Get Rich - Stay Rich - Investing for Monthly Income

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How to Make Monthly Income in a Sideway Moving Market

Expectations for the third quarter earnings were dismal, with forecasts for a decline in profits from a year ago.  But a recent flurry of high-profile reports has investors scowling at the weak revenue numbers, adding to worries about the state of the U.S. economy and the outlook for corporate America.

IBM, General Electric and Microsoft fell short of revenue expectations, creating a sour mood early in the third-quarter reporting period.  This has led to a market that is moving nowhere too soon.  For the last month (Sept 24 – Oct 19), the benchmark S&P 500 Index is only up 0.4% while the PowerShares S&P 500 BuyWrite Portfolio (PBP) is down 0.95%.

Where can income investors go for monthly income in a sideway moving market?

One option is to look at a covered call strategy for monthly income.  A covered call strategy provides income from the premium received when a call option is sold against 100 shares of a stock.  In general, a covered call makes money when the stock price goes nowhere (like today’s market), when the stock price increases and provides downside protection when a stock slightly declines in price.

Subscribers to the Monthly Income Plan had exceptional returns from the monthly covered call trades.  We enter 4 monthly covered call trades on September 24 2012 for trades to expire on October 19 2012.  This is a total of 26 calendar days for these covered call trades.

The results included:

a 6.75% monthly return on the United Rentals, Inc. NYSE: URI covered call;

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6.57% on the USG Corporation NYSE: USG covered call;

5.09% on the Royal Caribbean Cruises NYSE:RCL covered call;

and a 5.4% return on the SanDisk Corporation NASDAQ: SNDK covered call.

This is an average return of 5.95% in one month on these 4 covered call trades.  For comparison purposes, this is an annualized return of 83.6%.

These trades significantly beat the S&P 500 and PBP Buy-Write for the last month.  For income investors, they made $595 for every $10,000 invested in these 4 combined covered call trades.

Click here to subscribe to the Monthly Income Plan to get new covered call trades each month for only $19.95 per month.

 

Buy This Stock with a 7% Dividend Yield for Monthly Dividends

Home Loan Servicing Solutions (HLSS) is an internally-managed owner of non-agency mortgage servicing assets with historically stable valuations and cash flows.  HLSS’ assets are predominately mortgage servicing advances that, along with the related servicing rights, are over-collateralized 30 times by residential real estate. HLSS’ objective is to generate stable, recurring fee-based earnings and dividends throughout the economic cycle.  HLSS is a small cap stock with a market cap of $529 million.

HLSS reported net income of $6.6 million, or $0.37 per ordinary share, for the third quarter of 2012 which was 12% higher than Q2 2012 of $4.7 million, or $0.33 per ordinary share, its first full quarter of operations.  HLLs reported net income of $1.3 million, or $0.31 per share based on 4.2 million weighted average shares outstanding, for the first quarter of 2012.

On October 1, 2012, the Company’s Board of Directors declared a monthly dividend of$0.11 per ordinary share with respect to each of October, November and December 2012.  HLSS has an annual dividend yield of 7.10%.

Home Loan Servicing received gross proceeds of $249.9 million in connection with the follow-on offering of 16,387,500 shares at $15.25 per ordinary share on September 12, 2012. Proceeds from the offering were used to acquire mortgage servicing assets related to non-agency mortgage loans.

On October 19, 2012 Barclays Capital upgraded HOME LOAN SERVICING SOLUTIONS from EQUAL WEIGHT to OVERWEIGHT.

On October 16, 2012 Zacks Investment Research, Inc. upgraded HOME LOAN SERVICING SOLUTIONS from HOLD to BUY.

On October 16, 2012 Merrill Lynch initiated coverage for HOME LOAN SERVICING SOLUTIONS with a BUY recommendation.

First Call analysts have a BUY recommendation with a 2.0 stock rating.

2 High Yield Dividend Stocks with a Bullish Outlook

While high yield is difficult to come by these days, here are 2 quality stocks with high dividend yields, reasonable valuations and projected growth next year.  Both of these stocks produced significant EPS growth last quarter and have equity summary scores indicating a Bullish outlook.

PennyMac Mortgage Investment Trust (NYSE: PMT) invests primarily in residential mortgage loans and mortgage-related assets.  PennyMac trades at a PE of 8 with a beta of 0.83.

PennyMac increased EPS by 33% last quarter compared to the same quarter a year ago.   The Company is projecting an increase in EPS of 7% next year.

PennyMac has a current dividend yield of 9.43% which has been increased 10% in the last year.

