Get Rich - Stay Rich - Investing for Monthly Income

Creating Multiple Income Streams with CEFs

An income investor has several investments available to create income streams. Most turn to dividend stocks and bonds to create consistent cash flows for their living expenses. While both of these investments will provide income, there are additional vehicles to produce money flows. One I like to use is closed-end funds or CEFs. These investments trade like stocks with a market price and can be easily purchased during trading hours on all stock exchanges.

Investors have nearly 400 CEFs to choose from that pay monthly distributions (see listing included). Simply, an investor can create a diversified portfolio of CEFs to create monthly income. Most investors should look at selecting five or more CEFs in different investment categories or type of objective. There are cases with investors creating numerous CEFs such as 30 funds to average one paycheck per day. I guess you can call this one check per day or daily paychecks.

The 10-year Treasury note touched its second-lowest yield before regaining some ground to finish at around 1.51%. The 30-year Treasury was offering a yield of 2.234% last week.  Those meager yields mean that despite grousing about elevated stock valuations and poor corporate quarterly results, investors aren’t finding a lot of safe options to put their money and eke out a decent return. Bespoke statisticians say 41% of stocks on the S&P 500 offer a richer yield than the so-called long bond, or 30-year note. And more than 60% pay a better yield than the benchmark 10-year note. A great alternative is investing in CEFs.

CEFs have some differences compared to stocks such as they have a publically known net asset value or NAV. The NAV is the sum value of the funds holding or intrinsic value. The CEF may trade at a market value that us different than the NAV. This makes it easy for investors to determine if the fund is trading at a premium or discount to its true value or NAV. As an investor, you want to purchase CEFs at a discount to NAV as this can be like buying a $1 of assets for $0.90 or whatever the discount to NAV. Who doesn’t want to buy funds at a discounted price or on sale!

To create a successful CEF portfolio, an investor should create a diversified portfolio of monthly paying CEFs trading at a discount to NAV. The investor can reinvest some dividends to increase their payments over time. This investing strategy can be used to replace income from employment or to supplement other types of income.

The Western Asset Emerging Markets Debt Fund (ESD) is a closed-end fund that invests in bonds issued by emerging-market governments and corporations. As income investors, we love the 8.5% yield… And as value investors, we love that the fund is available for an 13% discount to its NAV. On top of that, bonds are traditionally safer investments than stocks, even in emerging markets. ESD has an extremely diverse portfolio of 235 different holdings. Its largest country allocation, Mexico, only accounts for 13% of its portfolio. And 97% of its holdings are denominated in U.S. dollars.

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How to Earn Double Digit Income from Investing

Financial independence is based on creating enough income to fund the life you choose to live. Most people works their entire life to reach this point. This is not a slam on working for a living as I have been there and actually enjoyed many of the jobs I have occupied. There is a plan to create regular monthly income by investing in a low risk strategy. This is not any get rich overnight schemes or buy some penny stocks and hope they hit it big. I will show you how many are achieving additional income by following a simple plan to achieve the financial results that are seeking.

Today, I prefer to create income from what I will share with you in this writing – create income by selling options and collecting dividends on high quality dividend stocks. My simple objection when starting was to capture $1 million dollars from the market by using this market strategy. I am enjoying this journey and hope you have a big goal to achieve in your financial life. Think about it – to make millions in the market using option strategies. You should be getting excited about the possibility of making this kind of money!

The face of retirement in America has changed radically in recent decades. People are living longer. Pensions are increasingly rare. Add in market volatility, as well as questions surrounding the long-term feasibility of Social Security, and it’s no wonder many people feel anxious about funding their retirement.

If you were a newly hired employee at a Fortune 500 company in 1998, you likely had access to a defined benefit plan. But, by 2015, only 20% did. Over that same seventeen year stretch, 23% of Fortune 500 employers froze their primary DB plan and 15% closed DB plans to new hires. Today, the responsibility of financing your retirement is likely to fall squarely on your shoulders.

There are numerous ways to invest for income. Most often investors look to dividend stocks and bonds to generate income. Stock dividend yields can produce 3-5% or more of income on an annual basis. This is a good source of income usually payable on a quarterly time period. Some investors, like our group at getrichinvestments.com, sell call options on stocks to create covered call trades. These trades allow investors to collect the premium from the option calls sold on owned stocks. We target monthly returns between 1-3% and frequently make more on good months. I also exercise an additional strategy for income. I will sell put options on stocks to collect option premium. I find this not only creates income but it also decreases my market risk.

