Last week the Federal Reserve Board announced the expected 0.25% increase in the Fed Funds interest rate. Despite doing the expected, the stock market swung from a 1.5% gain for the day to down as much as 2.5%. That’s an 800 point swing by the Dow Jones Industrial Average. Bloomberg noted “…no matter what the Federal Reserve and Chairman Jerome Powell did and said at the final monetary policy meeting of the year, they couldn’t make stock investors happy.”

It appears we have a battle between the stock market traders and investment firm heavyweights against the Fed. The Federal Reserve Board based their decision on forecasts the economy will grow in 2019 at 2% to 3%, inflation will stay below 2%, and employment will continue to improve.

Those who work in the financial industry use the fact that the stock market has gone down as “proof” that what the Fed sees for 2019 is wrong. The financial market pundits believe (or at least publicly say so) that there will be a recession because they believe in one, even though the usual signs a recession is coming are nowhere to be seen.

It seems that the stock market is going down because investors are selling. I am sure that computer trading programs are pushing prices down with short-selling strategies. As of December 20, its safe to say the stock market has fallen into bear market territory. However, it’s a bear without a reason to be one. It is possible that the negativity of the financial markets will spill over to Main Street, leading to an economic slowdown. However, there is not anything in the financial world that will lead to a crisis such as we experienced in 2000-2002 or 2007-2008. This bear market may go for a few months, but it won’t go deep.

Bear markets are not to be feared. They are the times when you get to “buy low”.

It’s a time when disciplined investors take advantage of fear in the markets that always is later shown to be over blown. Income focused investors get to buy in at very attractive yields and benefit from capital gains as the overall market recovers into the next bull market.

In these days of falling stock prices you want to find dividend paying stocks that are built for tougher economic times. Here are three to consider.

Starwood Property Trust (NYSE: STWD) is a commercial finance REIT. This means 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. To further diversify the company as 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.

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

Self-storage REITs are the place to be when the economy gets rough for home ownership. Extra Space Storage (NYSE: EXR) is a large-cap, geographically diversified self-storage REIT.

The self-storage business is counter-cyclical to the economy. When the economy is booming, developers bring a lot of new inventory into the market. When the economy slows, the inventory growth stops and demand increases.

Extra Space Storage is possibly the best managed REIT in the sector. Investors can expect high single digit annual dividend growth.

Current yield is 3.7%.

Utilities are supposed to be the safe sector when the stock market goes into a correction. This time utilities are down right along with the rest of the market sectors. Now is a great time to pick up shares of the Reaves Utility Income Fund NYSE: UTG).

This is a closed-end fund that owns utility and other infrastructure stocks. UTG has paid a steady and growing monthly dividend since it launched in 2004.

The dividend has never been reduced and the fund has never paid return-of-capital dividends.

Current yield is 6.9%.

Later this week the Federal Reserve Board is expected to announce another interest rate hike. The Fed will likely its target short term interest rate by 0.25% to a range of 2.25% to 2.5%. The new Fed Funds rate is up from 0.50% two years ago. While many investor fears concerning higher interest rates and dividend stock values are unfounded, there are certain high yield stocks that will be negatively affected by rising interest rates. To determine whether one of your high-yield stocks is at risk of a big dividend cut, you need to determine if the company is “pitching” or “catching” when interest rates change.

A company is “pitching” in the interest rate game if when interest rates go up, the business generates higher revenues or profits. For example, over the last few years the commercial mortgage REITs and several business development companies (BDCs) have only originated adjustable rate loans. If these loans are held in the company’s portfolio—as is typical—rising interest rates will result in the growth of interest income. If the company has done a good job with its own debt by locking in interest rates, rising rates will lead to growing profits.

If a company is “catching” an interest rate increase, it pays interest on variable rate debt which will require higher interest payments due to the Fed Funds rate increase. For the period from 2009 through 2015, short term rates were very low, near zero percent for a high-quality borrower. If a company took on variable rate debt, it was like getting free capital to invest to generate revenue. However, those short-term interest rates are now increasing, which means interest expense will be increasing and profit margins could be squeezed. The type of company that is most at risk is one which has a fixed rate revenue stream and variable rate debt. The residential mortgage backed securities (MBS) owning REITs are a good example of this type of company.

