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Posts Tagged ‘passive income’

How to Create a Better Lifestyle

Warren Buffet has always discussed the concept of Mr. Market. This is an idea around each trading day Mr. Market offers you the price to purchase a stock in the stock market. As an investor, you must decide if you want to but the stock at this market price. Is the stock overpriced, undervalued or will the market crash in the coming days? As investors, we can’t predict the future direction of stock markets. And if anyone tells you they can, then run away from them. To get around predicting the stock market, I sell puts on stocks to generate monthly income and I usually win regardless of what the market does in the coming weeks.

When we sell a put option, we are selling someone the right, but not the obligation, to sell shares of the underlying stock to us at a price that we select called the strike price on or before a date that we select called the expiration date. In return for undertaking this obligation, we are paid a certain amount of cash called the premium that the market determines.

Should the put buyer decide to exercise that option by selling his shares to us on or before its expiration date, we are obligated to buy those shares at the strike price. To cash-secure this transaction potential, we deposited the appropriate amount of cash into our brokerage accounts to purchase those shares at the strike price minus the cash premium received.

How often does a put get exercised? This is variable but most research indicates about 80% of options expire worthless or do not get exercised. When a put option expires worthless, the investor keeps the cash premium as their return. Put writers or sellers continue to sell put each month to create and capture the cash premiums. This is the monthly income to supplement your lifestyle.

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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

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

 

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.

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.

The Right Chemistry for Growth and Income with 42% Upside Potential

What more can an income investor want than a dividend growing at 35% per year and price upside potential of 42% in the coming year.  This is exactly what is possible to owners of Celanese Corp. (NYSE: CE), a global producer of industrial chemicals.  While the current dividend yield is only 1.0%, it will likely continue to grow as EPS is projected to increase 14% in the next year.

The Company has increased its dividends by 140% in the past year and boasts of a 5-year average annual dividend growth rate of 35.1% per year.  The current payout ratio is 21.24%.  Celanese announced a 100% increase in the company’s quarterly common stock dividend on July 25, 2013.  The dividend rate increased from $0.09 to $0.18 per share of common stock on a quarterly basis and from $0.36 to $0.72 per share of common stock on an annual basis.

Celanese posted adjusted EPS of $1.20 per share in Q3, up from a $1.12 gain during the same quarter last year and beating the Capital IQ consensus by $0.05 per share.  Revenue for the manufacturer of thermoplastic polymers slid 1.0% year over year to $1.64 billion, roughly in-line with analyst forecasts.

Looking forward, CE said it expects per-share earnings to continue growing during FY14 through new products and productivity improvement.  Celanese has expanded its polyacetal manufacturing footprint in Asia through investments in joint venture projects in Malaysia, Korea, and Saudi Arabia.  The company signed manufacturing agreements with Malaysia’s Polyplastics Asia Pacific Sdn. Bhd, Korea’s Korea Engineering Plastics, and Saudi Arabia’s Ibn Sina.

We think Celanese can generate above-average revenue growth from geographic expansion and the development of new applications for its products. Due to its size, CE also enjoys a cost advantage in many of its markets. We believe the engineered plastics business has solid long-term growth fundamentals, and that acetate tow remains a stable cash-generating business. Additionally, the European economy seems poised for gradual recovery in 2014.

We look for operating EPS to rise to $4.55 this year, from $3.80 in 2012. Further growth is expected in 2014, with EPS forecast to reach $5.20.   Based on a PE of 15, the 12 month target price is projected to be $78, an increase of 42% from current trading levels.  The Stock has an equity summary score of 8.6out of 10 for a Bullish outlook among analyst.

Celanese Corp. is a global producer of industrial chemicals and has the number  one or two market share in a majority of its products.  Celanese strives to focus its businesses in areas where it has a clear and sustainable competitive advantage to generate long-term earnings growth.  It also continually seeks to optimize its business portfolio to achieve industry, cost and technology leadership while expanding its product mix into higher value-added products. CE’s geographically balanced global footprint is another aspect of its strategy that should fuel future earnings growth, and its global presence is aligned with the current and expected growth of its customers.

The strong cash flow results allowed Celanese to more actively utilize their balance sheet, deploying$96 millionof cash in the quarter to purchase approximately 2 million shares.  Celanese also maintained a cash balance of$1.1 billionand net debt balance of less than$2.0 billion.

