Monthly Archives: August 2019

Dividends

How Much Could You Make When Your Dividend Stock Pays an 18% Yield?

I feel like we have moved into a Dr. Strangelove type of financial world. The economic data shows that the U.S. economy is doing fine. We have growth in the economy, low unemployment, and rising wages.

Home prices continue to increase. In contrast, on the financial markets side of the universe, traders are pushing bond prices, making yields and stock prices act like the next Great Recession starts on Friday.

One effect of this schizoid financial world is the new existence of dividend stocks, with solid cash flow coverage and actual dividend growth trading with yields of 12%, 15%, even 18%.

Energy is one economic and stock market sector that has been hit hard by the fears of an economic slowdown or possible recession. The Energy Select Sector SPDR (XLE) is down 18% from its 2019 high.

The sector is trading like the world is going to stop driving vehicles, turning on the lights, or running their air conditioners. Fundamental analysis and logic have no place in the current fear-driven energy stocks investor strategy.

One of the effects of this sell-off is that you now have energy midstream companies trading to pay tremendous dividend yields. The midstream sector provides the transport, storage, and other services to get oil and natural gas from the production plays to the refineries and power companies that consume the energy commodities.

Midstream companies deliver their services on long-term fixed-fee contracts. Interstate pipelines have rates set by the Federal Energy Regulatory Commission, with built-in annual rate increases.

Shippers on pipelines and users of energy storage commit to minimum volumes, so the midstream revenues are very predictable and growing. With stable, predictable cash flows, most energy midstream companies pay out most of their free cash flow as dividends. This is a business sector where income-focused investors can earn attractive returns.

The 2019 energy sector crash has not exempted these solid dividend-paying companies. Many have fallen harder and farther than the stocks of energy companies whose profits are dependent on the prices of energy commodities. Go figure.

As a result, there are midstream companies with solid revenue and cash flow stream, long term records of growth and even growing dividends that currently sport yields from the low teens up into the high teens. Maybe the market is right, and the next recession starts tomorrow. Or perhaps it’s wrong, and this is a once in a decade opportunity for income-focused investors.

Here are three midstream stocks with very high yields. Do your research and decide if these companies will be able to continue to pay dividends. I did mine and I think, yes.

CNX Midstream Partners LP (CNXM) is a master limited partnership (MLP) that owns, operates, develops and acquires gathering and other midstream energy assets to service natural gas production in the Appalachian Basin in Pennsylvania and West Virginia. The midstream company is sponsored and controlled by upstream energy producer CNX Resources Corp (CNX).

At least a portion of CNXM revenues are dependent on production growth by CNX. In its second-quarter earnings notes, CNX increased their 2019 production guidance, with 12% annual growth predicted. CNXM has been growing distributions paid to investors by 15% per year.

Distributable cash flow (DCF) coverage is a strong 1.6 times the distribution. This MLP will increase its payout every quarter and currently yields 11%.

EnLink Midstream LLC (ENLC) provides midstream services for natural gas, crude oil, condensate, and NGL commodities. The company has its assets in premier production basins and core demand centers, including the Permian Basin, Oklahoma, North Texas, Ohio River Valley, and the Gulf Coast.

EnLink Midstream was created by Devon Energy Corp. (DVN).

A year ago, Devon sold its interest in ENLC to privately held Global Infrastructure Partners (GIP). This has produced investor uncertainty about the future of EnLink.

Company management has given guidance of 6% annual dividend growth with 1.3 times DCF coverage. That is very solid in the midstream world.

ENLC shares yield 15%.

Antero Midstream Corp. (AM) is another midstream services provider focused on natural gas gathering and other midstream services in the Appalachian Basin. AM primarily provides its services to upstream producer Antero Resources (AR).

Early in the year, the current version of Antero Midstream was formed with the merger of an MLP and its publicly traded general partner. A good move for investors.

Recently Antero Resources had a Board of Directors take over by the former heads of Rice Energy, which was acquired by Antero in 2017.

Despite solid growth plans for this year and future years from both companies, the corporate turmoil has investors dumping shares driving down prices.

AM has been growing its dividend every quarter yet is priced to yield an astounding 18%.

Uncategorized

This Fund Loves a Wild Market (and Yields 7.2%)

What if there was a way you could tap this market correction to grab the biggest S&P 500 stocks cheap—all while hedging your downside and getting a 7.2% dividend yield?

It’s not only possible, but you can do it in one single buy. More on that in a moment.

First, I’m pounding the table on stocks—and in particular funds like the one I’ll show you shortly—for one reason: there’s a huge disconnect between the drop in the market that we’ve seen lately …

Investors Miss the Memo

… and what S&P 500 companies are telling us.