These REITs are the opposite of the commercial mortgage REITs. The residential MBS REITs own pools of fixed-rate, government agency backed, mortgage backed securities. These AAA quality bonds pay fixed interest rates with current yields at 3.5%. To turn those low yields into double digit dividend yields, an MBS REIT borrows large amounts of short term debt to leverage up the interest rate.

When short term interest rates are low this strategy produces a large amount of free cash flow. However, as short-term rates start to rise, the rate margin gets squeezed between the owned MBS bonds rates and the cost of the money borrowed to buy those bonds.

The Fed Funds rate stood at 0.50% near the close of 2016. The rate has been increased seven times since last year and is now at 2.25%. With this next Fed rate increase, short term rates will effectively be 2.5%. Long term rates have not increased, and the 10-year Treasury yield is about 2.5%. The 10-year minus the 2-year Treasury rate is a common way to view the spread between short term and long-term rates. Here is the 10 minus 2-year yield chart since last December 1.

You can see the rate spread has shrunk from over 0.80% in February to just above 0.10%. For a business model based on capturing the long minus short interest rate spread, that does not leave a lot of room for profits. Especially after spending money to hedge against rising interest rates and paying business expenses.

Do not believe management comments that they have hedged to protect from rising rates. Hedging only works for a short time against a portion of the interest rate change. It will not protect from a serious profit squeeze.

Here are three high yield stocks with significant variable rate debt leading to a high probability of a dividend reduction:

Annaly Capital Management, Inc. (NYSE: NLY) is a high-yield, agency MBS owning REIT. In its 2018 third quarter earnings report the company owned $91 billion worth of agency MBS.

The company owns $9 billion of other assets, including $2.7 billion of commercial property mortgages. This large pile of assets is held aloft by a total of $77 billion of debt.

In the quarter, Annaly reported an average asset yield of 3.21% and an interest cost of 2.08% leaving a net spread of 1.13%. This spread was almost half of the 2.28% spread reported in the first quarter of 2016 when the Fed got serious about rate increases.

The most recent 0.25% rate increase could reduce NLY’s profit margins by up to 25%.

AGNC Investment Corp (Nasdaq: AGNC) is another agency MBS REIT. NLY and AGNC are the two largest companies in this REIT sector. As of the third quarter AGNC owned $70.9 billion of agency MBS.

The company had $65.7 billion of debt. This works out to 8.2 times leverage of the company’s equity. Reported net interest spread was 1.30%.

The company reported net interest income of $0.61 per share and paid dividends of $0.54 per share. AGNC has some cushion against higher short-term rates, but that is because the company has reduced the dividend by 18% over the last three years to stay ahead of fallen net interest income.

You can expect another dividend cut after this or the next Fed rate increase.

Two Harbors Investment Corp (NYSE: TWO) is a smaller agency MBS REIT that is trying to stay relevant with its recent merger with CYS Investments Inc (CYS).

The $3.5 billion market value makes it a mid-cap residential MBS REIT. As of the 2018 third quarter, the company own $27.7 billion of mortgage backed securities. The portfolio was leveraged to five times the company’s equity. Reported interest margin was 1.93%.

The company has diversified with a significant investment in mortgage servicing rights, also called MSRs. These will offset some of the effect of higher interest rates, but there is still a lot of interest rate risk in the core MBS portfolio.

With the 0.25% Fed Funds rate TWO could be pushed into a dividend cut just six quarters after its last payout reduction.

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.

Source: Investors Alley 

5G wireless service is coming and it will change the world. The new fifth generation of wireless networking is just starting to roll out. 5G will soon start replacing 4G, which has been the standard for wireless data transmission for the last half-decade. If you remember how great it was to go from 3G to 4G, 5G is going to be 50 times better. As in 50 times faster than the current 4G average.

More importantly, several new, likely life-changing technologies need the higher data speeds of 5G to function properly. At the top of the list is self-driving cars, or even human driven cars with automatic driving features. To avoid running over cats, children, the center median and other traffic on the road these vehicles will need to gather and process huge amounts of data.