Some advisory services charge $3000 to $5000 per year for this service.  We don’t make our income from subscribers’ backs – we conduct the same strategy and trades as our readers.  We provide a great professional service to help investors create monthly income at a very reasonable price.

Join us today to create your own million dollar journey.  Get started here.. monthly income newsletter

Compounding Returns with Option Selling

You have undoubtedly heard it said before – compounding returns is the eighth wonder of the world or man’s greatest invention. But to an investor it is a great wealth builder. While many income investors think of compounding dividends, this can also be accomplished by option sellers by compounding the option premium received by selling either put or call options. I think about the premium received as soon as the option is sold can be readily reinvested or compounded immediately.

Here is the formal definition from Investopedia:

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Compound interest can be thought of as “interest on interest,” and will make a deposit or loan grow at a faster rate than simple interest, which is interest calculated only on the principal amount. The rate at which compound interest accrues depends on the frequency of compounding; the higher the number of compounding periods, the greater the compound interest.

The “Rule of 72” is an easy way to calculate how long it will take to double you money based on compounding returns. For example, an investor has a dividend stock paying an annual 5% dividend. Using the rule of 72, dividing 72 by 5 indicates the investor will double his money in 14.4 years. Not bad for a dividend producing asset. Now, let’s compare this to selling options. If you make 2% per month on average, you can double you money in 36 months (72/2=36). This is only 3 years compared to 14.4 years for the 5% dividend stock! Which investment do you want to pursue?

This is the theory behind our strategy to sell puts and covered calls at get rich investments. We can generate consistent income on a monthly basis that will provide us the opportunity to compound our money and returns at a faster pace than the buy and hold dividend investing.

Learn how to compound your money and the best stocks to use in this strategy to double your money.

Get started today with the Monthly Income Report.

The Secret to Great Investment Returns

People ask me all the time what is the real secret to great investing returns.  They have lost faith in the talking heads on TV who are selling their latest investments hyped as the place to be in today’s market.  Often times these investments only separate the investor from their money. I have a proven strategy that is more rational so any investor can generate income by investing in great companies. My premise is cash doesn’t lie so when you have it in hand (or in your investing account), you know you have made money.  Probably the two most important attributes to making money on a stock investment is (1) buying a great business model; and (2) buying at the right price. I constantly see investors buying a great business but at a price too high to ever generate a return.

I have this thought leadership built into my investing strategy. One, I only buy great blue-chip stocks that have validated profit margins and competitive advantages. Many refer to these stocks as market dominators because they have well recognized brands such as Walmart, Intel and others. Two, I look to invest in these great companies at the right price. My research will point me to these stocks trading below fair value. These are the companies that will give us market beating returns with lower than average risk.

We further lower the purchase price by selling puts on the great stocks we want to own. Each month or so, we will sell a put options at the money to collect premium income. This premium income lowers the purchase price with each sell until the stock gets put to us. For example, selling an option put for $1.00 per contract in 3 consecutive months gives the investor $3.00 or $300 in cash. If the stock is trading at $40 per share, the put selling drops the investors cost to $37 per share ($40 – $3 = $37) In the meantime, the investor is earning an average of 1-3% each month in income.

This is the power of this strategy – creating income streams while buying great businesses at a discount price.

Learn more here: Monthly Income Newsletter

 

Where to Find a 15% Dividend Yield

Investors do not have many choices when looking for income today. Aside from vehicles like annuities, the only place for income is dividend stocks. The dividends will increase with inflation and the stock price will appreciate over time. And many dividend stocks pay more income than the 10-year bond! This is how I like to look at dividend stocks – what I will earn over the next 10 years.

You may ask why I take the long-term outlook. There are many variables affecting the markets that I can’t control or even predict such a significant financial crash (dot com crash, housing bubble, etc.) or market correction. However, if you are in the right stocks you will still earn dividend income and make money over the long-term.

In the U.S., S&P 500 dividends last year were 55% higher than in 2007, the peak of the last cycle, while earnings were up only 29%. Dividends over the past five years have grown at an annualized 13%. Look beyond the recent past and dividends have been vital to long-run returns. Indeed, U.S. shares were worth the same in July 1982 as in June 1901, adjusted for inflation, according to data compiled by Prof. Robert Shiller of Yale. All returns that topped inflation over that period came from reinvesting dividends. Their power is well known: An investor who bought U.S. shares in 1900 has made 2.1% a year in capital, but a total of 6.4% a year once dividends were reinvested, according to Elroy Dimson, Paul Marsh and Mike Staunton of London Business School.

