Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘retirement income’

The Magic Number to Save for Retirement

Financial advisors always dodge the question of how much to save for retirement. There are research papers that contradict each other. They suggest there is no magic number for all or “it depends” or “it’s complicated.” I don’t buy this malarkey from the industry. Here is what I suggest and how I fund my accounts.

Don’t give up hope. From most research there’s a pretty useful rule of thumb for all people: Count on your fingers and … Save 10% — now.

Between you and your employer, set aside at least 10% of your paycheck. If your employer contributes 3%, then your share is at least 7%. If the company kicks in 5%, then you save at least 5%. If your employer does nothing, set aside at least 10% of each paycheck on your own.

Of course, there will be times when you’re between jobs or you need your money for a pre-retirement-age emergency. In those cases, you can put your money in a Roth individual retirement account (IRA) account. That way, you can take your contributions out without penalty. (There are also Roth 401(k) accounts, though they have more complicated withdrawal rules.) Don’t let the fact that you might need money someday keep you from saving for retirement now.

At Get Rich, we follow a monthly stock dividend plan where we get monthly dividends. We invest in 10 to 30 different stocks, notes and CEFs to diversify our holdings. To prevent yourself from running out of money in the golden years, reinvest 10% of your dividends back into your accounts. Therefore, if you are living on the dividends, you get a pay raise each month! And, your capital can leave a legacy for your family forever. Lastly, it is passive income that can be created regardless of where you live and play.

Subscribe today to start your monthly income plan.

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Support and Resistance levels for the Covered Call Writer

One of the keys to covered call writing success is knowing how to determine support and resistance levels.  A support level is a stock price low that the price has hit and recovered from to advance back up due to more buying than selling of shares.  This is referred to as the trading floor until a stock price breaks below it.  The resistance level is a higher level that the stock price has hit and pulled back due to more selling than buying of shares.  This ceiling acts as resistance that the stock price must break through to advance higher.

The more times the price has hit a support or resistance level, the stronger it is and more difficult to move through it.  The longer it takes for the stock to test
these levels, the stronger they are to break through.  For example, an intraday test is not as strong as a one week test of these levels.  The higher the stock volume at the level, the stronger the level is holding.  For example, if volume is above average and the stock price doesn’t break out then the level will hold and be more difficult to go through.

Most technicians draw the support and resistance levels at the lowest and highest price points on a stock chart.  If stock price reached a certain support or
resistance level multiple times, you can safely disregard a single price spike above or below these levels.

How can the covered call writer use these support and resistance levels.  If a quality stock has successfully tested the support levels, then you know where the price bottom is for that stock.  You can also use the support level to tell you when to react as a break below support requires a new decision on what to do with your covered call – close it, roll out, etc.  The other use of support and resistance for the call writer is to delay entering a new trade when a support or resistance level is being tested.  These price points should be watched closely to see if they hold.  If they do not hold, then be prepared to make
a decision on managing the covered call trade.

As income investors, we seek to create consistent monthly income by selling options to collect monthly premiums. We focus on the Monthly Income Report which is published the weekend following option expiration each month. To supplement members, we will publish additional trades and income opportunities

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How To Use Moving Averages in Covered Call Selection

The use of moving averages are important to assessing the price trend of a stock.  Even better is using multiple moving averages to increase your accuracy of identifying the stock trend.  The definition of a moving average is the average of the stocks closing price over a period of time. As a new closing price is made, it is added to the calculation and the oldest closing price is removed from the calculation. This creates a new data point on the moving average as this process continues into the future.

The simple moving average (SMA) is the total of all closing prices for the time period divided by the number of points in the period. The exponential moving average (EMA) weighs more recent closing prices higher than older data prices as the newest data point is more relevant than older price points.  the EMA is more sensitive than the SMA but it has more frequent false signals.

