Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘monthly income investment’

How to make $3K in Extra Monthly Income

The year 2016 was another stellar year of total returns and monthly income. Our perpetual covered call strategy was a big winner.  In this strategy, we create a covered call position to sell monthly call options for income and buy a long dated put option to protect our downside risk.  The put cost is spread across several months so the cost is low per month and will only slightly diminish our monthly income.

As we close out 2016 and reset for 2017, 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 27.8% during 2016. In the past year ending 12/17, the S&P 500 only returned 12.75% and the DJIA returned 16.8%. Therefore, we more than doubled the S&P and beat the Dow Jones significantly while generated significantly more income. The average monthly income across our open positions was $152 for each position with 100 stock shares! AND this includes the cost of having a long put to protect against downside risk on each position.

The average cost of 100 shares across all positions was $5,278 which generated an average of $152 of income each month. A $50K portfolio will generate an average of $1500 per month while a $100K portfolio creates $3,000 every month! This is proof our income strategy works. We target a 2-3% return per month on average.

We had no losing positions in our perpetual call portfolio in 2016. We had 3 positions with returns greater than 40%and all but one with returns greater than 12.7% of the S&P 500 in 2015.

The table below shows the results for each perpetual covered call position during 2016. 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). This is for portfolio tracking only as subscribers will own more than 100 shares and sell like size amount of call options for income each month.

2016-covered-call-results

 

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The Case for Income Investing

Today’s stagnant economy isn’t what it used to be. Societies, both individuals and governments, are saddled with enormous amounts of debt and yields have disappeared making it impossible to generate income from traditional fixed income investments.

Many top experts, including Jeff Gundlach who is considered the “Bond God,” believe this is the “new normal” and that rates could go even lower still. Which doesn’t offer a lot of hope to retirees who need income now, or future retirees who need to grow their portfolio at a much faster clip if they hope to retire at all.

Investors often overlook the value of selling options for income. This is in part because investors misunderstand the risk of these investments and how to manage this type of investment.  But many individual can benefit from these investments. If the income from selling puts and calls is reinvested every month, the investor can compound savings and buy more investments such as stocks, CEFs, etc.

This can be a growth strategy for investors no longer contributing to their portfolios or retirement accounts.  This type of portfolio of investments is likely to produce a higher yield than a growth stock portfolio. And, investors will benefit from the income even if the portfolio doesn’t have any capital appreciation or the market moves sideways. 

Investors can create a diversified portfolio for option selling by writing cash-secured puts, selling covered calls and owning dividend paying stocks and CEFs with monthly distributions.  If income is a goal, these option selling strategies and income investments could be worth a closer look.

I combine the strategies for market diversification of income opportunities.  Also, I combine then to create new investment vehicles.  The one strategy I prefer has 3 income opportunities: (1) selling put options to enter a stock, (2) collect dividends if put to me, and (3) sell covered calls until the stock is called away.

Where else, on even a modest portfolio, can you generate an extra $1,000 to $5,000 per month or more? Owning a basket of strong dividend paying blue chip stocks might earn you 3% to 5% per year. But to generate $5,000 per month in income you’d need a nest egg of $1.2 to $2 million dollars.

Get started collecting multiple streams of income today.

 

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.

How would you like 10 monthly income checks from your portfolio?

Subscribe today for more monthly income checks… you will make your money back on your first investment.

 

 

Covered Call Trades of the Month

Investors have been bracing for anything that could reverse at the last minute the market’s year-long rally, which saw the Dow and S&P 500 hit record highs again this week. The S&P 500 is up 26 percent this year and registered a sixth week of gains on Friday.  However, income investors seeking to trade covered call investments have been performing well too.

Below are two successful trades from the past month listed in the Monthly Income Plan at getrichinvestments.com .  Each month, income investors are creating income streams from selling covered call options against high quality stocks.  Here are some winning trades from the current newsletter:

Covered Call on USG Corp (USG)

STRATEGY: Look at the Nov 27 covered call. For each 100 shares of USG stock you buy, sell one Nov 27 covered call option for a $25.50 ($26.65 – $1.15) debit or better.

Actions: USG is currently trading at $27.66 at the close on 11/15 so the 27 call we sold is ITM.  These shares and call options will be called away.

