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Posts Tagged ‘high dividend stocks’

Dividends Are Losing Their Allure

Investors have long looked to dividend stocks as a means to generating investment income.  For decades this has been an effective strategy to increase cash from investing. However, in today’s market investors are more uncomfortable on how to identify new income opportunities.  They should consider allocating a portion of their portfolio to selling options for premium income.  The returns can be as high as 5% or more in a single month using the stock breakout strategy.

In a recent article published in the Wall Street Journal, “Dividends are losing their allure due to rising rates”, there is a case that yields are too low in today’s market. Here is an excerpt:

A heated stock market rally combined with a sharp climb in benchmark interest rates this year is eroding the relative value of companies that pay out chunky dividends to their shareholders.

Low interest rates over the past few years have boosted the attractiveness of high-dividend stocks that offer up income at a time when bond investors were earning next to nothing. For some sectors, that was a key reason to invest. But recently that’s reversed.

As the S&P 500 has climbed, the share of investment gains coming from collecting those dividends has been falling. The S&P 500′s so-called dividend yield over the last 12 months was at 1.73% Tuesday, its lowest since 2011. 

Let’s exam what a 1.73% yield means to an investor.  This means an investor will earn 0.4325% each quarter or 0.144% each month.  Based on having $10,000, an investor would earn $173 per year or $14 per month. What can one do with $14 per month or $144 if you invest $100,000? Not MUCH!

For investors seeking monthly income, there is a better way to create cash with your investment portfolio.  At Get Rich Investments, we have produced returns of 5% or more in a month which is an annualized return of 60%.  You may ask if this is a risky investment to achieve such a great return.  While all investments have some level of risk, this investment rewards the investor with a significantly higher return.

We achieve these returns by selling PUT options (cash-secured) or CSPs on stocks trending higher due to stock breakouts.  By selecting stocks with upward movement, it decreases the risk in the investment. This is the secret sauce to high returns using option selling strategies. When the stock moves higher, investors can exit the trade to lock in profits. Then, compound their capital weekly or monthly. This is how investors can create a monthly income far greater than dividend stocks without the risk of chasing penny stocks.

Here are some recent trades producing high returns for monthly income:

We have a fast winner in $FINL as the stock had a big pop today – up over 12%. I suggest investors to buy-to-close this trade at ~$0.20 per option or less.  This gives us a nice 9% profit in 4 days or over 800% on an annualized return!

We have a another winner in $BEAT as the stock has moved higher to $31.75. I suggest investors to buy-to-close the 29 PUT trade at ~$0.20 per option or less.  This gives us a nice 3% profit in 5 days or over 200% on an annualized return!  There will be more trades moving into next week after the holiday.

The market was in a blast mode last month as it ran to record highs again. We had all winners this month with max income trades. And how about the monthly returns on the PUT trades – 4.8% on ARRY; 8.8% on TLRD; 9.6% on NL; and 8.7% on MDXG!!! This is a yearly return on some buy and hold stock investments in a monthly trade for us. We will look for more stock breakouts for PUT trades in our next newsletter.

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Building a High Dividend Yield, Low Beta Income Portfolio (Part 2)

For income investors wanting to go it alone, they should consider creating a portfolio of high dividend stocks with low beta.  This type of portfolio will provide a risk to reward profile during times of uncertainty in the markets.  By adding the component of a bullish outlook to the low beta stocks indicates these stocks can be held in a long-term portfolio.  The high dividend yield can be compounded over time and will increase as these stocks raise their dividends each year.  This portfolio will be built in a series of articles.  You can read Part 1 here.  Below is Part 2 with more stocks to look at for adding your portfolio.

Eli Lilly and Company (LLY) discovers, develops, manufactures, and sells pharmaceutical products worldwide.  We believe LLY is executing well on its
strategy to counter the recent patent expiration on Zyprexa and impending expirations on other drugs that in the aggregate are expected to reduce annual
sales by about $7 billion from 2010 through 2014. To rejuvenate sales, LLY plans to bolster growth engines in Japan, emerging markets, animal health, and
drug franchises in oncology and diabetes. As of January 2012, LLY had 14 compounds in Phase 3 trials or under regulatory review. The most important
pipeline drug, in our opinion, is solanezumab for Alzheimer’s disease.  Lilly has a dividend yield of 4.67% and a 3-year beta of 0.54.  LLY has a PE of 10
with a ROI of 20%.  LLY has an equity summary score of 9.9 out of 10 for a VERY Bullish outlook.

Bristol-Myers Squibb Company (BMY) engages in the discovery, development, licensing, manufacturing, marketing, distribution, and sale of biopharmaceutical products that help patients prevail over serious diseases worldwide.  Preparing for looming U.S. and European patent expirations over the next four years on key products such as Plavix, Avapro, Sustiva and Abilify, BMY has become more active in recent years in expanding its new product portfolio through acquisitions and in-licensed products.  In March 2011, the FDA approved Yervoy, a novel treatment for advanced melanoma that we think has over $1.6 billion in sales potential by 2016. Another key R&D drug that we think has significant potential is Eliquis, a bloodthinning agent for stroke
prevention that BMY is co-developing with Pfizer (PFE). Supported by strong clinical data, sales of Eliquis should exceed $3.5 billion by 2016, in our
estimation.  BMY has a dividend yield of 4.17% and a 3-year beta of 0.50.  BMY has a PE of 15 with a ROI of 17%.  BMY has an equity summary score of 9.4 out of 10 for a VERY Bullish outlook.