The company will cease all manufacturing operations and associated activities at the acetic anhydride plant in Roussillon and at the vinyl acetate monomer (VAM) unit in Tarragona by the end of 2013, and Celanese will proceed to decommission both facilities.

The need for these closure projects emerged from an assessment of Celanese’s overall corporate strategy, which included an assessment of the company’s global manufacturing facilities. Specifically, in support of the company’s acetyl portfolio, the manufacturing footprint strategy favors integrated production sites that provide critical economies of scale.  Celanese expects savings from these closures to be in the range of US $20-30 million in 2014.

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.

Order Some Special Dividends from these Stocks

Saratoga Investment Corp. (NYSE: SAR) declared a special dividend of $2.65 per share.  The dividend will be payable on December 27, 2013, to stockholders of record on November 13, 2013, with an ex-dividend date of November 8, 2013.  The annual yield on the dividend is 13.9 percent.

The dividend will be paid in cash or shares of the Company’s common stock at the election of the shareholders, although the total amount of cash to be distributed to all shareholders will be limited to approximately 20% of the total dividend to be paid to all shareholders. The remainder of the dividend (approximately 80%) will be paid in the form of shares of the Company’s common stock. This dividend is being made in accordance with certain applicable Treasury regulations and private letter rulings on cash/stock dividends issued by the IRS over the years that allow a publicly-traded regulated investment company to satisfy its distribution requirements from a distribution paid partly in common stock provided that at least 20% of the distribution is payable in cash and certain other requirements are satisfied. The dividend includes a carry-over balance of $3.9 million from the Company’s fiscal year 2013 taxable income and a significant portion of the Company’s fiscal year 2014 estimated taxable income.

Cohen & Steers, Inc. (NYSE: CNS) declared a special dividend of $1.00 per share. The dividend will be payable on December 20, 2013, to stockholders of record on December 2, 2013. The annual yield on the dividend is 2.6 percent.

Wynn Resorts Ltd (NASDAQ: WYNN) declared a special dividend of $3.00 per share.  The dividend will be payable on December 6, 2013, to stockholders of record on November 20, 2013, with an ex-dividend date of November 18, 2013.  The annual yield on the dividend is 1.8 percent.

Ameriprise offers a Total Yield Stock Play with a Growing Dividend

While income investors constantly seek out stocks with growing dividend yields, they can also benefit from share buybacks.  The share buybacks present an opportunity for investors to get capital gains in addition to current income.  Currently, 80% of S&P 500 companies are buying back shares. Combine this with dividend yield and you can get a total yield of greater than 10% in 2014.  We are presenting a series of stocks worth a look.

Ameriprise Financial (NYSE: AMP) has a projected share buyback yield of 14% and a current dividend yield of 1.95%.  This provides investor a potential for a total yield of 15.95%.  The stock has an equity summary score of 7.9 out of 10 for a BULLISH outlook.  The stock has a 12 month price target of $104.

Ameriprise has a one-year dividend growth of 48%.  The dividend has grown from $0.35 in Q3 2012 to the current $0.52 in Q3 2013.  The 5-year average annual dividend growth rate is 25%.  AMP has a current dividend payout ratio of 36%.

Second-quarter 2013 net operating revenues were up 9%, year to year, on a 14% increase in management and advice fees and a 4% decline in net investment income.  Assets under management and administration of $703 billion were up 7% from a year earlier, helped by market appreciation.  We expect at least modest single digit annual revenue growth in 2013 and 2014, on a sustained pickup in asset inflows.  We think the Annuities segment will continue to be under pressure from the low interest rate environment in the near term, and that Annuities and Protection segment revenues will be relatively stable over the next two years, holding back the company’s overall revenue growth rate.

Balancing fund underperformance and outflows, particularly in International equities, slower-than-expected margin improvement, and AMP’s commitment to return capital to shareholders, we believe the shares are appropriately valued. We have a positive view of AMP’s focus on the growing market of affluent households.  We believe AMP is well positioned for long-term growth due to its shift toward the less capital-intensive and higher growth potential businesses of retirement planning advice and asset management, as well as a more international focus. Also, further economies of scale should be realized as integration of Columbia Management was nearly completed in 2012.

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