This is a 5.88% return for one month and an estimated 70% annualized return.

 

Covered Call on Flour Corp (FLR)

 

STRATEGY: Look at the November 2013 77.5 covered call. For each 100 shares of FLR stock you buy, sell one Nov 2013 77.5 covered call option for a $74.89 (77.19 – 2.30) debit or better.  That’s potentially a 3.49% assigned return.

Actions: FLR is currently trading at $79.36 so the 77.5 call we sold is ITM.  These shares and call options will be called away on Friday (11/15).

This is a 3.49% return for one month and an estimated 42% annualized return.

New Covered Call on this Vice Stock

Constellation Brands (STZ), together with its subsidiaries, produces and markets beverage alcohol.  The stock was reiterated with a Buy rating by analysts at Stifel Nicolaus. The firm raised its price target on the stock to $69 from $64.  STZ Thursday posted better-than-expected Q2 results and said for FY 2014 it expects EPS of $2.80 to $3.10 per share. The Street is at $2.83 per share.  STZ is up 2.3% at $61.55, near the stock’s 52-week high of $62.15.

Here is a Covered Call Strategy:

STRATEGY: Look at the January 2014 60 covered call. For each 100 shares of Constellation Brands (STZ

) stock you buy, sell one January 2014 60 covered call option for a $57.38 (61.58 – 4.20) debit or better. That’s potentially a 4.6% assigned return.

COMMENT: The technicals for STZ are bullish with a strong upward trend. The stock has had support recently around 56.50. S&P rates this stock 4 STARS (out of five) – buy.

RISK: The stock has to drop 6.8% to threaten the break even point. This trade rates 3 keys out of 5 – moderate relative risk.

RESEARCH: S&P maintains Buy recommendation on shares of STZ. On revised forward multiple analysis, we lift our target price by $2 to $66 and our FY 14 (Feb.) and FY 15 EPS estimates by $0.12 and $0.07 to $2.90 and $3.55, respectively. Adjusted Aug-Q EPS of $0.96, vs. $0.71 exceeded our estimate of $0.85 on a significantly lower tax rate and expenses than our forecast. Crown depletions rose 7% on a strong summer selling season driven by healthy growth in Corona as well as expanded distribution for Modelo Especial. As production ramps in the Piedras Negras facility, we look for margins to improve in the beer segment.

 

More Special Dividends this Week

Primus Telecommunications Group, Incorporated (PTGI), a leading international wholesale service provider to fixed and mobile network operators worldwide, announced today that its Board of Directors has approved a special cash dividend of $8.50 per share on all issued and outstanding PTGi common stock. The special cash dividend will be paid on August 27, 2013 to holders of record of PTGi common stock as of August 20, 2013.

The dividend creates a current yield of 70%.  The special dividend comes after disappointing earnings.

PTGI shares are down market trading as it reports Q1 revenue of $51.3 million, down from $59.8 million a year prior. Net loss was $3.2 million, or $0.23 per share, compared to $6.9 million, or $0.50 per share.

I would PASS on the PTGI special dividend based on the poor EPS report.

Nature’s Sunshine Products, Inc. (NATR), a leading natural health and wellness company engaged in the manufacture and direct selling of nutritional and personal care products, today reported its consolidated financial results for the second quarter, and declared a special one-time cash dividend of $1.50 per share, a regular quarterly cash dividend of $0.10 per share and a $10 million share repurchase program.

The combined $1.60 in dividends creates a current yield of 8.55%.  The dividend is payable on August 29, 2013 to shareholders of record as of the close of business on August 19, 2013. The amount of the cash dividends is expected to be approximately $25.6 million. In addition, the Board of Directors authorized a $10 million share repurchase program to be implemented over two years.

The special one-time cash dividend and share repurchase program is due to the Company’s strong cash flow and its record high quarter-end cash balance of $87.3 million, and the Board’s commitment to return capital to shareholders and its confidence in the long-term growth prospects of the Company’s business.

The stock trades at a PE ratio of 14 and a price to sales ratio of 0.78.

NATR has an equity summary score of 7.4 out of 10 for a Bullish outlook.

This Monthly Dividend Stock May be Worth a Look

Fifth Street Finance Corp.(FSC) may be an ideal name for aggressive income investors. This is one of the top business development companies. The consensus price target is $11.50. Investors receive a 10.47% dividend with monthly distributions.  First Call consensus has a buy recommendation with a 2.5 rating.