And that is that far more firms than expected are crushing the Street’s forecasts. And better yet, revenue—the lifeblood of profits and the best measure of demand we have—is soaring: up 4.1% from a year ago.

In short, S&P 500 earnings statements are just fine, thank you very much.

Your 1-Click Opportunity to Cash in on Fear

We’re going to tap overhyped fears about profits to grab ourselves a 7.2% dividend (with upside) using a key strategy many hedge funds use in markets like this.

It’s called “positive carry income capture,” but don’t be thrown by the Wall Street–speak; it’s simple: you buy a collection of stocks and draw an income stream from them—then use that income to reinvest during downturns like this one.

This is where the Nuveen S&P 500 Buy-Write Income Fund (BXMX) comes in, because this sturdy closed-end fund (CEF) carries out this strategy for us.

With a 7.2% yield and a 2.2% discount to net asset value (NAV, or the per-share market value of the stocks in its portfolio), BXMX is worth a close look—especially because markets are volatile, and that’s precisely what this fund, known as a “covered-call fund,” is built for.

More Panic, More Cash

This chart shows the S&P 500 volatility index (VIX) in orange and BXMX’s income stream in blue.

What’s the VIX? Imagine a barometer of the total fear in the market, measured by how much investors are willing to pay to “insure” their stock portfolios. That’s the VIX.

When that barometer goes up, tensions are high—but notice how those moments of elevated tension also mean more income for BXMX? Rising market fears mean a payout raise for BXMX holders.

The way this works is simple. BXMX has two functions: the first is holding shares in S&P 500 companies, such as Microsoft (MSFT), Apple (AAPL) and Visa (V).

The second is selling “insurance” on the S&P 500 to investors. These funds do this is by selling call options (a kind of contract where the fund agrees to sell shares at a specific price) that limit the fund’s downside while helping short sellers limit their own losses. When those investors pay more for insurance, BXMX gets more cash, which it then hands over to investors.

There’s a tax advantage to BXMX, as well.

The cash the fund gets from selling this insurance is typically considered capital gains if investors do this individually, but BXMX can structure its payouts so that this cash is considered “return of capital,” which means it’s not taxed for many Americans. So far for 2019, 83% of BXMX’s dividend has been classified as return of capital, so is tax-free for a lot of people.

(Many folks think that return of capital is simply the fund company returning your cash to you in the form of a dividend, but that’s false. I’ve written an in-depth article busting that and other myths about return of capital that you can read when you click here.)

Beyond the tax benefits, the appeal of BXMX is twofold: because it takes advantage of investor fears by selling insurance during downturns, its income stream is over three times greater than what you’d get from an S&P 500 index fund. This means that moments of higher volatility, like what we’ve seen recently, are times to buy in and take advantage of the market’s woes.

The best part? Investors seem to have not noticed the power of BXMX’s income potential.

BXMX’s Big Dividend Flies Below the Radar

Even when the market sees a spike in volatility (in orange), BXMX’s discount to NAV (in blue) stays rigidly range-bound, despite the fact that this tax-advantaged income stream should be attracting investors left and right. This is a mispricing income-seekers like us can take advantage of.

This Is the Best Covered-Call Fund You Can Buy Now

BXMX is a great covered-call fund, but it’s not my favorite pick in this too-often-overlooked corner of the market.

My very best covered-call pick, which I’ve recommended in my members-only CEF Insider service, yields more (7.4%!) than BXMX and boasts way more upside, thanks to its comically big discount to NAV—an outsized 10.6% as I write this.

I’m ready to share this fund with you now … but it wouldn’t be fair to paying CEF Insider members if I revealed this fund’s name in a free article like this one.

So here’s what I’m going to do.

When you click right here, you’ll pull up a special investor report giving you my full CEF-picking strategy and my 5 top CEF buys now (average yield: 8%; expected upside: 20%+). You’ll also be able to grab a 60-day trial to CEF Insider with no risk and no obligation whatsoever.

That 60-day trial gives you VIP access to the CEF Insider portfolio, where you’ll find this “must-buy” covered-call CEF pick!

To sum that up, you’re getting:

  • Full access to my portfolio (which contains 21 closed-end funds in all, with yields as high as 11%),
  • 5 of my very best CEF picks now, and
  • The name, ticker and my full research on the standout 7.4%-paying covered-call fund I just told you about.

Taken together, this is the perfect wealth- (and income-) building package for the markets we’re seeing today, and it’s all waiting for you!

Michael Foster has just uncovered 4 funds that tick off ALL his boxes for the perfect investment: a 7.4% average payout, steady dividend growth and 20%+ price upside. — but that won’t last long! Grab a piece of the action now, before the market comes to its senses. CLICK HERE and he’ll tell you all about his top 4 high-yield picks.
Dividends

The Key to Long Term Investment Success for Dividend and Income Investors

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.