I prefer to use the 20-day SMA and the 50-day SMA in my price charting.  There is nothing magical about these SMAs as other investors may use a 14-day and 40-day SMA.  I like the 20 and 50 day SMAs as a 20-day is 4 weeks or one month based on closing prices and the 50 day is 10 weeks. I usually sell the current month so the 20-day is more suitable to a one month call option while the 50-day serves as my longer term marker.

What should you look for in moving averages?  First, any time one SMA crosses the other the trend has changed (see chart below).  When the 20-day crosses ABOVE the 50-day, then the stock is starting an uptrend.  Conversely, if the 20-day crosses BELOW the 50-day the trend is moving down. The predictive factor happens when the stock price gaps way above the 20-day SMA as this signals a pullback for the stock.

The best covered call candidate will have the 20-day SMA above the 50-day with a flat or uptrending price line.  If the 20-day is below the 50-day, I usually pass on the stock as there are so many other stocks better suited to a profitable covered call trade.

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Click to enlarge

How To Get Paid Monthly Royalties

A royalty trust is a type of corporation usually based in the United States or Canada.  In general, trusts usually own oil and natural gas wells, rights to wells or rights to the mineral deposits.  Royalty trusts are similar to real estate investment trusts (REITs) as they are tax free if they payout 90% of income to shareholders.  Most royalty trusts trade on major US stock exchanges.  Others trade in Canada and have a pink sheet listing in the US.

So many corporations were using the trust advantage that Canada changed the regulations starting January 1 2010.  This will force some trusts to convert into a regular corporations which will lower their dividends.  However, this does not  lower their status as monthly income stocks.

Non-Canadian investors owning a Canadian royalty trust is subject to a foreign income tax of 15% of payouts.  This 15% tax can be claimed on US taxes from a Form 1099.  This makes Canadian royalty trusts better investments for taxable accounts in the US.  In non-tax accounts such as an IRA, you will be double taxed by Canada upon distribution date and US when funds are withdrawn from the IRA.  The US royalty trusts do not have a 15% foreign tax so they can be held in tax-deferred accounts.

Over the last six months, there has been a significant quest for high yield investments.  This has decreased the yields on trusts from double digits to single digits because of the increase in share prices.  This lessens the appeal of royalty trusts at time.  It would be better to patiently wait for a market correction to initiate a new position.

Here is one to consider:

Cross Timbers Royalty Trust

TICKER: CRT

MARKET VALUE: $91.7 million

DISTRIBUTION YIELD: 9.9%

Cross Timbers Royalty Trust (CRT, $15.09) has existed since 1991 and earns royalty income from Texas, Oklahoma and New Mexico drilling properties. Most of the trust properties are located in the prolific San Juan Basin and all are owned and operated by the XTO Energy subsidiary of Exxon Mobil (XOM). Production comes from 4,900 oil and gas wells spread across nearly 60,000 acres.

Reduced gas production and higher development costs in 2017 caused trust distributable income to decline by 5% to $6.05 million, or $1.009 per share. Production volume and the monthly distribution have been erratic in 2018. Cross Timbers has paid out 82.5 cents per share to investors through seven months. As long as the average holds steady, CRT should pay out roughly $1.41 – a 9.3% yield that’s actually less than the projected forward yield using the most recent distribution.

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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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A 20% Dividend Yield from Small Caps with Monthly Dividends

Small-caps have been on a tear in Q2 clearly outperforming its larger counterparts. President Trump’s protectionist agenda and the resultant trade war fears started weighing on large-cap stocks that have considerable international exposure. And the domestically focused pint-sized stocks soared

In additions to trade tensions, there were some other factors that played their roles in pushing pint-sized stocks higher. The U.S. economy has been on steady ground. This gave a boost to small-cap equities. Apart from this, upbeat earnings sent small caps rallying in recent times.

And what could be better than a high dividend feature attached to this segment? The fund yields about 20.45% annually.

The UBS ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN (SMHD) is linked to the monthly compounded 2x leveraged performance of the Solactive US Small Cap High Dividend Index, less investor fees.