Fifth Street reported net investment income of $0.27 (excluding gains on convert repurchase, diluted), in line with prior quarter and our estimate. This was a result of lower interest income earned on a larger average portfolio. Book value increased by $0.02 following a net $2.5 million unrealized appreciation on investments.

Liquidity: As of this week, FSC increased its available liquidity to $738 million following the post quarter end note issuance, capital raise, and credit facility expansion. FSC is well positioned for the acquisition of Healthcare Financial Group as management works toward its target leverage.

Valuation: Fifth Street is trading 12% premium, 1% above the peer group average, and yielding 10.47%, above the peer group average of 9.1%.

Estimates: Analyst lowered the 2013 estimate to $1.08 (from $1.10) to reflect a larger liquidity drag than previously expected. The 2014 and 2015 estimates remain unchanged at $1.15 and $1.20.

Maintain Buy: FSC is well positioned from a liquidity and capital standpoint to continue to take advantage of a strong pipeline of growth. The next step for the stock is to translate that into higher ROEs by achieving and maintaining higher levels of leverage.

In May, FSC announced that it has entered into an agreement to purchase a specialty lender, Healthcare Finance Group, that provides lending to healthcare companies. FSC will be investing $100 million, financed by cash and liquidity mentioned above.

OnMay 6, 2013, upon expiration of our existing stock repurchase program, the Board of Directors authorized a stock repurchase program to acquire up to$50 millionof outstanding common stock. Stock repurchases under this program would be made through the open market at times and in such amounts as management deems appropriate, provided they are below the most recently published net asset value per share.

A New IPO – Gold Stocks with a 7% Dividend Yield

If you are looking for income and have an interest in gold as an investment, then a new IPO might be what you are looking for to combine the two needs.  Faircourt Gold Income Corp. (FRCGF) is a new closed-end fund that invests in gold stocks and sells covered calls and puts for income.  With the current market flux, gold is a good play until we get more definite information where the fiscal policy and taxes end under the new negotiations.  Why not let professional managers sell covered calls and pay you monthly dividends.  Here are the details.

Faircourt Gold Income Corp., a closed-end investment fund established as a mutual fund corporation under the laws of the Province of Ontario, is offering upon the terms and subject to the conditions specified in this short form prospectus, to issue up to 4,733,740 Class A shares of the Company at a price per Offered Share of $8.45.  The initial IPO was November 9, 2012.

The shares are currently trading at $8.24, a 2.5% discount to the IPO price.  Faircourt Gold Income pays monthly distributions with an annual yield of 7.0%.

 

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The Company will not make any investment that would result in holdings of gold companies comprising less than 60% of the NAV of the Portfolio of the Company at the time of such investment. The Company will not make any investments that would result in holdings of gold bullion comprising greater than 30% of the NAV of the Portfolio of the Company at the time of such investment.

In order to generate additional returns and to reduce risk, the Company has engaged the Manager to employ an option strategy whereby it writes covered call options on securities held in the Portfolio and cash secured put options on securities desired to be held in the Portfolio. It is the Manager’s belief that utilizing the option strategy will assist in providing Shareholders with lower volatility and potentially enhanced returns as compared to owning the individual securities in the Portfolio directly.

The Manager believes that option writing has potential to add value in some sectors more than others. Option writing programs in the past have relied on the volatility of a security as a source of long term capital gains distributions. All other things being equal, sustained volatility in the price of a security results in higher option premiums in respect of such security. The Manager believes gold stocks, which have historically maintained a high degree of volatility, are well suited for a covered call writing strategy. This higher degree of volatility is reflected in the S&P/TSX Global Gold Index which has an historic 10 year average volatility is 36% as measured by standard deviation, between September 2002 and September 2012, while the S&P/TSX Composite Index has exhibited a volatility of 16% during the same period.

Covered call options and cash secured put options may be written from time to time in respect of part of the Portfolio.  The extent to which any of the individual securities in the Portfolio are subject to options and the terms of such options will vary from time to time based on the Manager’s assessment of the market.

