SQ already.

Of course, skeptics like myself have done little to dent the steady rise in AMZN stock. And valuation aside, there’s a clear case for Square to follow an Amazon-like expansion of its business. Back in January, Instinet analyst Dan Dolev compared Square to Amazon and Alphabet Inc (NASDAQ:GOOGLNASDAQ:GOOG), citing its ability to expand from its current payment-processing base:

“In 10 years, Square is likely to be a very different company helped by accelerating share gains from payment peers and relentless disruption of services like payroll and human resources.”

Just as Amazon used books to expand into e-commerce, and then e-commerce to expand into other areas, Square can do the same with its payment business. The small business space is ripe for disruption, as Dolev points out. Integrating payments into payroll, HR, and other offerings would dramatically expand Square’s addressable market – and lead to a potential decade or more of exceptional growth.

Again, I do question whether that growth is priced in, with SQ trading at well over 90x forward earnings. But if — again, like AMZN — Square stock can combine a high multiple with consistent, impressive, expansion, it has the path to create substantial value for shareholders over the next five to 10 years.

Stocks That Could Be the Next Amazon Stock: JD.com (JD)

Bad Optics Are Creating an Opportunity in JD.com Stock

Source: Daniel Cukier via Flickr

In China, JD.com (NASDAQ:JD) is the company closest to following Amazon’s model. While rival Alibaba (NYSE:BABA) gets most of the attention, it’s JD.com that truly should be called the “Amazon of China.”

Like Amazon (and unlike Alibaba), JD.com holds inventory and is investing in a cutting-edge supply chain. It, too, is expanding into brick-and-mortar grocery, like Amazon did with its acquisition of Whole Foods Market. A partnership with Walmart (NYSE:WMT) should further help its off-line ambitions. JD.com is even cautiously entering the finance industry.

At the moment, however, JD stock is going in the exact opposite direction of AMZN. The stock has plunged of late. An arrest of the company’s CEO has been a recent driver. So have mixed earnings reports and a Chinese bear market.

Clearly, there are myriad risks here, even near the lows. But AMZN saw a few pullbacks over the years as well. And while JD may never rise to the scale of Amazon — or even out-compete Alibaba — at its current valuation it doesn’t have to. JD now trades at near-40x forward EPS. That’s despite a series of investments depressing near-term profitability — and building out long-term capabilities — and 40% revenue growth in 2017, with expectations for a nearly 30% increase in 2018.

If investor confidence returns, JD has a path to enormous upside. And even with the near-term jitters facing the stock, the long-term strategy still seems intact, and likely the closest in the market to that of Amazon.

Stocks That Could Be the Next Amazon Stock: Shopify (SHOP)

Recent Weakness in Shopify Stock Is Turning Into an Opportunity

Source: Shopify via Flickr

E-commerce provider Shopify (NYSE:SHOP) probably doesn’t have quite the same opportunity for expansion as Square. And it, too, has a hefty valuation, along with a continuing bear raid from short-seller Citron Research.

But I’ve remained bullish on the SHOP story, even though valuation is a question mark, even after a recent pullback. Shopify is dominant in its market of offering turnkey e-commerce services to small businesses. That’s exactly where consumer preferences are headed: small and unique over large and bland. And because of offerings like Shopify (and Amazon Web Services), those small to mid-sized businesses can compete with the giants.

Meanwhile, Shopify does have the potential to expand its reach. Just 29% of revenue comes from overseas, a proportion that should grow over time. It’s moving toward capturing larger customers as well through its “Plus” program, picking up Ford (NYSE:F) as one key client. The development of an ecosystem for suppliers and the addition of new technologies (like virtual reality) give Shopify the ability to offer more value to customers … and to take more revenue for itself.

Like SQ, SHOP is dearly priced. But both companies have an opportunity to grow into their valuations. And considering long runways for Shopify’s adjacent markets, it should keep a high multiple for some time to come. As a stock, if not quite as a company, SHOP has a real chance to follow the AMZN formula for long-term upside.

Stocks That Could Be the Next Amazon Stock: Roku (ROKU)

5 Stocks That Could Be the Next Amazon Stock: Roku (ROKU)

Source: Shutterstock

Roku (NASDAQ:ROKU) might have the best chance of any company in the U.S. market to follow Amazon’s strategic playbook. The ROKU stock price is a concern, given that the stock more than doubled in April and it has continued to climb higher, even amid the selloff in tech stocks in October.

At 10x revenue, ROKU isn’t close to cheap.

But — perhaps even more so than Square — Roku now isn’t what Roku is going to be in ten years. The hardware business is a loss leader, but one that allows Roku to serve as the gateway to content for millions of customers. As the company pointed out after recent earnings, it’s already the third-largest distributor of content in the U.S. The Roku Channel is seeing increasing viewership. It’s already up to more than 27 million viewers!

The company offers pinpoint targeting of advertisements — without the messy data problemsafflicting Facebook (NASDAQ:FB).