5G will eventually lead to smart buildings and homes – the so-called Internet of Things or IoT. (If you’re interested in IoT be sure to check out new research from my colleague Tony Daltorio.) Life will catch up with science fiction. It is likely that it may be possible to use your new 5G smartphone or a dedicated 5G hotspot device as your all-the-time connection to the Internet.

Before we and our cars can enjoy the benefits of 5G, the infrastructure to support the tremendously higher speeds and much larger amounts of transmitted data must be built out. The current 4G network does not have sufficient capacity to handle the coming increase in data flow.

Much of the wireless and Internet infrastructure is owned by companies that specialize in providing specific parts of the infrastructure. These specialties include data centers, cell towers, and fiber communications networks. Here are three stocks that will see huge benefits from the shift to the next gen 5G wireless system.

Digital Realty Trust, Inc. (NYSE: DLR) is a data center services provider that is organized as a REIT. The company develops and operates data centers. Digital Realty owns almost datacenters located around the globe. In addition to storage solutions, the company provides interconnectivity solutions between datacenters and the Internet.

The coming 5G speeds means an exponential increase in data that will need to be shared and stored. That’s the business of Digital Realty. Since it’s a REIT, DLR can be counted on as a steady dividend paying stock.

As a player in the high-growth data storage space, this is an income stock that will provide attractive dividend growth.

The company has increased the dividend for 13 straight years, with an average double-digit compound growth rate. Investors can expect the low teens dividend growth to continue, or even accelerate in the 5G era.

The shares currently yield 3.5%.

5G connectivity will require more cell towers, spaced closer together.  American Tower Corp. (NYSE: AMT) is the largest independent owner of cell towers.

5G will require a shift to small cell and micro-sites to provide uninterrupted, high-speed coverage. AMT owns 40,000 towers that will be retrofitted to provide 5G service. The company has also formed business alliances to install micro-sites in light poles and information kiosks.

AMT is also organized as a REIT. The company has a very high path of dividend growth, increasing the payout by 24% per year compounded for the last five years. Investors can expect AMT to remain at the heart of the 5G roll-out and be able to continue the rapid dividend growth. The shares currently yield 3.3%.

AMT is also organized as a REIT. The company has a very high path of dividend growth, increasing the payout by 24% per year compounded for the last five years.

Investors can expect AMT to remain at the heart of the 5G roll-out and be able to continue the rapid dividend growth.

The shares currently yield 3.3%.

Uniti Group (Nasdaq: UNIT) is a telecommunications REIT focused on fiber optic assets. In recent years the company has focused on acquiring backhaul fiber assets. These are fiber connections between cell towers and the wired Internet.

Uniti Group has been acquiring fiber networks that connect cell towers to the wired data network. These networks can be leased up to handle higher 5G data speeds without the need to build out additional network infrastructure. This mostly unknown and underground part of the overall data network will be a big winner for Uniti as 5G rolls out.

Currently UNIT is under a legal cloud due to a lawsuit against its largest customer, Windstream Holdings (Nasdaq: WIN). The trial has been completed and the companies are waiting on the judge’s ruling. Until that ruling comes out, the prospects and dividend safety of UNIT are unclear.

Thus, the current 12% 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.

Source: Investors Alley 

Personally, I get to this point in the month and tell myself to stop spending money. I have been buying gifts, plus stuff on sale from my favorite vendors. If you are in the same boat, or even if you have exhibited outstanding spending discipline through this holiday season, I want to recommend giving your self the gift of a special dividend payment.

Today’s stock will pay a nice special dividend before the end of December and then continue to pay monthly dividends throughout the year. You can think of this as the gift to yourself that keeps on giving.

Main Street Capital (NYSE: MAIN) is a monthly dividend paying business development company (BDC).  The company has also paid semi-annual, supplemental dividends since 2013. The next supplemental payout lands in investor brokerage accounts on December 27 and is equal to 150% of the normal monthly dividend.

To earn this special 27.5 cents per share dividend, you must buy shares at least a day before the ex-dividend date of December 17. That means buy shares on December 16 or earlier. Your new shares will start earning the monthly dividends, with a payment on January 15.

