Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘dividend compounding’

Getting High Yields from Closed-End Funds

This is the second in the investing for monthly income series: how to get high yields from closed-end funds.

What is a closed-end funds (CEF) and how is it different from other investments? A closed-end fund is legally know as a ‘closed-end company.” It is one of three investment types of investment companies. The other two are mutual funds and unit investment trusts. Unlike mutual funds, closed-end funds sale a fixed number of shares at one time that trade on the major stock exchanges such as NYSE, NASDAQ, etc.

The price of CEFs are set by the market and can be above or below their net asset value. Generally, CEFs do not redeem shares from investors as the shares are bought and sold at market value on the exchanges.

CEFs come in many varieties with different objectives, strategies and payment time frames.  These funds can easily be purchased through any discount brokerage in both taxable and tax-deferred accounts.  The CEFs we are interested in pay monthly dividends and provide a high yield. When these funds trade at a discount (share price is lower than net asset value), their dividend yield is higher. This creates an opportunity for potential capital gains in addition to monthly income.

Upon receipt of monthly dividends, you can reinvest some or all into more shares of CEFs or other dividend investments. Reinvestment of dividends creates a compounding effect that will grow your income each month. There are rumors that former President Bill Clinton receives $84,000 per month in dividend income. This is a large supplement to the $16,750 Clinton receives from his government pension per month. This is one method that helps the rich get richer. However, you can accomplish the same objective by investing for monthly income.

Where can you find a list of CEFs? I personally use CEF Connect to track a list of CEFs in a portfolio. This is a free service (requires registration) with a search engine that will separate monthly payers from the flock. At last count, there was more than 400 CEFs that pay monthly dividends. There is a comprehensive list in Get Rich – Stay Rich.

The best time to buy CEFs is when they pull back in share price. The one caveat is to ensure their earnings per share is more than their dividend payout (this is available at CEF Connect under the distribution tab). If not, then you should sell and evaluate another CEF. The other item to watch is that the CEF pays distributions from ordinary income and does not pay from return of funds. Any return of capital means the CEF is giving back capital in the form of dividends which means the company did not earn their pay. Sell immediately if you see a return of capital.

The more you research CEFs, the more you come to like the total return and consistency of monthly paychecks. Keep in mind that financial independence is replacing your current income with passive income. CEFs are one investment to help get you closer to living a life within your comforts.

Here are two preferred stock CEFs for consideration:

The AllianzGI Convertible and Income Fund 5.62% (NCV) cumulative preferred stock is now trading in the $24.61 area to give it a current yield of 5.71%. This issue is rated AAA by Fitch. The issue had an excellent asset coverage ratio of 353% when it last reported.

AllianzGI Convertible and Income Fund II 5.50% coupon preferred (NCZ) is trading in the $24.04 area to offer a current yield of 5.73%. With a rating of AAA from Fitch, it a very safe issue. This CEF issue has an asset coverage ratio of 368% at last report.

Most of the CEF preferreds from Gabelli are now trading with current yields in the 5.2% to 5.3% range, indicating that the AllianzGI issues are relatively underpriced and present a good opportunity to purchase the safety of a AAA-rated preferred stock issue.

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2 Companies Increasing Dividends by 20% or More

CECO Environmental Corp. (Nasdaq: CECE), a leading global provider of air pollution control technology and industrial ventilation systems, today announced that its Board of Directors is raising its quarterly dividend 29% to$0.045 per share from the previous quarterly dividend of $0.035 per share. The dividend will be paid on September 28, 2012, to all shareholders of record at the close of business onSeptember 14, 2012.  CECO has a dividend yield of 2.20% with a payout ratio of 19%.  CECO has an equity summary score of 9.1 out of 10 for a VERY Bullish outlook.

Financial highlights for the second quarter of 2012 compared to the second quarter of 2011 include:

Net sales increased by 6% to $34.6 million compared to $32.5 million in the comparable quarter;

Gross profit increased by 21% to $10.5 million from $8.7 million;

Gross margin increased to 30.3% from 26.8%;

Operating income increased by 54% to $4.3 million from $2.8 million in 2011;

Operating margin increased to 12.4% from 8.6% in 2011;

Net income increased by 25% to $2.5 million compared to $2.0 million;

Net income per diluted share was $0.15 compared to $0.12 in 2011.

CECO also announced today that its Board of Directors has approved a Dividend Reinvestment Plan (the “Plan”) for eligible holders of CECO common shares.  Participants in the Plan can increase their holdings by having all or a certain portion of their dividends (if, as and when declared by the CECO’s Board of Directors and paid) reinvested in CECO common stock at a discount to the market price, as described in the Plan.

Nordson Corporation (NASDAQ: NDSN) announced that its board of directors has approved an increase in the company’s quarterly cash dividend to $0.15 per common share from $0.125, an increase of 20 percent. The dividend is payable on September 11, 2012 to shareholders of record as of the close of business on August 28, 2012. Nordson has a dividend yield of 1.1% with a 5-year dividend growth average of 7.39%.  There are significant payout opportunities ahead as the payout ratio is only 16%.

With this increase, Nordson’s fiscal year 2012 represents its 49th consecutive year of annual dividend increases, ranking Nordson 15th among an elite group of publicly traded companies with the longest-running record of consecutive dividend increases and represents a total distribution to shareholders of approximately $9.6 million.

Nordson Corporation delivers precision technology solutions that help customers increase throughput, productivity and up-time, enable new products and features, and decrease material usage. The company engineers, manufactures and markets differentiated products and systems used for dispensing adhesives, coatings, sealants, biomaterials and other materials, fluid management, test and inspection, UV curing and plasma surface treatment, all supported by application expertise and direct global sales and service.

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