Category Archives: ETF

Five 10% Yields Under $10

Everybody likes a sale, but there’s a significant difference between something that’s a value, and something that’s merely cheap – a good value can last you years and even decades, where something cheap can leave you in the lurch within a few months.

The same can be said for several enticing double-digit yields right now. I’m about to introduce you to five 10%-yielding dividend stocks, all of which boast low prices in the single digits. But that doesn’t make them all good deals.

Far from it.

We all know that nominal share price typically doesn’t mean much – what makes a stock “cheap” is its price compared to metrics such as earnings, sales, free cash flow and other operational measures. But at a certain (low) point, price does start to play a factor in how a stock is viewed.

Many institutional investors – including mutual funds and ETFs – draw a line in the sand at $10 per share, refusing to buy any stock that trades in single digits.

That’s important because institutional buyers can create something of a floor for a stock, which means once a stock falls below $10, it can start to lose that market prop. The same can be said for the $5 mark, below which other institutional investors will refuse to buy.

In other words, stocks under $10 aren’t necessarily flawed because they’re so cheap – and in fact, some of them are excellent value candidates just waiting to bounce back. But single-digit stocks tend to reflect companies at some level of distress, and a lack of institutional interest doesn’t help their cases.

That’s why investors delving in any uber-cheap stocks must be diligent in assessing everything – all the warts – before buying. That goes doubly for stocks with dividends of north of 10%, as low share prices combined with sky-high yields can be a sign of a troubled stock.

Here’s a look at five such stocks that all look alluring thanks to low prices and elevated payouts … but some of which are disasters in the making.

CBL & Associates Properties
Price: ~$5.80
Dividend Yield: 13.9%

Back in October, I warned against CBL & Associates (CBL) – a real estate investment trust that invests in malls, as well as “community centers” that involve retail, yes, but also dining and entertainment. The company is in the midst of trying to redefine itself, and this year’s results haven’t exactly been promising. I mentioned at the time that while the dividend was covered by adjusted funds from operations, the payout has stalled, AFFO was slipping and portfolio occupancy was on the decline.

Well, things have gone bad to worse.

CBL cut its dividend from $1.06 annually to just 80 cents – the only reason CBL’s yield is higher now than it was then is because Wall Street has given the stock a 30% haircut since then. AFFO was off 12.3% in the third quarter, to 50 cents per share, and the company’s net income is now off about 27% year-to-date. Portfolio occupancy at least ticked higher sequentially, by 150 basis points to 93.1%, but that’s still off from the year-ago quarter.

CEO Stephen Lebovitz said that “revenues were impacted by additional bankruptcies, store closures and rent concession,” which is the wider story in retail real estate right now. While CBL’s dividend cut helps the company save cash, it still hasn’t solved the problem that is plaguing its industry. Until it does, CBL is nothing more than a yield trap.

BlackRock Capital Investment Corporation (BKCC)
Price: ~$6.70
Dividend Yield: 10.8%

BlackRock Capital Investment Corporation (BKCC) is a business development company that provides middle-market companies with various avenues of financing, including senior and junior secured debt (roughly 60% of the portfolio), subordinated/unsecured debt (16%) and other means.

BKCC’s typical investment will be anywhere between $10 million and $50 million, and it will invest across a wide array of industries – finance (26%) is the biggest slice of the pie, but it also holds companies in chemicals, energy, business services and environmental industries, among others.

BlackRock Capital shares a name and relations with investment management giant BlackRock (BLK), but that’s about it – it certainly doesn’t share its success. BKCC has been in a steady decline since 2013, including a 4% drop in 2017 amid a red-hot broader market.

Its struggles are illustrated by its third-quarter earnings, which included a 4.4% sequential drop in net asset value, as well as net investment income of just 17 cents per share – a penny shy of its quarterly distribution. That was affected by interest from outstanding convertible notes, as well as markdowns in legacy investments.

It’s part of a broader half-decade downtrend that has forced BKCC’s hand into not one but two dividend cuts, including one enacted at the beginning of this year. In fact, the last time BlackRock Capital paid out this little, it was recovering from the 2007-09 financial crisis and bear market.