Roku is becoming increasingly embedded in TVs, though a deal between Amazon and Best Buy (NYSE:BBY) raised some fears about those software efforts going forward. It has a plan to roll out home entertainment offerings like speakers and soundbars, creating a long-sought integrated experience. It could even, as it grows, look to develop or acquire content itself, positioning Roku not as just a conduit to Netflix (NASDAQ:NFLX) but a rival.

The bull case for Roku stock is that its players are like Amazon’s books — not a great business on their own, but a way to garner customers and get a foot in the door of the exceedingly valuable media business. What Roku does now that it has entered will determine the fate of ROKU stock. But the amount of options and still a somewhat modest market cap (under $5 billion) mean that betting on its strategy could be a lucrative play.

Stocks That Could Be the Next Amazon Stock: Workday (WDAY)

Workday (WDAY)

Source: Workday

Workday (NASDAQ:WDAY) is starting to look like the enterprise software version of Amazon. Its core HR product has driven huge gains in WDAY stock, which now has a $36 billion market cap. But Workday is just getting started.

The company previously announced that it would buy Adaptive Insights to build out its financial planning capabilities. It has already rolled out analytics and PaaS (platform-as-a-service) offerings that add billions to its addressable market.

Here, too, valuation looks stretched, to say the least, but the story here still looks attractive. Workday is never going to be as famous as Amazon, or as large. But if its strategy works, it will be as important to, and as embedded with, its corporate customers as Amazon is with its consumers.

As of this writing, Vince Martin has no positions in any securities mentioned.

Source: Investor Place

3 High-Yield Restructured Energy Stocks

Energy infrastructure (commonly called midstream) companies have weathered a string of tough years since the energy commodity price crash of 2015. These were high flying stocks in the decade through 2014, with the master limited partnership (MLP) sector returning an average 18% per year from 2000 through 2014.

MLPs were the energy infrastructure/midstream business structure of choice. These companies owned pipelines, storage facilities, loading and unloading terminals. Customers accessed these assets through long-term fee based contracts. MLPs used the fee-based revenues to pay steady, attractive distributions to investors. Growth came from developing new projects, funded with a combination of debt and equity. The energy sector crash blew up the MLP growth model and revealed some ugly features of the typical publicly traded partnership agreement.

The last four years have seen a massive restructuring of the companies operating in the energy midstream space. There are now a number of corporations instead of the partnership structure. Balance sheets have been strengthened with companies focusing on using internally generated cash flow to fund growth projects. Onerous features of MLP partnership agreements have been abandoned. While share values have not recovered from the problems of recent years, the financial restructuring is basically completed, and these companies are on the verge of again generating attractive dividend growth and total returns for investors. Here are three stocks from the group that should do very well in 2019.

One of the first MLPs, Kinder Morgan Energy Partners launched with a 1997 IPO. For the next 16 year the company provided tremendous returns to investors in the MLP. As the MLP business model stopped generating the expected growth, in 2014, Kinder Morgan Energy Partners was acquired by the corporate sponsor, Kinder Morgan Energy Inc. (NYSE: KMI).

The consolidation was not enough to prevent the carnage of the energy sector crash. In early 2016, the KMI dividend was slashed to $0.125 per quarter from $0.51. The KMI share price fell from $43 in mid-2015 to $12 in January 2016. The stock now trades at $17.40.

Over the last three years, the company reduced debt and built cash flow to internally fund growth projects. In April 2018 the dividend was increased by 60% to $0.20 per share. The share price hardly budged. Management has stated the dividend will increase by 25% each year in 2019 and 2020.

Free cash flow is currently $2.00 per share and growing, so the $1.25 annual dividend for 2020 is in the bag.

KMI currently yields 4.6%.

In mid-2015 Magellan Midstream Partners LP (NYSE: MMP)was an $83.50 per unit MLP. The units now trade for $62 and change. Since its 2003 Magellan Midstream did not follow the MLP practice of raising growth capital in the public equity and debt markets.

All of Magellan’s growth has been funded through internal cash generation, without the need to tap the equity markets. Despite what the market price shows, the MMP distribution has been increased every quarter, and the current rate is up 42% compared to when it traded for $83.

With a 6.25% yield and continued 8% annual distribution growth, MMP could return 20% or more in 2019.

Tallgrass Energy LP (NYSE: TGE) is the result of the 2018 merger of traditional MLP Tallgrass Energy Partners and the publicly traded general partner, Tallgrass Energy GP LP.

Through its life as a traditional MLP, Tallgrass Energy Partners was one of the top distribution growth companies in the sector. The merger with the general partner eliminates the payments the MLP was paying to the GP. This means lower expenses and more cash to continue the distribution growth record. Tallgrass owns and operates one of the largest crude oil and natural gas pipeline networks in the country.

Dividends could grow at a mid-teens per year rate.

With a current 8.6% yield, TGE is grossly undervalued and could double in 2019.

