3 High-Yield Dividend Funds Taking Advantage of Market Volatility

Outside of the FAANG bubble, to date in 2018 the U.S. stock market has trended sideways. As you may be aware, that sideways direction has been punctuated by large daily moves in both directions – up and down. Increased market volatility can produce more attractive return opportunities for covered call option traders. However, you don’t have to be an options trader to get a boost from your income stock portfolio based on the covered call strategy.

When you see the financial news media talking about market volatility or the VIX, those metrics are derived from options pricing on the S&P 500. When the market is volatile, option buyers will pay more, and option sellers ask for more to cover the risks of quickly changing share prices. The covered call strategy involves buying shares of a stock and then selling call options backed by the shares. The strategy produces cash income from the call options sales. A cap is put on the upside of potential share price gains, and the options provide a small cushion against a price drop. The covered call strategy is primarily an income producing strategy.

You don’t have to become an options trader to benefit from covered call selling. There are about two dozen closed-end funds that employ the strategy. When you invest in one of these CEFs, you will get exposure to the stock portfolio of the fund, plus an attractive dividend yield from the call selling employed by the fund managers. Here are three funds to consider.

Columbia Seligman Premium Technology Growth Fund (NYSE: STK) seeks capital appreciation through investments in a portfolio of technology related equity securities and current income by employing an option writing strategy.

The fund’s investment program will consist primarily of investing in a portfolio of equity securities of technology and technology-related companies as well as writing call options on the NASDAQ 100 Index or its exchange-traded (ETF) fund equivalent on a month-to-month basis.

The aggregate notional amount of the call options will typically range from 25% to 90% of the underlying value of the fund’s holdings of common stock. Results have been excellent, with annualized returns of 18.4% and 20.9%, for the last three and five years, respectively.

STK currently yields 8.4%.

Eaton Vance Tax-Managed Buy-Write Opportunities Fund (NYSE: ETV) invests in a diversified portfolio of common stocks and writes call options on one or more U.S. indices on a substantial portion of the value of its common stock portfolio to generate current earnings from the option premium. Buy-Write is another name for covered call writing. Also, as the fund name states, the managers strive to generate the best after tax returns. The fund uses the S&P 500 stock index as its benchmark evaluate returns.

Three and five year average annual returns have been 11.0% and 13.25 percent respectively. To show that different managers will have their day, ETV is up 6.9% year to date, while STK has gained just 3.2%.

ETV pays monthly dividends and currently yields 8.5%.

BlackRock Enhanced Capital & Income Fund (NYSE: CII) seeks to achieve its investment objective by investing in a portfolio of equity securities of U.S. and foreign issuers. The fund also employs a strategy of selling call and put options.

While the other two funds use index or ETF options for income, the BlackRock managers employ the writing of single stock options. Selling puts is a comparable strategy that can at times produce better returns compared to selling calls.

Three and five year annual returns for CII were 11.9% and 13.8%, respectively. The fund is up 5.25% year to date.

CII pays monthly dividends and yields 6.0%.

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Source: Investors Alley 

7 Alternative Internet of Things Stocks to Buy

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As an investment sector, the Internet of Things, or IoT, is a no-brainer. Increasingly, our consumer devices no longer have a specific function or operation; rather, they’re part of an integrated, digital ecosystem that responds to variable requests. This movement will only increase in volume and engagement, but picking the right IoT stock can be a challenge.

That’s because no single definition of an IoT stock exists. Typically, financial writers focus on big semiconductor names like Micron Technology (NASDAQ:MU) or Intel (NASDAQ:INTC). The connection is readily apparent: these major tech manufacturers produce the physical components that go into IoT devices. But you’re also likely to gain serious profits through investing in renowned device-makers and distributors like Garmin (NASDAQ:GRMN).

Going with the blue chips is the most popular way to pursue an IoT stock. Personally, I have zero complaints about this approach. But I’d also like to give some lesser known or less appreciated IoT companies some love.