PennyMac is up 40% year to date and 9.3% in the last 4 weeks.  Shares pulled back in August after pricing an upsized underwritten public offering of 15 million shares at $20.93 each. The deal originally intended to sell 12 million shares. Underwriters received a 30-day option to purchase up to 2.25 million additional shares from the company.

PennyMac plans to spend the net proceeds to purchase residential whole mortgage loan portfolios as well as funding continued growth of its correspondent lending business and acquiring additional mortgage loans or other investments, including existing forward purchase agreements.

PennyMac has an equity summary score of 9.1 out of 10 for a VERY Bullish outlook.  PennyMac has a 12-month price target of $25.30.

Vanguard Natural Resources (NYSE: VNR) engages in the acquisition and development of oil and natural gas properties in the United States.

Vanguard increased EPS by 88% last quarter compared to the same quarter a year ago.   The Company is projecting an increase in EPS of 39% next year.  Vanguard has a PEG ratio of 0.41.  Vanguard trades at a PE of 7.2 with a beta of 1.02.

Vanguard dividends are paid on a monthly basis.  Vanguard has a current dividend yield of 8.31% which has been increased 4.35% in the last year.

Vanguard just announced the closing of its previously announced public offering of 6,900,000 common units representing limited liability company interests in the Company at a price of$27.51 per unit.  The 6,900,000 common units include 900,000 common units purchased pursuant to the underwriters’ full exercise of their option to purchase additional common units.

Vanguard intends to use the net proceeds from the offering of approximately $182.3 million, after deducting underwriting discounts and estimated offering expenses, to repay a portion of its indebtedness outstanding under its senior secured revolving credit facility.

Vanguard has an equity summary score of 7.4 out of 10 for a Bullish outlook.  Vanguard has a 12-month price target of $31.50.

Get Monthly Dividends From This Back To School Stock

Founded in 1997, Student Transportation Inc. (NASDAQ: STB) is North America’s third-largest and fastest-growing provider of school bus transportation services, operating more than 8,500 vehicles. STI’s family of local companies delivers safe, reliable and cost-effective transportation solutions to school districts throughout the U.S. and Canada.

Standard Transportation usually purchases a new fleet and then splits the fuel costs with the customer. With the uncertainty of market diesel prices it is more cost-efficient to operate an LPG or CNG vehicle than a diesel engine vehicle.  Standard has additional LPG vehicles scheduled to be deployed for the upcoming school year and we look forward to further fuel savings for our customers. Standard Transportation is committed to helping schools everywhere have safe, economical, and environmentally responsible transportation for their students.  Their success with alternative fuel fleets in Minnesota and California has prompted more customers to make the switch to outsourcing student transportation.

Student Transportation has won six new bid contracts, two in Ontario, two inConnecticut and two in New Hampshire, for 2013 as announced towards the end of March, and secured another eight contracts in Texas and Washington that National Express was required to divest by the U.S. Department of Justice in connection with its purchase of Petermann Partners.

The additional revenues and cash flows from the six acquisitions closed and integrated in the first half of the fiscal year and the nine new bid contracts won for fiscal 2012, along with the recovery of approximately $1.2 million in continued revenue deferrals at the end of the third quarter should continue the positive momentum through the end of the fourth quarter of fiscal 2012,

Third quarter revenue increased $22.3 million to $113.3 million, from $91.0 million and EBITDA improved $6.1 million to $25.5 million, from $19.4 million for the comparable period last year. Net income for the third quarter of fiscal year 2012 increased to $3.0 million or $0.05 per common share compared to net income of $1.6 million or $0.03 per common share for the third quarter of fiscal year 2011.

Student Transportation has continued its practice of approving the announcement of dividends quarterly. Dividends will continue to be paid on a monthly basis to shareholders of record.  Today, investors are looking at an investment in Student Transportation that pays $0.55 annually in monthly distributions. This produces an 8.3% yield at the market price.  Student Transportation will pay a regular monthly cash dividend on October 15, 2012, November 15 and December 17 to shareholders of record at the close of business on September 28, 2012, October 31 and November 30.

Student Transportation’s CEO Denis Gallagher has stated that he’s satisfied with the dividend payment and wants to focus on driving investor value.  His goal is to see the yield drop in the 5%-range through share-price appreciation.  This calculates to a target price of $11.00 which is 66% higher than the current price of $6.63.

Main Street Capital (MAIN) Increases Monthly Dividend 7.7%

Main Street Capital Corporation (MAIN) announced that its Board of Directors declared monthly dividends of $0.14 per share for each of April, May
and June 2012.  These monthly dividends, which will be payable pursuant to the table below, equal a total of $0.42 per share for the second quarter of 2012. The second quarter 2012 dividends represent a 7.7% increase from the dividends declared for the second quarter of 2011 and a 3.7% increase compared to the first quarter of 2012.  Including the dividends  declared for the second quarter of 2012, Main Street will have paid $7.14 per share in cumulative dividends since its October 2007 initial public offering.