While dividends are an important component to stock returns, I don’t think they are priced into all dividend stocks to reflect their true value. Here is a good example. Income investors will flock to a stock like Altria Group (MO), the tobacco stock, because it is known as a good dividend stock. MO trades around $65 and has a dividend yield of 3.5% so it is interesting as a income purchase. MO already pays out 74% of its earnings as dividends so there is no upside in the dividend payout ratio. EPS are projected to grow at 8% per year so there is upside to increased dividends. However, the forward P/E ratio is at 21 so the stock is priced high due to its income potential. According to my proprietary stock valuation model, MO should be priced near $60 so some of the future growth is already priced in the stock. I will only buy Altria on a pullback below this level.

The income investor should have a blend of stocks producing high income today and some that will continue to growth their dividends in the future. Altria produces income today! Take a stock like Expedia (EXPE), online travel stock, that has a current dividend yield of 1% while trading at $111 per share. Not a stock that an income investor would look to for dividends. However, if you look forward 10 years, EXPE may produce a dividend yield on cost near 15%. How is this possible? Simply because EXPE is projected to grow EPS by over 20% per year in the coming years. And its current dividend payout ratio is only 20%. If the EPS materialize and the payout ratio hits 50% in 10 years, then you can earn a 15% yield based on the current market price of Expedia. In case you are wondering, EXPE is significantly underpriced today based on its future growth rate as it has a forward PEG of 0.83.

Where can you buy a potential 15% yield today? For investors looking for future income, they should add some dividend income and growth stocks to their portfolio.

Get more growth and income stocks here.

Covered Call Results for 2015

As we close out 2015, we are reviewing the results we obtained from the perpetual covered call strategy during the past year. In terms of total return as tracked in the monthly spreadsheets, the average across all positions was 44.2% during 2015. In the past year ending 12/17, the S&P 500 only returned 0.73% and the DJIA returned 0.76%. Therefore, we beat the market significantly and generated significantly more income. The average monthly income across our open positions was $145 for each position with 100 stock shares!

The table below shows the results for each perpetual covered call position during 2015. This table is the same information as displayed in the monthly tables for each position (based on owning 100 shares of stock and selling one covered call each month). Note Kroger stock split during the year as shown in the table.

Compared to the market averages, all of our perpetual covered call positions finished above the market. We had 2 positions with returns above 50% – HAS and CVS. Interestingly, the average price increase was only 0.4%! This clearly shows we make our returns based on monthly premiums and dividends. This indicates this strategy can make money in a side and downward trending market.

As we start 2016, we will share a new list of perpetual covered call trades. We will add to these as the year proceeds forward with new trades based on what happens in the market.

If you have any open puts, they will need to be closed out. We will be starting with new protective puts for each position we have open and start throughout the year. To lower the cost, we will be buying puts that are long-dated for Jan 2017. This will provide protection throughout the year and allow investors to allocate the put cost over more months.

 

 

 

Covered Call of the Month – 26% Annualized Return on this Stock

You have heard all of the old adages about investing such as there is no free lunch and many more.  In general, these saying suggest that higher returns will always require higher risk of some type.  Still, money managers and hedge funds continue to attempt to ink out higher returns on a risk adjusted basis through a numerous variety of customized approaches to stock selection, asset allocation, hedging strategies and so on.  For them, this is the holy grail that generates higher returns than their competitors or market averages.  In my opinion, investors can simplify this process through covered call writing.

Covered call writing consists of selling call options on stock whose shares you own.  This strategy places the investor somewhere between stock ownership and fixed income investments.  While the investor owns shares, they also create income from the premium received from selling call options on those shares.  While this strategy will not produce wealth overnight, it does produce a steady stream of income while owning shares of stock.  This strategy is designed to produce an annual return in the area of 15% on conservative stocks and higher as investors write calls on higher volatility stocks.

Covered Call of the Month

Celgene (NASDAQ: CELG) ended the last trading session at $95.02. So far the stock has hit a 52-week low of $66.85 and 52-week high of $96.15. CELG has had an S&P Capital IQ 5 STARS (out of 5) ranking since 10/23/2008. On 1/13/2014 S&P Capital IQ equity analysts set a 12-Month price target of $104.00 for the stock. Celgene stock has been showing support around $93.83 and resistance in the $95.89 range.

For a hedged play on this stock, consider a Nov ’14 covered call with a 95 sold call for a net debit in the $89.77 area. The strategy has an 81 day duration, provides 5.53% downside protection and a 5.83% assigned return rate for a 26.25% annualized return rate (for comparison purposes only). This strategy has a 4 Key (out of 5) Low Relative Risk ranking.  