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 up to hundreds of outstanding investments to spread the risk across many small companies. The client companies of a BDC will be corporations that are too small or too new to be able to issue stock or bonds into the publicly traded markets.

As a risk control factor, BDCs are limited to no more than two times its equity in leverage. This means that if a BDC has $500 million of equity raised from selling shares, it can borrow another $1 billion. The company can then make $1.5 billion of loans or equity investments.

Main Street Capital Stands Apart

Main Street Capital Corp. is really quite different from the rest of the BDC crowd. Since its 2007 IPO, MAIN has tripled the total return average of its BDC peers. Here is a list of some of the reasons why this company stands apart from its peers in the industry:

• MAIN is internally managed with insiders owning over 2.8 million shares. Co-founder, Chairman, and CEO Vince Foster is the single largest individual shareholder.
• Main Street is the most conservatively managed BDC in the industry and holds an investment grade BBB credit rating. Investment grade is rare among the BDC crowd and allows Main Street to borrow at a much lower cost of capital compared to most other BDCs.
• Operating, admin, and management costs are 1.5% of assets compared to 3.2% for the average BDC and 2.7% for commercial banks.
• Net debt is just 0.62 times company equity, well below the 2.0 times maximum set by law.
• The share price is about 1.5 times the book or NAV value.

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. In the middle market, MAIN provides debt financing to companies with stable finances and low risk of default.

The rules governing BDCs make it difficult to generate growth. Most companies in the sector experience declining book values and are eventually forced into dividend cuts. Main Street Capital has a different business model that has resulted in dividend growth and share price appreciation. This is a stock that should be in every income investor’s portfolio.

Starting today you can stop worrying about the market and instead fundamentally transform your income stream from a string of near misses to a steady, reliable flow of income right into your bank account.

It all starts with a simple to use, yet powerful calendar – called the The Monthly Dividend Paycheck Calendar, like the one below, only with more details. It’s kind of like the one you might have on your desk, only this one tells you when you’ll get paid and how much you’ll receive each and every month.

No more guesswork, no more confusion, no more worrying if you did the right thing… just steady paychecks coming like clockwork…

Paychecks currently averaging $3,409.21 every month. That’s money in the bank for you regardless how volatile remains for the rest of the year.

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.

Source: Investors Alley

At the core of stock values is the economic fact of supply and demand. You know how that works. Yet in the world of stocks, supply is generally open-ended. The financial world is happy to put more supply of individual stocks or shares of funds or ETFs into the market. Share price changes are almost 100% driven by changes on the demand side.

However, upcoming changes in the MLP sector will produce a significant supply reduction. The market doesn’t seem to be aware that there is also a supply side to supply and demand. This provides an attractive opportunity to pick up some unavoidable value gains.

Master limited partnerships and other companies operating in the midstream/infrastructure energy subsector have been implementing a range of financial maneuvers since energy prices and related stock prices crashed in 2015. Now late in 2018 it seems the group is at the end game of the path that has been followed for the past three years. The remaining problem is that the stock market has not yet recognized the stronger fundamentals in the sector with higher stock or unit price values.

The final step to the midstream sector restructuring is now taking place. This involves taking out of the market those midstream companies where the sponsors do not believe keeping these companies as publicly traded entities makes financial sense for the long term goals of the sponsor entities.

For example, at the beginning of 2018, there were eight publicly traded MLP general partner stocks. When this current consolidation phase is over, there will be none. Over the last few months the mergers or buy-ins of four midstream companies have been completed. Over the next few months, these stock symbols will meet the same end and no longer be publicly traded companies: SEP, EEP, AM, ENLK, WES, EQGP, VLP, DM, TLP.

This list accounts for about 10% of the index tracked MLP universe.

With one-tenth of the sector disappearing, MLP focused mutual funds, closed-end funds, ETFs and ETNs will have cash from the transactions that must be reinvested into the remaining stocks in the sector. ETFs and ETNs will be forced to follow the new weightings put out by the index providers. The closed-end and mutual funds won’t be forced to buy specific midstream stocks but will have significant amounts of new cash to put to work.