With few signs of improvement to point to, BKCC’s dividend seems much more likely to stagnate or shrink than bounce back.

BlackRock Capital Investment Corporation (BKCC) Isn’t Getting Up Off the Mat

Frontier Communications (FTR)
Price: ~$7.00
Dividend Yield: 34.5%

That’s no misprint – beleaguered telecom Frontier Communications (FTR) now yields close to 35% at current prices. What’s even more comical is that its 60-cent payout represents a whopping 62% cut, delivered earlier this year.

A little fun with math: If Frontier was paying its previous $1.58 out at today’s prices, it would be yielding more than 90%!

Sadly, this entertaining dividend train wreck has to end sooner than later.

While Frontier has long been troubled, the start of the current avalanche can be traced back to 2015, when it spent $10.54 billion on wireline, broadband and other assets from Verizon (VZ) to bolster its business. Since then, however, service delays and angry customers have become the norm, and actual performance has come far shy of the growth that Frontier projected at the time of the acquisition. Meanwhile, its debt has exploded to $17.6 billion – more than five times its current equity.

Frontier cut its dividend earlier this year to preserve cash, but given the company’s operational forecasts, it’s clear that the company needs plenty to go right to continue tackle debt that’s maturing over the next couple years. Worse, it has a massive $5.26 billion in bonds coming due in 2022 that it will have to refinance – a difficult task if it’s still hemorrhaging cash to keep income investors happy.

Allianzgi Convertible & Income Fund II (NCZ)
Price: ~$6.15
Dividend Yield: 11.3%

The nice thing about the Allianzgi Convertible & Income Fund II (NCZ) is that its low price isn’t necessarily a sign of immediate danger. That’s because it’s a closed-end fund, rather than a traditional stock, and has traded at $15 or below for its entire publicly traded life. Few institutional holders are worried about its sub-$10 price tag.

The NCZ invests in both domestic convertible securities and junk debt, typically seeking to be about 50% weighted in convertibles; at the moment, it’s actually closer to about 55%. The risk from the high-yield aspect of the portfolio is meted a bit thanks to short maturities, with half its debt at one to five years, and another quarter in five to 10. And like many closed-end funds, NCZ uses leverage – about 40% right now – to help juice its income, as well as its overall performance.

NCZ has tended to benefit from a rising-rate environment, which explains its broad malaise since its 2003 IPO. The fund even lowered its distribution in 2015 to adjust to the ultra-low-rate environment. However, the fund has bounced back over the past couple years, and its generous distributions have helped its admittedly volatile performance maintain an edge over other popular bond products.

Allianz’s NCZ Throws Some Fits, But Gets the Job Done

National CineMedia (NCMI)
Price: ~$5.80
Dividend Yield: 15.2%

If you’ve been to a theater run by AMC Entertainment (AMC), Cinemark (CNK) or Regal Entertainment (RGC), among others, you know National CineMedia (NCMI) – likely through it’s “Noovie” (previously “First Look”) brand. NCMI is the company behind pre-preview previews, replete with ads and 60-second “inside looks” that essentially double as glorified advertisements. As much as we might hate it, however, these shows give advertisers access to a captive audience in front of a giant screen.

Business has been lousy in 2017, however – so much so that the company plunged in May after warning of a very difficult environment for much of this year. NCMI shares, in fact, are off 60%, helping drive the yield from a still-attractive 6.5% at the beginning of the year to more than 15% at the moment.

How safe is the yield? Well, the company stopped raising it in 2012, and the company has paid out 66 cents through three quarters of 2017, despite having collected just a dime in profits – off 44% year-over-year – during the same time span. At the same time, National CineMedia operates a low-capex, high-cash business, and from a cash perspective, the dividend isn’t in immediate danger.