A Covered Call Trade on Microsoft

Investor sentiment turned strongly bearish recently as emerging markets were hit by both country-specific problems and the realization that the Fed’s trimmed bond-buying program reduces the liquidity that has boosted higher-yielding emerging market assets and put a floor under U.S. stock prices.

The broad selloff in emerging markets over the recent weeks translated into the worst week for global stocks in seven months. The S&P 500 slid 2.6 percent, its largest weekly decline since June 2012.  Still, the S&P 500 is just 3.1 percent below its record closing high.  If the bears stay put, then the market could pull back over the coming months.

Due to the selling on Wall Street, investors were willing to pay more for spot protection against a drop in the S&P 500.  At this time, investors are concerned a market pullback may be overdue.

Investors should consider looking at blue chip stocks with low betas, nice dividend yields and sell some calls for downside protection and additional income.  A good choice is Microsoft (MSFT) with a current dividend yield of 2.77 percent and a beta of only 0.78.  In addition, the Company just beat earnings estimate and year over year earnings.

For the fiscal second quarter ended Dec. 31, revenue rose 14% to $24.52 billion, partly reflecting the release in November of a new Xbox videogame console and a fresh version of Microsoft’s

Surface tablet computer ahead of the holidays.

Overall, net income climbed to $6.56 billion, or 78 cents a share, compared with $6.38 billion, or 76 cents a share, in the year-ago quarter.  Analysts, on average, estimated Microsoft would post earnings of 68 cents a share on revenue of $23.7 billion, according to Thomson Reuters.

The company said its devices and consumer revenue grew 13% to $11.91 billion, while commercial revenue increased 10% to $12.67 billion.

On November 19, 2013 the board of directors at Microsoft had approved a dividend of $0.28 per share. The dividend is payable on March 13, 2014 to shareholders of record on February 20, 2014.

The stock has landed on the “Jefferies Highest Conviction Franchise Picks for Big Upside in 2014.”  Jeffries had this to say about Microsoft in this report, “With the Xbox One poised to be one of the fastest selling gaming consoles ever, the fourth-quarter sales for the company were outstanding. Investors are paid a very solid 3.1% dividend. The Jefferies price target for the software giant is $42.”

Last week, analysts at Deutsche Bank have upgraded their coverage of Microsoft to a Buy rating from a Hold, while raising their price target on the stock to $40 from $32 a share.

Also, Microsoft has an equity summary score of 9.4 out of 10 for a very bullish outlook according to a consensus of analysts.

Investors can look at selling a call option to get some downside protection and additional premium for income.  The basics of a covered call is that an investor can sell one call for every 100 shares of stock owned.

One potential covered call trade is to sell the March or April 2014 38 call option.  Under this scenario, your Microsoft shares will be called away if the stock price is above the strike price of 38 on March 22. So the investor is giving away the stock price upside as long as they are short the call.

However, investors will receive a call premium for each call sold.  This gives the investor downside protection to around the $36 price level.  Investors will also get the $0.28 dividend.  In total, this covered call trade with the cash dividend can potentially create a 5% return over the next 2 months.

How to Get 50% of Your Stock Purchase in Monthly Income Installments

A covered call trade is a very simple instrument to increase your monthly income. The basic idea is to sell a call option for every 100 shares of stock you own.  By selling the call option, the investor receives a premium which is what our investors call monthly income or monthly dividend payments.  We sell new call options each month to create new income – month after month.  This is in addition to the current dividend paid by stocks on a quarterly basis.

Here is an example of what subscribers to the Get Rich Monthly Income Plan achieved in 2013:

Subscribers purchased Holly Frontier in January 2013 for $46.35 per share. So purchasing 100 share of stock will cost a total of $4,635 plus commission costs.  At this time, HFC was paying a $0.30 per quarter dividend for a dividend yield of 2.59%.  This is a nice yield on a fairly stable stock but it gets even better.  In addition to the $1.20 in quarterly dividends, HFC paid $2.00 more per share in special dividends.  This increases the total dividends to $3.20 per share in 2013.  The addition of special dividends increases the stocks annual dividend yield to 6.9%.  Wow, a 6.9% dividend yield is great in this low yielding stock market!

But it gets even better for Get Rich Monthly Income Plan subscribers.  They sold a call option on each 100 shares of HFC stock they owned each month of 2013.  Based on our results, this created a total of $1,985 for the entire year.  This created an average monthly income of $165.42 by selling the call option which created the covered call trade.  The total premium income of $1,985 is about 40% of the total cost of entering the trade – $4635 at the beginning of the year.  Therefore, investors received nearly half of their initial investment in HFC back during the year through a simple monthly covered call trade.