MAIN is trading at $24.83 with an annual dividend yield of 6.8% paid on a monthly basis.  It has a PE of 9.3 and a market cap of $662 million.  MAIN has an equity summary score of 10 out of 10 for a very bullish outlook.  On 03/08/12, the company announced quarterly earnings of 0.45 per share, a positive surprise of 9.2% above the consensus 0.41.  Over the past 4 quarters, the company has reported 4 positive (>2%), 0 negative(<-2%), and 0 in-line (within 2%) surprises.  The average surprise for this time period has been 14.7%.  MAIN’s current quarter consensus estimate has remained relatively unchanged over the past 90 days at 0.42.  Estimates within its Industry have moved an average of 0.0% during the same time period.  During the past four weeks, analysts covering MAIN have made no upward or downward EPS estimate revisions for the current quarter.  Ativo Research projects as of this date that MAIN will GREATLY OUTPERFORM the market averages over the next 6 to 12 months leading to our decision of a STRONG BUY.

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 y investments, warrants and other securities.

Covered Write on American Tower (AMT)

American Tower Corporation (AMT) is a holding company. It is a wireless and broadcast communications infrastructure company that owns, operates and develops  communications sites. Its primary business includes leasing antenna space on multi-tenant communications sites to wireless service providers and radio and  television broadcast companies. This business is its rental and management operations. The Company also offers tower-related services domestically,  including site acquisition, zoning and permitting services and structural analysis services, which primarily support its site leasing business and the addition of new tenants and equipment on its sites. On August 6, 2010, the Company’s, Transcend Infrastructure Limited, acquired Essar Telecom Infrastructure Private  Limited (ETIPL). On June 29, 2010, it acquired 113 towers from Telefonica Chile S.A. As of December 31, 2010, the Company acquired 475 towers from  Telefonica del Peru S.A.A.

This is a covered call trade for monthly income using AMT as the underlying stock.  AMT has a neutral equity score of 5.8 in a 10 point scalle by analyst covering the stock.

OPTION STRATEGY:

Look at the January 2012 59.65 covered call. For each 100 shares of American Tower Corp (AMT) stock you buy, sell one January 59.65 covered call option for a 57.19 (58.69 – 1.50) debit or better.  That’s potentially a 4.3% assigned return.

STOCK TECHNICALS:

The technicals for AMT are bullish with a weak upward trend.  The stock is under accumulation with support at 57.67.  S&P rates this stock 5 STARS (out of five) – strong buy.

RESEARCH NOTES:
S&P maintains strong buy opinion on shares of American Tower (AMT) .  AMT announced it plans to acquire roughly 2,500 towers from Telefonica’s (TEF) subsidiary inMexico, Pegasos PCS, for roughly $500M.  We view the planned deal as a positive as it roughly doubles AMT’s exposure to Mexico and these towers should benefit from the recent spectrum auctions and the launch of new technologies.  We believe this also demonstrates AMT’s desire to remain in a growth mode while also looking to achieve REIT status. We maintain our 12-month target price of $74, based on 24X our ’12 free cash flow estimate, a slight premium to peers.

 

Monthly Income from a Covered Call Closed-End Fund

For monthly income investors, the BlackRock Enhanced Capital and Income CEF (CII) offers an investment option for both growth and income.  CII trades at a 10% discount to its NAV.  The dividend yield is 11.47% which is inline with other CEFs in this category.  CII’s previous closing price was $12.59 and has a superior rating by Morningstar.

The fund invests in large-cap value stocks and includes a call option writing overlay (on individual holdings and the S&P 500 Index). Individual holdings are picked based on strong competitive performance, a good balance sheet, excess cash flow, low debt payments, and management with proven ability to effectively manage though various market cycles. Stocks must meet multiple valuation criteria, including low price earnings ratio, low price/book ratio, high dividend yield, and high return on equity. Analysts and managers like companies that are currently out of favor and that they believe have future growth potential.

Over the latest three-year annualized period, the fund gained more than 4%, beating the the S&P 500 Value Index, which lost 2%.  During the first year and a half using the new strategy (the second half of 2007 and 2008), the fund struggled and underperformed the peer group and the index, but performance improved markedly in 2009 as the new management team took over. Strong performance continues:  The fund is up 7% over the past year and down 1.7% for the year to date while peers are up 2.5% over the past year and down 4.6% for the year to date.