To give you an idea of the amount of money at stake, the MLP ETF and ETN groups have $18.5 billion in assets. Mutual and closed-end funds have assets of $38 billion. Rough math gives approximately $6 billion in loose cash that will soon be chasing the remaining companies in the MLP space. The Alerian MLP Index has 36 component companies. The Alerian MLP Infrastructure Index just 21 component MLPs. The adjusted market cap of the entire MLP sector is about $170 billion.

The bottom line is that the amount of supply coming out of the MLP sector will produce a large amount of cash that will be chasing the reduced amount of remaining supply. This demand imbalance could be the trigger event to start the MLP sector climbing out of its 3-year long bear market.

Here are three investment ideas to participate in the supply vs. demand imbalance coming over the next few months.

Enterprise Products Partners LP (NYSE: EPD) with a $57 billion market cap is the largest midstream MLP. The company provides the full range of energy infrastructure services.

EPD is one of the biggest pipeline service providers to transport crude oil from the Permian to the Texas Gulf Coast. It recently announced that its 416-mile Midland-to-Sealy pipeline is now in full service with an expanded capacity of 540,000 barrels per day (“BPD”) and capable of transporting batched grades of crude oil.

This company also stands out from the MLP pack by using internally generated cash flow to pay for growth projects. In an era where the cost of raising equity capital is high, this is a significant advantage.

EPD yields 6.6% and is growing distributions by 2.5% per year.

Magellan Midstream Partners LP (NYSE: MMP) primarily owns and operates refined products (gasoline, diesel fuel, jet fuel, etc.) pipelines and storage terminals. The company also owns 2,200 miles of interstate crude oil pipelines.

The company provides service to almost 50% of the U.S. refining capacity. With its $14 billion market cap, Magellan is one of the more stable large MLPs. This is another of a very small number of midstream energy companies that funds growth capital from internal cash flow.

Since its 2001 IPO, this MLP has consistently grown the distributions paid to investors. Over that period, the payouts have grown at a 12% compounding rate.

Currently the company forecasts 5% to 8% distribution growth through 2020.

MMP yields 6.5%.

If you don’t want to own individual MLPs and have to deal with the Schedule K-1 tax reporting, look at the Global X MLP ETF (NYSE: MLPA). This MLP ETF has a management fee that is half the rate charged by the larger and better known ALPS Alerian MLP ETF (NYSE: AMLP). MLPA uses the Solactive MLP Infrastructure Index as its benchmark.

The fund currently yields 8.7%.

I don’t currently believe the higher level of stock market volatility is a sign that the next economic recession is right around the corner. Yet, I could be wrong, and the market could also plunge into a bear market without the drop being triggered by the economy going to negative growth.

My income investing strategy remains focused around owning, high-yield, secure dividend paying stocks as best way to navigate the stock market strategy. However, when the market goes down, down, down, it is easier to stick to the plan if you have some money in investments that pay attractive yields and don’t follow the stock market swings.

Here are three ideas to put in your income investing toolbox.

The U.S. Treasury lets individual investors buy Treasury bills, notes, TIPS and bonds without commission at the auction yields through what they call a TreasuryDirect account. The minimum investment amount is $100. By putting your short term cash to work by investing directly in Treasuries, you get the safety of U.S. government issued debt and will earn a higher yield than your bank or brokerage account offers. For example, re-sent auction yields range from 2.2% for the 4-week bill to 2.88% for the 2-year note. For comparison, the Fidelity Government Money Market Fund currently yields 1.85%. Using TreasuryDirect helps your short-term emergency fund money work a little harder for you.

Compared to short-term Treasury Bills, preferred stock shares sit at the other end of the yield curve. Preferred stock dividends have a distinct safety advantage over common stock dividend payments. A company must pay preferred dividends before paying dividends on the common shares. Many preferred issues are also cumulative, which means that if common and preferred dividend payments are suspended by a company, all the unpaid preferred dividends must be paid before the company can again pay dividends on common shares. The result is that preferred stock is a high yield investment with a very low risk of dividend cuts.

Preferred stock prices will rise in a recession if the Fed reduces interest rates, which it very likely will to stimulate the economy. You need to be aware preferred prices will decline in a rising rate environment. It’s tough to evaluate individual preferred stock issues, so I recommend using a dedicated fund like the iShares U.S. Preferred Stock ETF (NYSE: PFF).