It’s a big market, and it’s only going to get bigger. Thus, it’s an opportune time to get acclimated with the other names in the sector.

Here are my choices for the best alternative Internet of Things stocks:

Best Alternative Internet of Things Stocks: Honeywell (HON)

As a multi-faceted organization, Honeywell (NYSE:HON) is probably the most comprehensive IoT stock available in the markets; it just doesn’t get as much coverage as a sector player as you might expect. I find this strange considering that they make common home products, such as thermostats, air conditioners and security systems, that scream IoT.

Honeywell is also a leader in industrial IoT, or IIoT. Again, this is probably one of the lesser-appreciated components of the Internet of Things, which largely focuses on consumer goods. But IIoT has the potential to revolutionize manufacturing as we know it, improving efficiencies, providing real-time data analysis, and reducing the frequency and impact of human error.

The one major knock on HON as an IoT stock is that it’s somewhat of a bellwether investment. In other words, HON is incredibly boring. Plus, shares have generally tracked the broader markets recently, which has produced uninspiring results.

But if you’re not looking for a sexy play and want something stable, HON is one of your top choices.

Best Alternative Internet of Things Stocks: ADT

Best Alternative Internet of Things Stocks: ADT

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I mentioned previously that the most popular IoT stock tends to be either a semiconductor firm or device manufacturer. These are natural choices considering that they’re direct plays. However, IoT also serves a defensive or protective role. That’s why if you love this sector, you should check out ADT (NYSE:ADT).

ADT is a name you immediately recognize, either because you’re enrolled in their security services or you have their sign planted conspicuously on your front yard. Earlier this year, our own Tom Taulli covered ADT and its initial public offering. He provided some background about the company, stating:

“ADT, whose roots go back to 1874, is the most recognized brand in its industry. A survey indicates that it has about 95% awareness with consumers. This is certainly a big-time advantage as the market is highly competitive.

Keep in mind that ADT controls about 30% of the residential market in the U.S. and Canada. In all, there are 7.2 million residential and business customers.”

That sounds spectacular. Unfortunately for early bird investors, ADT is down sharply from its IPO price, as Wall Street reassessed its competitive risks.

ADT is speculative, no doubt about it. Still, with a year-to-date loss of 34%, I like it as a contrarian opportunity.

Best Alternative Internet of Things Stocks: Johnson Controls International (JCI)

Best Alternative Internet of Things Stocks: Johnson Controls International (JCI)

Source: Shutterstock

When we discuss the Internet of Things, we often think small and personal. We consider devices that adjust our home’s temperature automatically, or devices that give us the ability to warm-up our cars from afar. Not to take away from these consumer innovations, but they also limit what IoT can do broadly.

For an IoT stock with a much larger framework, check out Johnson Controls International(NYSE:JCI). While not exactly the most popular household name, Johnson Controls corporate heritage extends back to the 19th century. Today, the company is known for its build-management and safety systems. Additionally, JCI features a battery and distributed-energy storage divisions.

A significant concern about JCI stock, though, focuses on its fundamentals, which are middling. The company has also tacked on more debt, which makes it difficult to invest in future innovations. As a result, JCI shares are down almost 8% YTD.

That said, JCI appears to have found a baseline of support after hitting a year-low in late April. Given its massive resources, and penchant for technological advancements, Johnson Controls is a solid bet.

Best Alternative Internet of Things Stocks: Emerson Electric (EMR)

Best Alternative Internet of Things Stocks: Emerson Electric (EMR)

Source: Shutterstock

Similar to other innovations, some organizations are guilty of using IoT as a buzzword, and nothing else. This reminds me of the blockchain: everybody talks about it, but few understand what it is, and even fewer offer practical solutions with it.

Thankfully, Emerson Electric (NYSE:EMR) rises above the hype, delivering scalable IIoT solutions for the world’s top industries. EMR has particularly found success with large oil and energy corporations as they shift toward next-generation technologies. Moreover, Emerson Electric offers training services to help their clients get the best out of the IIoT movement.