Following June’s distribution reduction, the 11% distribution rate is on par with peers. The fund has used destructive return of capital in two of its seven fiscal years: In 2008, almost half was from destructive return of capital, but in 2010, it was less than 10%. The recent 25% reduction is a positive sign, but investors should question whether an equity strategy can earn 11% in this market. If the call strategy is successful and stock picks continue to be profitable, it’s possible.    The fund offers a standard distribution reinvestment program. If the fund is trading at a premium (including brokerage commissions), then the dividend amount is invested in to newly issued shares.

Diary of a Monthly Income Plan (INFOGRAPHIC)

Some investors and traders are always searching for that “holy grail” to make their millions in the markets.  These traders look to quantum programs, black boxes, high frequency trading and other sophisticated methods to gain an edge on the market.  At Get Rich Investments,we like to keep investing as simple as possible.  Afterall, we are totally focused on one objective to create monthly income from investing.  We created an infographic, “Diary of a Monthly Income Plan” to show how easy it is to invest for monthly income in today’s market.

Free to embed on other sites using this code:  <embed src=”http://embedit.in/zKy9OYAnO2.swf” height=”400″ width=”466″ type=”application/x-shockwave-flash” allowFullScreen=”true”>

CLICK TO ENLARGE

Diary of a Monthly Income Plan_(Infographic)

Covered Call Trade Recommendation on Celgene (CELG)

This is a covered call trade for monthly income on Celgene (CELG) using stock and call option with optional protective put.

Covered Call TRADE: Look at the November 2011 65 covered call.  For each 100 shares of Celgene (CELG) stock you buy, sell one November 2011 65 covered call option for a $61.05 (63.35 – 2.30) debit or better.  This is potentially a 6.5% assigned return.

Blanket Put:  If you are looking for a blanket put for protection, look to buy the Apr 2012 60 Put for $5.00.  You will sell the Blanket Put when the covered call position is closed.
Stock Trend: The technicals for CELG are bullish with a weak upward trend.  The stock is under accumulation with support at 61.63. S&P rates this stock 5 STARS (out of five) – strong buy.

S&P research notes:

S&P maintains strong buy opinion on shares of Celgene (CELG) . CELG updates information related to Article 20 European review of Revlimid that resulted in a positive risk/benefit ruling in September. CELG cites secondary malignancy rate of 3.98 per 100 patient years (vs. 1.38 in control group) in prior treated multiple myeloma patients, and 7% rate in newly diagnosed patients (vs 1.8% in control). While higher than we anticipated, we expect drug’s label to reflect these risks, and still see the positive bias on Revlimid’s survival benefits positioning the drug for approval in earlier treatment stages, which we view as a key share catalyst.

Get more trades by subscribing to Get Rich Monthly Income Plan.

The Blanket Put Strategy – Trade with Intel

One of the most important components to investing success is to protect your capital.  One big loss such as a stunning 50% in a single position will require a 100% gain to get your capital back to EVEN!  However, if you limit your risk to 5% or less in a single position then you can easily get your capital back to even on the next trade.  So how do you limit your risk exposure when trading covered calls?

The Blanket Put strategy allows the generation of real profits while limiting the amount of risk to just a few percentage points of the trade debit.  The Blanket Put is simply buying the stock, selling a call and then buying a long-term put.  This strategy is great for markets with high volatility and when there is uncertainty of future market direction.  The major focus here is to buy a CHEAP put so that you do not spend much of your premium on protection.  The Blanket Put is to ensure you get the Return of Your Capital.  We want to do this at the cheapest price possible as we are buying the Blanket Put.

Let’s walk through an example with Intel (INTC).  The table below shows the monthly results for the covered call with Blanket Put.  We buy 100 shares of Intel at $21.50 per share.  We then sell the next month 21 call at $1.25 for a net debit of 20.25 on the covered call.  To setup the Blanket Put, we buy the April 21 2012 put for $2.20.  This brings our total net debit to $22.45.  The Blanket Put has a strike price of 21 so we are guaranteed to be able to sale our INTC shares at this price between now and April 2012 expiration day.

We want to sell a 21 call for the next month until April 2012 expiration.  We have used 1.00 for the call premium each month but this can be higher or lower in the live trade.  After the Dec 2011 expiration we have a net debit of $20.45 for a guaranteed profitable trade.  In total, we will collect $7.25 in total premiums for a total return of 44% in only 7 months or 75% annualized.  This calculation excludes the dividends and trading commissions.

To manage the trade when you get called out on the covered call, you have two options: (1) buy back the stock and keep the put in place or (2) sell the put and start a new trade at the current stock price.  You need to keep in mind that INTC is a dividend payer so you get this payment each quarter.  Also, INTC is known for increasing their dividend so this stock is great for holding long-term in your portfolio.

 

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