Current yield is 5.8%.

Commodity exposure can be a great hedge against rising prices and inflation. Black Stone Minerals, L.P. (NYSE: BSM) is the largest pure-play oil and gas mineral and royalty owner in the United States. The company has rights to over 20 million mineral and royalty acres with interests in 41 states and 64 producing basins.

Mineral, energy or commodity royalty investments give you exposure to the commodity values without any business operating costs. This means that while commodity prices and your returns from this type of investment will fluctuate, you avoid the risk of a business operation challenges such as insufficient cash flow to pay dividends, or even bankruptcy.

Black Stone Minerals is managed for growth through acquisitions. The distributions paid to investors have grown since the mid-2015 IPO. Commodity exposure is a great hedge against inflation and a depreciating dollar.

BSM currently yields 8.9%.

These three investment ideas will provide a safety net in the case of an economic recession or stock market crash. For my Dividend Hunter subscribers I have searched out even more attractive investments in these three categories.

Starting today you can stop worrying about the market and instead fundamentally transform your income stream from a string of near misses to a steady, reliable flow of income right into your bank account.

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.

Source: Investors Alley 

Turkey is the traditional Thanksgiving fare, and I don’t know anyone who doesn’t like to sit down to a full-spread Turkey dinner on the holiday (OK, my sister the vegetarian is an exception. She just wants her dinner to taste like turkey). However, what we don’t want are turkeys in our stock portfolio. In the case of high yield stocks, those are ones where the dividend payment is at risk of disappearing like the pie on Thanksgiving.

The results from high-yield stock investments tend to have a binary outcome. The reason for the high yield on an individual stock is because there is a market perception that the dividend rate is at risk. You have likely heard the saying that high-yield equals high risk.

The outcome for an individual dividend stock will go one of two ways. One possible outcome is that the market is right and the dividend is reduced or eliminated. When this happens, it’s bad news in a stock portfolio. Dividend cuts also come with steep share price declines. The other potential outcome is that the market is wrong, and the company continues to pay the current dividend or even grow the payout rate.

My research for my Dividend Hunter high-yield stock focused service is focused on finding the second kind of big dividend paying stock.

Today I want to highlight a few stocks in the first group. Many investors pick income stocks just from the yield and don’t analyze the underlying financials to see if a company is positioned to sustain the dividends.

The analysis steps are different in the high-yield world, and if you have not been exposed to the techniques, you will likely end up cursing the idea of investing for yield.

Here are three, that if you own them, my suggestion is to sell before the dividend gets cut any you are left with a lot less income and value in your brokerage account.

Martin Midstream Partners L.P. (Nasdaq: MMLP) is a high-yield master limited partnership. The shares currently yield over 17%. After a decade of dividend growth, the music stopped and in November 2016 the company slashed its payout by 38%.

You might assume or hope that after the big reduction the management team would have put itself into a position to support the new lower dividend rate and at some point, resume growth.

It appears that is not the case. For the first three quarters of 2018, the company generated distributable cash flow coverage of just 76% of the distributions paid to investors.

The company says it will soon be able to cover the distributions with cash flow, but too many times have I seen businesses like this be forced into a dividend cut before the cash flow gets high enough to sustain the current dividend rate.

AGNC Investment Corp (Nasdaq: AGNC) is the largest of a group of finance real estate investment trusts (REITs) that own portfolios of government agency backed mortgage backed securities, often called MBS. You will see these referred to as Freddie Mac, Fannie Mae and Ginnie May mortgage backed bonds.

The challenge for AGNC and all the agency MBS owning finance REITs is taking the 4% yield of these bonds up to a double digit stock yield. The step up in yield is done with large amounts of leverage. An agency REIT will leverage its equity 5 to 10 times with borrowed money.

For the 2018 third quarter AGNC reported leverage of 8.5 times book value. The problem with this amount of leverage is that a flattening of the yield curve can wipe out the net interest margin and the ability to continue paying dividends.

History has shown that these REITs are better for management compensation than they are for investors looking for stable dividend payments. The AGNC dividend has shrunk by 14% per year on average over the last five years.

Ignore the 12% yield and sell.