Now, subscribers can add the three sources of income – quarterly dividend, special dividends and covered call income together to create a Monthly Income Plan.  In total, subscribers received $2,305 in additional income from owning 100 shares of HFC stock in 2013.  This is an average of $192 in additional income each month of 2013. And, the $2305 in income is 50% of the total amount of the initial investment in 100 share of HFC!

Dividend Growth with 60% Upside

Trinity Industries (TRN) – Stock Summary

The stock pays a modest dividend yield of 1.07% but it has significant dividend growth potential in the coming years.  The Company has a 5 year average dividend growth rate of 13.40% with dividend growth of 36.36% in the last year.   The dividend will continue to grow as the EPS growth for next year is projected to be 27.23%.  EPS growth in the last quarter was 59.49% compared to the same quarter from a year earlier.  The stock has an equity summary score of 9.9 out of 10 for a VERY BULLISH outlook among analysts.  The stock is reasonable priced with a price to sales ratio of 1.07.

The stock is projected to have earnings of $5.92 in 2014.  Based on a PE of 15, the stock has a 12-month price target of $89, an increase of nearly 60% in the next year.

Trinity Industries, Inc. has declared a quarterly dividend of $0.15 per share on its $1.00 par value common stock. The quarterly cash dividend, representing Trinity’s 199th consecutively paid dividend, is payable January 31, 2014 to stockholders of record on January 15, 2014.

Recent Earnings

Trinity Industries, Inc. announced earnings results for the third quarter ended September 30, 2013, including the following significant highlights:

  • Record quarterly earnings per share of $1.26, a 58% increase year-over-year
  • Anticipates fourth quarter earnings per common diluted share of between $1.24 and $1.34 and raises full year 2013 earnings guidance to between $4.55 and $4.65
  • Rail Group receives orders for 5,610 new railcars during the third quarter resulting in a backlog of 40,050 units with a value of $5.1 billion
  • Structural wind towers business receives orders with a value of $442 million, extending production visibility through 2015
  • Company repurchases approximately 540,000 shares of its common stock during the quarter at a cost of $23.9 million
  • Available liquidity at the end of the third quarter of approximately $1.2 billion

Trinity Industries, Inc. reported net income attributable to Trinity stockholders of $99.6 million, or $1.26 per common diluted share, for the third quarter ended September 30, 2013. Net income for the same quarter of 2012 was $63.2 million, or $0.80 per common diluted share.

New Developments

Trinity Industries Inc. announced on 1/10/2014 that it  has acquired the assets of WesMor Cryogenic Companies through a newly formed subsidiary.  WesMor specializes in the manufacturing, repair, and rehabilitation of cryogenic containers that store and transport LNG and other industrial gases with initial expected annual revenues of approximately $25 million. The transaction includes the acquisition of a manufacturing facility in La Porte, Texas, and three service facilities located in La Porte; Slidell, Louisiana; and Port Washington, Ohio.

Recently, equipment finance company Element Financial Corporation (ELEEF) announced that it has entered into a strategic alliance agreement with Dallas-based Trinity Industries, Inc. (TRN) , a railcar manufacturer and lessor, to provide lease financing for up to US$2 billion worth of railcars over the next two years.  Under the terms of the Agreement, Element will be presented with “preferred opportunities” to enter into lease financings for a diversified fleet of railcars, including new railcars to be manufactured by Trinity , existing railcars from Trinity’s lease fleet as well as secondary market purchases.

Trinity Industries, Inc. recently announced that its subsidiary, Trinity Railcar Repair, Inc., has acquired the assets of Seaboard Railcar Repair (“Seaboard”). Seaboard provides a full range of services for both tank and freight railcars ranging from standard maintenance and program modifications to specialized cleaning, blasting, lining, painting, inspection and testing. The transaction includes the acquisition of two maintenance facilities located in Oklahoma and North Carolina with access to a number of major railroad interchanges. The assets and results of operations of this acquisition will be reflected in the Rail Group for financial reporting purposes.

Trinity Industries, Inc., headquartered in Dallas, Texas, is a diversified industrial company that owns a variety of market-leading businesses which provide products and services to the industrial, energy, transportation, and construction sectors. Trinity reports its financial results in five principal business segments: the Rail Group, the Railcar Leasing and Management Services Group, the Inland Barge Group, the Construction Products Group, and the Energy Equipment Group.

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