Let’s face it: this frothy market has made it much tougher to uncover the big, cheap dividends you need to fill out your retirement portfolio. So today we’re going to fight back with my top 2 “off-the-record” strategies for honing in on 7.4%+ dividends that still have a lot of upside ahead.
First, to get a sense of the vice the rebound has locked income investors in, check out this chart:
Stock Bounce Crushes Yields
That amounts to an 18% bounce since Christmas Eve, which has sliced 15% off the S&P 500’s dividend yield (because yields fall as prices rise). As I write, the average S&P 500 name dribbles out a 1.9% payout—less than inflation!
Which brings me to the first strategy I’ll show you today.
Contrarian Tip No. 1: When They Go Short, We Go Long
Short interest is one of my favorite ways to “time” stock buys.
If you’re unfamiliar, short selling involves selling a stock you’ve borrowed, with a commitment to buy it back later, hopefully at a lower price. Your profit lies in the difference between the selling price and the price at which you have to buy it back.
It’s a dangerous path that can expose you to unlimited losses (because there’s no limit on how high a stock can rise, while your “regular” buys can only go to zero).
But don’t worry—we’re not going to “short” stocks ourselves. Instead, we’re going to sit back and cash in on the short sellers’ greed.
Here’s how: if a stock attracts a lot of short interest and the price moves up, the “shorts” will scramble to buy and cover their positions. That’s great for us because it can create a “feedback loop” where the rising price triggers short covering, driving the price higher, triggering more short covering, and so on.
All we have to do is relax, let the chaos unfold, and watch our stock rocket higher! And these “squeezes” can be truly epic, like the one that caused Volkswagen to explode 82% in a single day in 2008.
So how do we find our own Volkswagen (and better yet, one with a 7%+ dividend)?
A good rule is that short sellers tend to be the most wrong at the extremes, so we’ll look for short interest that’s wayhigher than usual, then jump in. You can see this in action with Omega Healthcare Investors (OHI), a real estate investment trust (REIT) I’ve recommended in my Contrarian Income Report service:
Short Covering Sends OHI Ripping Higher
Notice how rising short interest kept a lid on OHI’s price, until it peaked in January 2018? If you’d jumped in then, you would have bagged a 35% price gain in just over a year, as short covering helped pry the stock higher.
And that’s just in price gains! Never mind that OHI pays a 7.4% dividend now (and would have paid nearly 10% when short interest peaked). Throw the payout in, and your gain jumps to 48% in just one year.
So much for the common “wisdom” that you can’t get big gains and big dividends from a single stock!
Now let’s move on to our next contrarian buy signal.
Contrarian Tip No. 2: Check In as Analysts Check Out
You can catch another big windfall by paying close attention to analyst ratings—but not the way most people think.
Remember, everyone loves to follow the herd, and analysts are often the lead lemmings. That’s why, when most folks research a stock, they look for those with a lot of buy ratings from Wall Street—if they look at these ratings at all.
But they’ve got it backwards! Because if every analyst already has a buy rating on a company, there’s no hope of upgrades, which can send shares stair-stepping higher.
That’s what happened with self-storage REIT CubeSmart (CUBE), payer of a 4.2% dividend that’s skyrocketed in the last five years. As you can see below, CUBE’s shares nearly doubled from June 2014 to March 2016, as the number of analysts recommending it also nearly doubled, from four to seven.
Wall Street Optimism Drives an Easy Double …
Fast-forward to today, and just one analyst has a “buy” on CUBE, even though the Federal Reserve has halted further rate hikes, a big plus for the entire REIT sector. That sets the stock up for another strong run as analysts climb back aboard.
21 Cash-Spinning Buys for 7.5% Payouts and BIG Gains
Here’s the roadblock most regular folks slam into with “second level” indicators like these: the big brokerages keep ALL of this powerful research to themselves!
Free services, like Yahoo Finance, give us crumbs, with buy recommendations limited to just the last four months. Basing a buy decision on that tiny slice of data could send you straight off a cliff.
Don’t Buy ANY Stock Based on This!
Source: Yahoo! Finance
Finding short interest is even harder. Your only real option here is a paid service like Ycharts, but that will set you back hundreds of dollars a year!
Source: Contrarian Outlook