And NCMI’s operational performance is disturbing – it comes amid 2017’s box office on pace to come in higher than three of the past five years. That’s because ompetition from digital video platforms are eating into the company’s business, as is an increased practice of assigned theater seating, allowing patrons to come in closer to the movie’s start time and avoiding Noovie’s content.

That’s enough to keep me away from NCMI, even at matinee prices.

Live Off Dividends Forever With This “Ultimate” Retirement Portfolio

If you want to get through retirement without ever touching your nest egg, you need more than high yields – you need high-quality yields. Losers like Frontier and National CineMedia won’t come close to cutting it. You need the “triple threat” stocks in my 8%-yielding “No Withdrawal” retirement portfolio for that.

Retirement investing can feel like a zero-sum game: You can have safe but insufficient yields from the likes of Coca-Cola or Kellogg, or you have to chase high yields in the junkyard, where underperformance eats away at those dividends. Either way, you’re dooming yourself to a lower quality of retirement than what you’ve worked so hard for.

Editor's Note: The stock market is way up – and that’s terrible news for us dividend investors. Yields haven’t been this low in decades! But there are still plenty of great opportunities to secure meaningful income if you know where to look. Brett Owens' latest report reveals how you can easily (and safely) rake in 8%+ dividends and never worry about drawing down your capital again. Click here for full details!

Source: Contrarian Outlook 

How to Generate Income While Doing Nothing

In the investing world, generating income typically refers to slow, predictable payments from an investment over time. It may be a stock paying dividends or a bond with coupon payments. With options, generating income usually refers to selling options and collecting premium from option buyers.

The most common income generating strategy using options is the covered call. Well, technically a covered call includes a stock and an option. By selling a call against long stock you could potentially earn income from the stock (dividend payments) and the short option (premium). The two-fold income generation of a covered call strategy is one of the reasons it’s so widely used.

Of course, there are many different way you can generate income from options strategies. An options income strategy can range from obscenely complex to super simple.  Covered calls are generally considered simple, though they can be utilized in a more complex fashion if you choose.

Another income generating strategy used mostly by institutions is the short straddle. A short straddle is when a trader sells a call and put at the same strike in the same expiration. This trade is used when the seller believes the underlying asset is going to remain in a certain trading range.

Now, retail and smaller traders should never sell a straddle. It’s too risky and margin requirements are too high. However, seeing what straddles are being sold by the big players can be a good way to analyze assets.

For instance, if a bunch of short straddles trade in a certain stock or ETF, then someone with a lot of money believes that asset will be range-bound until expiration. In fact, this just recently occurred in the Utilities Select Sector SPDR ETF (NYSE: XLU).

Utilities are already known to be a slow moving asset. So, if someone with big bucks is selling straddles in utilities, you can bet the range is going to be extremely tight. In this case, the straddles don’t expire until January of 2019 – so utilities may remain in a narrow range for all of 2018.

To be specific, with XLU at around $56, the trader sold 1,100 of the January 2019 56 straddles for $7.37 per straddle. The trader collects over $800,000 on the trade and keeps it if XLU remains between roughly $48 and $64.

Okay, so this trade is not for the average investor – like I said, margin requirements would be insane. However, it really isn’t that risky. XLU doesn’t move that much to begin with and the trader has a very wide range to work with. The chance that utilities go crazy or collapse is basically zero. That’s not to say this trade is a guaranteed winner – not by any stretch – but I get what the trader is thinking.

If this trade idea appeals to you but you don’t want the risk or the margin requirements, you can pretty easily solve the situation by purchasing a call and put outside the short straddle. (In other words, go long an options strangle.)

Let’s say you purchased the 47 put for $1.25 and the 65 call for $0.50 in the January 2019 expiration. You’ve capped your risk (and your margin needed) and it only cost you $1.75 (off the $7.37 from the short straddle). So you’re still making decent money but you’ve substantially cut your risk. By the way, this short straddle surrounded by a long strangle has a name… the iron butterfly, and it’s a fairly popular strategy to use.