Merck & Co., Inc. (MRK) provides various health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products.  We believe Merck has an impressive new product pipeline, which should provide long-term growth despite headwinds from expiration losses and drug pricing pressures. In early February 2012, MRK said it planned to file five major products in the U.S. during 2012-2013, including: Bridion, a neuromuscular reversal agent; V503, a vaccine for HPV-associated cancers; odanacatib, a once-weekly oral drug for osteoporosis; tredaptive, an extended
release niacinbased agent for cholesterol reduction; and suvorexant, a potential first-in-class insomnia therapy. We also expect MRK to soon realize the
original $3.5 billion in synergies from its 2009 merger with Schering-Plough.  MRK also has an ongoing $5 billion share buyback program.  MRK has a dividend yield of 4.37% and a 3-year beta of 0.67.  MRK has a PE of 19 with a ROE of 11.5%. Merck has an equity summary score of 8.8 out of 10 for a Bullish
outlook.

Monthly Dividend Stocks Beating the S&P 500

Comparison of monthly dividend stocks and ETFs to the S&P 500

Click to enlarge

While dividend income is the hot item these days as the yield on fixed income investments is lower than income investors are seeking.  However, you do not want to give up some total return just to lock in a dividend.  The yield on the S&P 500 is only 2% and the price return has been 1% over the last year.  This creates a total return of 3% on the S&P 500. You should use this as the baseline for your income investments.  You can easily find monthly dividend stocks and ETFs that can beat the S&P 500 to make you even more money than just the monthly dividend.

Here are three monthly dividend stocks that have beaten the S&P 500 over the past year: (1) CRT, (2) MAIN and (3) UTG. The chart above shows the stock price returns compared to the S&P 500 over the past year.

Cross Timber Royalty Trust (CRT) is currently trading at $46.50. It has a 1-year price return of 24.05% compared to 1% for the S&P 500. CRT has a current dividend yield of 6.43% paid as a monthly dividend. CRT has a total return (1-year price return and dividend yield) of 30.48%. This is 8 times more profitable than the S&P 500. This is clear evidence that monthly dividend stocks can provide significant income investment returns beating the S&P 500.

CRT Company Profile: Cross Timbers Royalty Trust (Trust) is an express trust. The Trust is a widely held fixed investment trust (WHFIT). The Company entered into Cross Timbers Royalty Trust Indenture between predecessors of XTO Energy Inc. (XTO Energy), as grantors, and NCNB Texas National Bank, as trustee. As of December 31, 2010, Bank of America, N.A. is the trustee of the trust. Approximately 20 of the underlying royalty interests in the San Juan Basin burden working interests in properties operated by XTO Energy. XTO Energy also operates the Penwell Unit, which is the properties underlying the Texas 75% net profits interests and ExxonMobil operates the Hewitt Unit, which is the properties underlying the Oklahoma 75% net profits interests. Other than these properties, XTO Energy and ExxonMobil do not operate or control any of the underlying properties or related working interests.

Main Street Capital (MAIN) is currently trading at $17.50. MAIN has a 1-year price return of 13.77% compared to 1% for the S&P 500. MAIN has a current dividend yield of 8.64% paid as a monthly dividend. MAIN has a total return (1-year price return and dividend yield) of 22.41%. This is 7.5 times more profitable than the S&P 500. Again, this is another monthly dividend stock significantly beating the S&P 500.

MAIN Company Profile: Main Street Capital Corporation (MSCC) is a principal investment firm focused on providing customized financing solutions to lower middle-market companies with annual revenues between $10 million and $100 million. The Company was formed for the purpose of acquiring 100% of the equity interests of Main Street Mezzanine Fund, LP (MSMF) and its general partner, Main Street Mezzanine Management, LLC (MSMF GP); acquiring 100% of the equity interests of Main Street Capital Partners, LLC (the Investment Manager); raising capital in an initial public offering (IPO), which was completed in October 2007, and thereafter operating as an internally managed business development company (BDC). MSMF is licensed as a Small Business Investment Company (SBIC) by the United States Small Business Administration (SBA) and the Investment Manager acts as MSMF’s manager and investment adviser. The Company invests primarily in secured debt instruments, equity investments, warrants and other securities.

Reaves Utility Income Fund (UTG) is currently trading at $25.08. UTG has a 1-year price return of 14.09% compared to 1% for the S&P 500. UTG has a current dividend yield of 6.0% paid as a monthly dividend. UTG has a total return (1-year price return and dividend yield) of 20.09%. This is 6.7 times more profitable than the S&P 500. Again, this is another monthly dividend stock significantly beating the S&P 500.

UTG Company Profile: Reaves Utility Income Fund (the Fund) is a non-diversified closed-end investment Company. The Find’s investment objective is to provide a high level of after-tax income and total return consisting primarily of tax-advantaged dividend income and capital appreciation. The Fund may invest a portion of its assets in foreign securities. In the event that the Fund executes a foreign security transaction, the Fund will enter into a forward foreign currency contract to settle the foreign security transaction. It focuses to invest at least 80% of its total assets in dividend-paying common and preferred stocks and debt instruments of companies within the utility industry. The remaining 20% of its assets may be invested in other securities, including stocks, money market instruments and debt instruments, as well as certain derivative instruments in the utility industry or other industries.

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