WisdomTree Enters Monthly income Club

WisdomTree announced that all six ETFs in its U.S. dividend series will pay distributions on a monthly rather than quarterly basis. The move is designed to accommodate investors who want a steadier stream of income.

The asset manager changed the distribution schedule for WisdomTree Total Dividend Fund (DTD) 2.7% yield, WisdomTree LargeCap Dividend Fund (DLN) 2.72% yield, WisdomTree MidCap Dividend Fund (DON) 2.74% yield and WisdomTree SmallCap Dividend Fund (DES) with a 3.38% yield.

The four ETFs are scheduled to make their first monthly distribution on ex-date Nov. 26, according to a press release.

Two other ETFs, WisdomTree Dividend ex-Financials Fund (DTN) 3/1% yield and WisdomTree Equity Income Fund (DHS) 3.45% yield, switched from quarterly to monthly dividend distributions in July 2012.

 

Get Paid Monthly Income from this new REIT with a Strong Buy Recommendation

American Realty Capital Properties, Inc. (NASDAQ: ARCP) is an externally managed real estate company that owns and acquires single tenant free standing commercial real estate properties that are primarily net leased on a medium-term basis generally to investment grade tenants.  The Company commenced operations in September 2011 in conjunction with the closing of its IPO. Prior to that date, ARCP did not hold any real estate properties or have any sources of income or any expenses; the only activity of the Company was limited to organizational activities.

As of September 30, 2012, the Company owned 124 freestanding, single tenant, 100% occupied net leased properties comprised of 2.2 million square feet (excluding one vacant property classified as held-for-sale). These properties are located in 24 states and include 14 tenants, operating in 10 distinct industries.  American Realty Capital has a current dividend yield of 6.93% with monthly distributions.

Funds from operations (“FFO”) for the three months ended September 30, 2012, totaled $1.9 million, or $0.17 per share basic and $0.15 per share fully diluted.  FFO for this period includes one-time net acquisition and transaction related expenses of $0.7 million.  Excluding such one-time costs, core FFO is $2.6 million, or $0.24 per share basic and $0.20 per share fully diluted.

Adjusted funds from operations (“AFFO”) for the three months ended September 30, 2012, totaled $3.1 million, or $0.28 per share basic and$0.24 per share fully diluted.  This represents a 15.0% increase in AFFO per share compared to the second quarter ended June 30, 2012.

For the nine months ended September 30, 2012, FFO totaled $2.7 million, or $0.31 per share basic and $0.28 per share fully diluted.  FFO for this period includes one-time net acquisition and transaction related expenses of $3.0 million.  Excluding such one-time costs, core FFO is$5.7 million, or $0.67 per share basic and $0.60 per share fully diluted.

AFFO for the nine months ended September 30, 2012 totaled $6.5 million, or $0.76 per share basic and $0.69 per share fully diluted.

“Our investment strategy is performing exactly as planned and we are witnessing an increasingly rich pipeline.  We are systematically assembling a well-diversified portfolio of free standing, single tenant properties net leased to predominantly investment grade tenants at prices accretive to our dividend,” stated Nicholas S. Schorsch, Chairman and Chief Executive Officer of ARCP.  “During 2012, we acquired approximately $100 million of investment properties at a weighted average capitalization rate of 9.5%.  We recently announced $36 million of additional acquisitions expected to close during the balance of 2012 at equally attractive pricing.  Our core earnings will be favorably affected by these acquisitions.”

On October 1, 2012, ARCP announced its fourth consecutive dividend increase. The Company’s board of directors authorized and the Company declared, on September 30, 2012, an increase in its annual dividend rate to $0.895 per share, beginning November 9, 2012.  On November 15, 2012, the Company will pay the new annual dividend rate to stockholders of record on November 8, 2012.

This is following three prior dividend increases in March, June and September 2012. On February 27, 2012, the Company’s board of directors authorized and the Company declared an increase in its annual dividend rate from $0.875 to $0.880 per share. Accordingly, on March 15, 2012, the Company paid a dividend of $0.0733 per share to stockholders of record at the close of business on March 8, 2012.

Total dividends paid to common stockholders by the Company were $2.4 million for the three months ended September 30, 2012. For the nine months ended September 30, 2012, dividends totaled $5.6 million.

First Call analysts have a consensus “Strong Buy” recommendation with a 1.3 stock rating.

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