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Source: Investors Alley

Here’s Why This ETF Has Become Popular with Retirement Investors

One of the biggest changes to investing in recent times is the vast amount of choices available to investors of any size. The advent of ETFs has opened up markets and assets which almost no one could previously access – especially if you didn’t have a lot of money to invest.

It used to be you could invest in individual stocks, bonds, or mutual funds. Now, through ETFs, you can invest in everything from palladium to Thailand to foreign junk bonds. There are multiple ETFs available for a variety of strategies and investing philosophies as well (value, growth, income, etc.). Plus, these funds are available to just about anyone with a brokerage account.

The popularity of ETFs has also shined a light on asset class investing as a primary means of long-term/retirement strategies. Instead of just buying stock and bonds, many portfolios now are diversified into 10 to 15 (or more) asset classes, such as foreign government bonds, REITs, and commodities.

One of the most popular asset classes to invest in over the last decade has been emerging markets. This class includes countries like China, India, and Brazil. They tend to be countries which can experience high growth but also high risk (with China being the perfect example).

Related: 2 Stocks to Buy for the Death of the Combustion Engine

With major US indexes at or near all-time highs, and valuations reaching very frothy levels, investors may be turning to emerging markets for growth in the final weeks of the year. In fact, iShares MSCI Emerging Market ETF (NYSE: EEM) is seeing some massive bullish activity in its options. EEM is the most popular emerging market fund and one of the most popular ETFs period.

This past week, a trader made a gigantic bullish bet in EEM options expiring on December 15th. This three-way trade involved buying a call spread and partially financing it by selling puts. (By the way, that’s one of my favorite options strategies, but you have to a sizeable margin account to do it because of the naked short puts.)

With EEM at $46.75, the trader purchased the December 15th 47-48.50 call spread 102,000 times, while simultaneously selling 102,000 of the 44.5 puts in the same expiration. Normally, the call spread would cost $0.58, but selling the puts for $0.33 brought the total spread cost down to $0.25.

With a total cost of $0.25, the breakeven point for the trade is $47.25 and max gain is at $48.50. The dollar gain at $48.50 would be a whopping $12.75 million. On the flip side, if EEM closes below $47 on December 15th, the trade would cost $2.55 million (in premium spent) down to $44.50. Below $44.50, the loss potential rises as the price goes lower.

Of course, EEM isn’t an especially volatile ETF, so the chance of it plunging below $44.50 in the next 6 weeks is extremely low. Still, this is clearly a lot of money to bet on EEM going up. Losing $2.5 million if the ETF does nothing between now and then is a real possibility.

The trader likely believes investors will be looking at emerging markets to close out the year. Perhaps some in the investment community believe the US and other developed nations have peaked for the year.

Regardless, if you like the idea of taking a low risk bet on EEM, you can simply replicate the call spread portion of the trade. Since most investors won’t be trading 100,000-lots, paying $0.58 for $0.92 in upside is a perfectly reasonable thing to do.

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3 Exploding ETF Trends (and 33 Funds You Can Buy Now)

If you’re like most folks, you probably think it’s tough for any fund to beat the S&P 500, especially in a year when the index jumped some 15%.

But you’d be wrong.

Truth is a lot of funds are doing better, with over 660 beating the S&P 500. And the top-performers share 3 common themes that could tell us a lot about which sectors are poised to take off next year.

Let’s dig in. Along the way, we’ll hone in on the 33 funds that are cashing in as these breakthrough trends head higher.

Trend No. 1: Skyrocketing Faith in Technology (11 Funds)

Markets have always believed that technology will improve the global economy. But every once in a while investors get too excited and see value in all the wrong places.

A classic example? The boom and bust of dot-com IPOs in the late 1990s. The market was right about the Internet changing the world, but it failed to pick the winners and losers.

So we shouldn’t treat the market’s latest bets as gospel. But the trend is clear: bitcoin, hardware and biotech are the real game changers now.