Pay Your Bills for LIFE with These Dividend Stocks

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.

Click here for complete details to start your plan today.
Options, Uncategorized

Generating Income And Protecting Yourself During A Market Selloff

Investors have finally cracked under the pressure of the trade war with China. Stocks, which were at all-time highs just two weeks ago, are now 6% off those highs as of this writing. Although the S&P 500 is still up 13% year-to-date, Monday’s 3% drop set the alert level to red.

Meanwhile, safe-haven investments like gold and bonds are already up big in August. This is the sort of action you tend to see when investors have had enough of stocks. Up until this point, investors were assuming any negative impact from tariffs would be negated by the Fed lowering rates. It appears that’s no longer the case.

The futures market is now pricing in three more rate cuts this year, which places significant pressure on the Fed. The central bank may not want to cut rates further with the job market still hot; theoretically, it could lead to higher inflation. But, if the Fed leaves rates unchanged, there could be substantially more downward pressure on stocks.

There’s no easy answer here. The Fed can go only do so much. Moreover, the U.S, and China aren’t likely to back down from their trade demands, at least in the short-term.

However, let’s not forget the U.S. economy is still in pretty good shape. As I mentioned before, the job market is still smoking hot. We’re not exactly about to plunge into a severe recession.

So, do you buy the dip? Do you stuff your cash in a mattress? While there’s not an obvious solution, looking at the options market can provide some good ideas for how to trade this market.

There were a couple of big trades on Monday in the SPDR S&P 500 ETF (SPY) which caught my eye. Keep in mind, SPY is the most heavily traded ETF in the world and is used actively by retail and institutional traders alike.

Both trades which I’m referring to were covered calls. What? Covered calls during a major selloff? Indeed, covered calls are generally thought of as bullish trades, but they can be instrumental at risk-controlled bullish exposure.

Remember, a covered call is buying shares of a stock/ETF, but also selling calls against those shares. The income provided from selling calls can serve as a cushion to the downside, mainly if those call premiums are rich.

Both covered calls were done with SPY at $284.50. In one case 7,000 October, 292 calls were sold for $5.32 each. In the other trade, 7,000 December 292 calls were sold for $8.28. Combined, these trades brought in about $9.5 million in premiums.

The benefits of using a covered call in this situation are pretty obvious once you break down the strategy. Let’s use the October trade as an example.

Because the calls were sold for $5.32 with the stock at $284.50, the long (owned) shares of SPY are protected down to $279.18. However, the trade can still earn a profit on the upside all the way to $292 where the calls were sold.

Over the next ten weeks, this trade can generate nearly a 2% yield if the SPY hovers at these levels. It also protects against another 2% down move, as I mentioned above. What’s more, the trade can earn up to 4.5% if SPY goes back to $292 or higher by October expiration. The December trade is similar, but just tacks on a couple of months to the position.

While there is hardly a guarantee that the market is going to recover by October or December, it’s more likely we go up than continue plunging. Besides, at worst, these covered call trades are superior to simply buying and holding SPY due to the income/protection from the short calls.

If you’re looking to take a cautious, bullish position on the S&P 500, these types of trades are savvy ways of doing so.

Options

Trade of the Week: Buying Protection Against A Major Market Selloff

An institution or fund purchased a massive number of put spreads in SPDR S&P 500 ETF (SPY).  The put spreads were almost certainly purchased as a hedge against a major market selloff.  The trader bought 15,000 put spreads which will pay off if the market drops over 5% in the next two weeks.

It’s harvest time for option traders.

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Source: Investors Alley

Uncategorized

Don’t Make This Buying Mistake

A Strategy for Buying Elite Businesses at Bargain Prices
The key is determining whether it’s TRULY a bargain — or deserves to be sold

By Brian Hunt, InvestorPlace CEO

Even elite businesses with juicy dividends suffer share price selloffs from time to time.

Sometimes, these selloffs are caused by short-term, solvable problems within the individual companies.

Sometimes, these selloffs are caused because the overall stock market goes down in value.

These selloffs are almost always opportunities to buy these firms at bargain prices and start collecting steady dividend payments.

When you spend money on any big purchase, like a home or a car, you want to pay a good price. You want to get value for your dollar.

When you buy a car, you want to pay a good price. When you buy a house, you want to pay a good price. You don’t want to overpay. You don’t want to embarrass yourself by getting ripped off.

Yet … when people invest, the idea of paying a good price is often cast aside. They get excited about a story they read in a magazine … or how much their brother-in-law is making in a stock, and they just buy it.

They don’t pay any attention to the price they’re paying … or the value they’re getting for their investment dollar.

Warren Buffett often repeats a valuable quote from investment legend Ben Graham: “Price is what you pay, value is what you get.”