Source: Investors Alley

Two Dividend Paying Stocks Profiting from Insuring Against High Drug Costs

The science of medicine, as well as pharmaceutical companies, is moving more and more toward personalized medicine. That is, specialized cell and gene therapies designed to attack a patient’s unique condition.

Curing a patient of once-fatal diseases will save our healthcare system an enormous amount of money… but only over the long-term. These treatments require enormous upfront outlays. Keep in mind that, in some cases, only one treatment is required to cure the patient.

And therein lies the problem – how can these ultra-expensive medicines be funded? One option is under serious consideration by several European drug companies – a “reinsurance model” in which a third party underwrites the catastrophic case of someone having one of these terrible conditions.

Pharma and Reinsurance

This solution seems to solve the problem. First, pharmaceutical companies will get paid for providing the life-saving treatment.

And for the reinsurance industry, which backstops insurance companies, helping healthcare systems and governments smooth out the costs of such treatments could provide an additional revenue source.

The industry could use an additional revenue source as reinsurers face increasing competition from rival sources of risk capital (private equity, etc.). Reinsurers could make financing for personalized treatments easier by pooling the costs of these treatments provided by different drug companies and also across countries.

The reinsurance industry already provides a backstop to employer health insurance plans, and has signaled a strong willingness to expand into the medical sector. In response to the Ebola crisis in West Africa, the World Bank in 2017 teamed with reinsurers to provide coverage against future pandemics, so outbreaks could be tackled quickly.

The world’s largest reinsurance companies include Berkshire Hathaway (NYSE: BRK.A & BRK.B) as well as the long-established European giants – Swiss Re (OTC: SSREY)Hannover Re (OTC: HVRRY) and Munich Re (OTC: MURGY).

The drug companies that are the most interested in teaming with reinsurance firms are the European drug giants. Let me explain…

Novartis – the Pioneer

Leading the way here is the Swiss drug company Novartis (NYSE: NVS), which is also innovating in another promising area of medicine – digital therapeutics. I told you about this in the September 26 edition of The Market Cap.

The reason for Novartis interest in reinsurance is quite straightforward as explained by CEO Vas Narasimhan to the Financial Times: “Given that we’ll have five gene therapies in the clinic next year (2019) and we plan to continue to have a steady pace of gene therapies, we acknowledge we need to work with the system to come up with new solutions.”

Novartis has become a pioneer of “outcome-based pricing” models, through its blood cancer Car-T medicine Kymriah: 90% of children treated with the drug have not relapsed. It has offered to waive the $475,000 price tag for pediatric use in the U.S. if remission is not achieved within 30 days of treatment.

The company has also developed a gene therapy treatment for spinal muscular atrophy, a rare genetic condition that often kills sufferers before the age of two. Clinical trials suggest that, four years after a single treatment in the first few months of life, children are progressing normally.

The 10-year costs, if borne by healthcare systems, of treating such ultra-rare diseases range from $2 million to $5 million, according to economic analysis presented by Novartis at a recent investor day. So the need for unique solutions, like working with reinsurance companies, is obvious.

Novartis Is Not Alone

Novartis’ suggested reinsurance model is actually not a novel strategy in the healthcare industry. Its fellow Swiss drug giant Roche Holdings (OTC: RHHBY) has been working with the aforementioned reinsurance company Swiss Re to provide cancer treatments in China since 2012.

According to a 2010 agreement, Roche provides healthcare data to Swiss Re to help the latter tailor its insurance policies, and in return Swiss Re re-insures five Chinese insurers, thus circumventing Chinese laws banning foreign firms from selling insurance in the country.

And actually, Roche has been active in China since 2007 working with insurance firms and healthcare networks to develop policies that will cover cancer treatments and next-generation diagnostics. The country’s overall public health system is still that of a developing economy, making what Roche and Swiss Re are doing an absolute necessity.

With more than 4.2 million people diagnosed with the disease every year, cancer is a major public health problem and one of the leading causes of death in China. Most cancer patients in China have to pay for their treatment out of their own pocket, in spite of the government’s efforts to expand healthcare coverage. For some cancer medicines, a full treatment course can cost ten times the average Chinese worker’s annual income!

This approach for Roche has been very successful in China. In 2015, it started a partnership with the Shenzhen Reimbursement Authority and the leading Chinese insurance company Ping An. Shenzhen became the first city in China where all four of our targeted cancer therapies approved in the country – MabThera/Rituxan, Avastin, Herceptin and Tarceva – were reimbursed by Chinese insurance firms. Based on this success, Roche is expanding the model to include additional cities across China.

This just goes to show how creative approaches can improve access to healthcare, even in China. So now, Roche is adapting the model and rolling it out in countries around the world.

Two Winners

I absolutely love companies that think outside the box as these two drug companies. That alone makes them investment-worthy. Then add in the fact that both stocks are actually up in the past year – Novartis is up about 3% and Roche about 1% and with both yielding roughly 3.5% in very safe dividends – and you have two stocks to weather any sort of further market downturn.

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