That’s why the Bitcoin Investment Trust (GBTC) is by far the biggest winner of 2017, with 477.5% gains so far. That’s way ahead of the other winning tech ETFs, though many have clocked impressive returns, too:

If you missed the bitcoin wave but still put your money in tech ETFs, you did very well as long as you chose the ARK Innovation ETF (ARKK), ARK Web x.0 ETF (ARKW)Global X Lithium & Battery Tech ETF (LIT), ARK Genomic Revolution Multi-Sector ETF (ARKG)Global X Robotics & Artificial Intelligence ETF (BOTZ), Virtus LifeScience Biotech Clinical Trials ETF (BBC), MG Video Game Tech ETF (GAMR), ARK Industrial Innovation ETF (ARKQ), Global X Social Media ETF (SOCL) and SPDR S&P Biotech ETF (XBI).

These funds are all over the place, betting on social media, biotech, battery technology, genomic research and video games. What they have in common is a belief that many technological revolutions are starting now—and there are identifiable companies that will profit.

Trend No. 2:  Greenback Slump Spurs Emerging Markets (19 Funds)

It’s no secret that the US dollar has had better times. After a bull run through 2015 and 2016, the greenback has given up a lot of those gains to emerging market currencies, the euro and even the post-Brexit pound. If you bet on a stronger dollar through, say, the PowerShares DB US Dollar Bullish ETF (UUP), you probably aren’t happy:

Dollar Droops, UUP Dives

On Wall Street, a lot of analysts and traders made the mistake of betting on a dollar recovery in the middle of the summer. Boy, were they wrong! And while that’s not good for Americans looking to vacation abroad, it’s been great in other parts of the globe, particularly emerging markets and Asia.

So great, in fact, that many China- and emerging market–focused ETFs are up over 50% and a few are close to that mark. This emerging-market strength has also benefited Germany, whose euro currency is getting stronger; the country also sells lots of technology to China.

A ton of winners here, so let’s list them:

Columbia India Small Cap ETF (SCIN)
EMQQ Emerging Markets Internet & Ecommerce ETF (EMQQ)
First Trust China AlphaDEX ETF (FCA)
Global X China Consumer ETF (CHIQ)
Global X China Materials ETF (CHIM)
Guggenheim China Real Estate ETF (TAO)
Guggenheim China Technology ETF (CQQQ)
iShares MSCI Austria Capped ETF (EWO)
iShares MSCI Brazil Small-Cap ETF (EWZS)
iShares MSCI China ETF (MCHI)
iShares MSCI Germany Small-Cap ETF (EWGS)
iShares MSCI India Small-Cap ETF (SMIN)
iShares MSCI Poland Capped ETF (EPOL)
KraneShares CSI China Internet ETF (KWEB)
PowerShares Golden Dragon China ETF (PGJ)
VanEck Vectors Brazil Small-Cap ETF (BRF)
VanEck Vectors India Small-Cap ETF (SCIF)
WisdomTree China Ex-State-Owned Enterprise ETF (CXSE)

There have been so many foreign-ETF winners that it’s been tough to pick a loser! All you had to do was see that the dollar’s recent gains couldn’t last after an unprecedented run.

Trend No. 3: Fear Is Disappearing (3 Funds)

The third big trend is, paradoxically, the one that has scared a lot of people. And that’s because a lot of people aren’t scared.


It’s an old belief that’s the cornerstone of contrarian investing. The idea is simple: bubbles form when everyone gets greedy, no one is fearful, and asset prices get too pricey. The market has definitely moved away from fear. No evidence of that is clearer than the VIX.

The what?

The VIX, or the CBOE Volatility Index, is a measure of S&P 500 price fluctuations. A higher number represents more uncertainty—that is, more fear. A lower number represents more confidence that a crash is unlikely.

The VIX is currently at 9.95, far from 13.75 a year ago, really far from its long-term average of 18.7 and even further from its all-time high of 67, in the midst of the financial crisis.

The VIX: A Picture of Tranquility

While a lot of pundits have spent 2017 warning that the VIX is due to rise “any day now,” anyone betting that the opposite would happen has made out like a bandit. Just behind bitcoin, the best performing ETFs of 2017 have been short volatility:

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Source: Contrarian Outlook