Like many of the names mentioned on this list, EMR stock hasn’t generated much excitement this year. Shares have been choppy, but have so far only broken even. But I expect this circumstance to change. After having some rough years, Emerson Electric is firmly in recovery territory. Last quarter, the company generated $4.25 billion in sales, up nearly 19% YoY.

Best Alternative Internet of Things Stocks: NetGear (NTGR)

Best Alternative Internet of Things Stocks: NetGear (NTGR)

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Computer-networking firm NetGear (NASDAQ:NTGR) has largely earned its reputation through selling popular routers and firewalls. In addition, the company sells storage devices, and owns a security-camera business with its spin-off organization, Arlo. This synergy of connectivity-related expertise makes NTGR one of the more exciting opportunities among IoT stocks.

The evidence lies in its market performance. On a YTD basis, NTGR shares are up over 32%. While I’m not the biggest fan of buying into extreme strength, its fundamentals justify the premium. Definitely, if NTGR stock hits a corrective phase, you should immediately put it on your must-watch list.

For starters, NetGear has demonstrated consistently strong earnings performances. The last time the company failed to meet expectations was back in the second quarter of 2015. Since then, management has beaten their earnings-per-share estimates.

NTGR is a distinct IoT stock in that it has a strong balance sheet with zero debt on its books. That enables its leadership team to invest in research and development, giving it a leg-up on the competition. Finally, the company has enjoyed robust revenue growth, which should continue due to increased sector demand.

Best Alternative Internet of Things Stocks: Analog Devices (ADI)

Best Alternative Internet of Things Stocks: Analog Devices (ADI)

Source: Shutterstock

With a name like Analog Devices (NASDAQ:ADI), ADI doesn’t seem to fit the description of an IoT stock. Yet don’t let initial appearances fool you: Analog Devices have built some of the most groundbreaking semiconductor technologies for commercial industries and scientific endeavors.

What’s more, ADI refreshingly focuses not just on IoT for its own sake, but as a comprehensive solution. Their products and services ensure both technical connectivity, as well as relevant and accurate data analysis and transmission.

According to their corporate ethos, you’re only as strong as your weakest link. Therefore, management expends significant effort to create seamless communication among the “things” of an IoT network.

Another component of ADI’s investment potential is its growth metrics. For instance, its profitability margins are ranked among the best semiconductor firms. The company’s three-year revenue growth rate averages 17.4%, and that doesn’t look to fade anytime soon. In Analog Devices’ last earnings report, it delivered $1.51 billion in sales, up a whopping 32% YOY.

Best Alternative Internet of Things Stocks: Fitbit (FIT)

Best Alternative Internet of Things Stocks: Fitbit (FIT)

Source: Shutterstock

I’ve saved my most speculative idea for an alternative IoT stock for last. Fitbit (NYSE:FIT) captured the wildly popular fitness market’s attention with their quirky advertisements and killer products. When the company first hit its stride, no one could get enough of their fitness trackers. Now, with fierce competition from Garmin and Apple (NASDAQ:AAPL), Fitbit appears merely an also-ran.

As I said in my previous write-up about FIT stock, I don’t blame you if you take that argument. Since its IPO, and especially since its early run-up, FIT has become an unmitigated disaster. Even when shares fell into the teens, and optimists like yours truly considered it a contrarian opportunity, Fitbit still disappointed.

But if you’ve been paying attention, you’ll know that FIT stock dramatically reversed its ugliness. On a YTD basis, shares are up over 15%. Of course, most people regard this as a bull-trap. I think there’s still significant upside remaining.

That’s because Fitbit focuses almost exclusively on fitness trackers, whereas its competitors are encumbered with various and sometimes disparate markets. Furthermore, Fitbit features a popular user ecosystem that’s difficult to replicate.

FIT stock is by no means a sure thing, but it has enough good qualities to justify a calculated risk.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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