CBL & Associates Properties, Inc. (NYSE: CBL) is a shopping mall REIT on the wrong side of the shopping center great divide. At one end are the successful REITs that own Class A malls which are 95% plus occupied with successful retailers. At the other end are the REITs that own malls with fading demographics anchored by declining retailers like Sears and JC Penny.

These second tier malls will require millions in capital spending to make them again attractive to shoppers, and that spending may not do the trick. Shoppers are fickle, and it may be impossible to draw them back to a near failed mall.

It’s easy to tell the difference between the successful mall REITs and the trouble ones. The good REITs in the shopping center category have yields under 5%. The challenged ones have double digit yields. In the case of mall REITs, the high yield is a true danger signal to sell and stay away.

CBL yields 10.7%.

Last week was a seriously mixed bag for energy sector fundamentals. The WTI crude oil benchmark tumbled to $56 a barrel, after trading above $70 a few weeks ago. Over the same period natural gas went from $3.00 MMBtu to $4.60.

In recent days, the share values of renewable energy Yieldco stock have also been pulled lower. It seems the market is linking these companies to the plight of California power company Pacific Gas and Electric (NYSE: PGE).

Yieldcos are companies that own renewable power production assets such as wind farms, solar energy facilities, and hydropower production assets. The companies acquire energy producing assets and sell the power to utilities and other end users on long term contracts. They operate as pass-through entities, paying out most of the free cash flow as dividends to investors.

The better Yieldcos look to acquire assets that allow them to grow the dividends. Most have a sponsor company that is either a developer of power production facilities or provides additional financial support for the Yieldco’s growth goals.

Buy These 3 High Yield Clean Energy Stocks While They’re Still Cheap

The prospects of these companies have not changed in the last few days or weeks. Renewables are the growth area of energy production. The Yieldco companies have pipelines of assets in development that allow them to stay on their forecast growth trajectories. If you are an income stock focused investor, now is a good reason to buy low and yield high in the Yieldco group.

TerraForm Power (Nasdaq: TERP) is a $2.3 billion market cap which owns wind and solar power production assets. The company has gone through significant transformation over the last year. In October 2017 Brookfield Asset Management took over sponsorship of TERP and became a 51% shareholder in the Yieldco.

In February 2018, TerraForm made an offer to acquire 100% of Saeta which owned and operated 1,028 megawatts of rate-regulated and contracted solar and wind assets, located primarily in Spain. The $1.2 billion purchase closed in June 2018.

TerraForm’s financial results show the company was coming up short of covering the $0.19 per share dividend for the first two quarters of 2018, building up to 1.15 times coverage. Management has stated a goal of 5% to 8% annual dividend growth going forward, while paying out 80% to 85% of cash available for distributions.

Current yield is 7.0%.

Brookfield Renewable Partners (NYSE: BEP) was operating like a Yieldco long before the term was invented. The company owns 260 hydro power plants, which account for 76% of production. 35% of production is done outside of North America. Also, 90% of power production is purchased on long-term contracts.

BEP owns the 51% of TERP acquired by Brookfield Asset Management. Brookfield Renewable Partners has been publicly traded since 2001 and is the only Yieldco to have an investment grade credit rating.

The company pays out about 70% of CAFD as dividends and has been growing the dividend since 2011. Management guides for 5% to 8% annual dividend growth. Unlike the other Yieldcos discussed here, BEP is a Schedule K-1 reporting company for tax purposes.

The shares currently yield 7.0%.

Clearway Energy (NYSE: CWEN) is another Yieldco that recently went through a change of sponsorship. Clearway was started by utility company NRG Energy (NYSE: NRG).

In the Spring of 2018 the sponsor interests in what was then called NRG Yield Inc. was transferred to Global Infrastructure Partners. CWEN retained the right of first offer on the renewable energy projects in the NRG pipeline.

These projects plus the ability to make outside acquisitions will allow Clearway to be a growth focused Yieldco. The company forecasts 5% to 8% annual distribution growth.

CWEN currently yields 7.8%.

Starting today you can stop worrying about the market and instead fundamentally transform your income stream from a string of near misses to a steady, reliable flow of income right into your bank account.

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.

Source: Investors Alley