I think that’s a great way to put it.

Like many investment concepts, it’s helpful to think of it in terms of real estate:

Let’s say there’s a great house in your neighborhood. It’s an attractive house with solid, modern construction and new appliances. It could bring in $30,000 per year in rent. This is the “gross” rental income … or the income you have before subtracting expenses.

If you could buy this house for just $120,000, it would be a good deal. Since $30,000 goes into $120,000 four times, you could get back your purchase price in gross rental income in just four years.

In this example, we’d say you’re paying “four times gross rental income.”

Now … let’s say you pay $600,000 for that house.

Since $30,000 goes into $600,000 20 times, you would get back your purchase price in gross rental income in 20 years.

In this example, we’d say you’re paying “20 times gross rental income.”

Paying $600,000 is obviously not as good a deal as paying just $120,000.

Remember, in this example, we’re talking about buying the same house.

We’re talking about the same amount of rental income.

In one case, you’re paying a good price. You’re getting a good deal. You’ll recoup your investment in gross rental income in just four years.

In the other case, you’re paying a lot more. You’re not getting a good deal. It will take you 20 years just to recoup your investment.

And it’s all a factor of the price you pay.

It works the same way when investing in a business …

You want to buy at a good price that allows you to get a good return on your investment. You want to avoid buying at a bloated, expensive price.

This is a vital point.

No matter, how great a business is, it can turn out to be a terrible investment if you pay the wrong price.

If you’re not clear on this point, please read through the home example again. When it comes to buying elite businesses that raise their dividends every year, you can use the company’s dividend yield to help you answer the important question: “Is this business trading for a good price or a bad price?”

Here’s how it works …

When a stock’s price goes down and the annual dividend remains the same, the dividend yield rises.

For example, let’s say a stock is $50 per share and pays a $2 per share annual dividend. This represents a yield of 4% (since 2 is 4% of 50).

If the stock declines to $40 per share and the dividend payment remains $2 per share, the stock will yield 5% (since 2 is 5% of 40).

When a selloff causes an elite dividend-payer to trade near the high end of its historical dividend yield range, it’s a bargain … and it’s a good idea to buy shares.

Remember, these companies pay the world’s most reliable dividends.

Their annual payouts only go one way — UP.

When an elite dividend-payer’s share price suffers a decline of more than 15%, consider it “on sale” and buy it.

For example, in the late 2008/early 2009 stock market decline, shares of elite dividend payer Procter & Gamble (NYSE: PG) fell from $65 to $45 (a decline of 30%).

Procter & Gamble is one of the world’s top consumer product businesses. Every year, it sells billions and billions of dollars’ worth of basic, everyday products like Gillette razors, Pampers diapers, Charmin toilet paper, Crest toothpaste, Bounty paper towels, and Tide laundry detergent. It has raised its dividend every year for more than 60 years.

Investors who stepped in to buy this high-quality business after the market decline could have purchased shares at $50.

In the five years that followed, Procter & Gamble climbed to $80 per share. Its annual dividend grew to $2.57 per share.

This annual dividend represented a 5.1% yield on a purchase price of $50 per share … and that yield will continue rising for many years.

Owning one of the world’s best businesses … earning a 5.1% yield on your shares … collecting a safe income stream that rises every year …

Buying the best at bargain prices is a beautiful thing.

If you have the interest, time and knowhow, you can track these businesses yourself. You can find all the information you need on many free financial websites.

Or, you can simply pay an advisor or research firm to do it for you. I’d be remiss not to invite you to check out Neil George’s picks. Neil can recommend plenty of elite dividend-payers, complete with buy-below prices.

Remember, you can make a bad investment in a great business if you pay a stupid price. View your investment purchases just like you would the purchase of a home, a car, or a computer.

Get good value for your investment dollar. And when an elite dividend-payer sells off for some reason, see it as an opportunity to buy quality at a bargain price.

Once you’ve got price on your side, you’ve got to put time on your side. Here’s how.

Regards,

Brian

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Dividends

10 Highest Yield Dividend Stocks Going Ex-Div This Week

Stock SymbolEx-Div DatePay DateDiv PayoutYield
PER8/8/198/23/190.0919.24%
SDR8/8/198/23/190.0318.67%
SDT8/8/198/23/190.0317.18%
ECC8/9/198/30/190.213.99%
CCR8/7/198/15/190.5112.74%
ZTR8/9/198/19/190.1112.27%
VGI8/9/198/19/190.1311.58%
BT8/8/199/16/190.6611.18%
NCV8/9/199/3/190.0510.66%
NCZ8/9/199/3/190.0410.51%
Pay Your Bills for LIFE with These Dividend Stocks

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.

Click here for complete details to start your plan today.