This is a relatively new ETN released in late 2018. It does carry risk being in the small cap area, being leveraged and with such a high yield. However, it can offer diversification to a high yield portfolio especially since it tracks small caps that usually don’t produce yield. It is trading 30% below its stock price high for the year.

Leveraged ETNs have interest-rate risk since they implicitly borrow at short-term interest rates to finance their leverage. A significant part of their high dividends results from the carry that is generated when the dividends paid by the securities in the indices upon which the ETNs are based exceed the implicit borrowing rate. While typically called dividends, the payments from ETNs are technically distributions of interest payments on the ETN note based on the dividends paid by the underlying securities that comprise the index, pursuant to the terms of the indenture.

As with all investments, you should be conservative with the total percent of your portfolio allocated to high risk. I like to have a few high yield stocks rounding out my monthly income plan. SMHD is in my personal portfolio as I believe the dividend is sustainable. Over time, the yield will compensate for the increased volatility and risk.

I am working on creating several new portfolios. The one most exciting is the monthly income stocks as a income resource to reach financial independence with passive (side hustle) income. I will hae more to come on this opportunity.

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How to Invest for Monthly Dividends

This is the first in a series of articles based on types of vehicles that pay monthly dividends.

Many people have the desire to increase their monthly income which leads to various activities to accomplish this objective. They may work extra hours at their job, start a side business or stuff envelopes for a few extra dollars. These tasks are all legitimate ways to make more money. But most are not aware of the simple way to increase monthly income by getting monthly dividend checks.

Truth is that many people don’t realize that this is a great time to invest in dividend securities. Yes, the market was scary throughout 2008 and 2009 as the markets tanked and the economy sunk into a recession. Unemployment reached double digits in many areas across the United States. During volatile times, investors watch as their growth and technology stocks get hammered until they reach new lows in price. However, the best time to invest is when there are signs of an improving economy. This is what has happen over the last six to 12 months as the markets started trending up and stock prices reached new 52-week highs.

So why would you invest when the market has already started to recover? During the economic meltdown lead by the imploding debt crisis, companies started to batten down the hatches by conserving their cash. During the last few quarters, companies in the S&P 500 had more cash and current assets on their balance sheet than in the last decade. There are several things companies can do with this cash. But the one that is of interest to us is companies using the cash to increase dividends. Therefore, if you purchase stock in a stable company, there is a better than average chance that the dividend will increase in the future.

This increase in dividends will be a positive for many investments that pay monthly dividends. The result being that your dividend yield on cost increasing over the next few years. Generally, when dividends increase the share price will follow. the investor will have more income from the dividend increase and potential for a capital gain if share prices increase. This is the reason why now is a good time for dividend investing.

How do you invest for monthly income? Today, there are several investment vehicles designed to pay monthly dividends. These include closed-end ETFs, business development companies, royalty trusts, REITs and even high-yield corporate bonds. As we progress through this series, each of these investments will be examined in greater detail with specific company names that are potential investments paying dividends of 10% of more. Yes, some of these investments pay at or above 15% yields today.

Here is a couple monthly dividend payers to consider:

Global Net Lease (GNL)

Dividend Yield: 11.22%

Global Net Lease (NYSE:GNL) is another REIT, primarily serving the commercial market. It owns properties in the United States and Europe, and rents to quality tenantslike FedExFamily Dollar and ING Bank, organizations that can not only reliably pay their rent as it comes due, but outfits that tend to stay put once they establish roots.

There’s a bit of a twist Global Net Lease brings to the table that allows it to juice its payout to its current yield of 11.22%, however. It also acquires much of its rental real estate through an arrangement called a sale-leaseback.

In simplest terms, a sale-leaseback lets a property-owning company free up the value of real estate by selling a space it owns to a landlord like Global Net Lease, and then remain in that space as a tenant. It’s a win-win scenario, as the renter enjoys a big cash infusion and Global Net Lease has a tenant already lined up.

Horizon Technology Finance (HRZN)

Dividend Yield: 10.23%

Finally, Horizon Technology Finance (NASDAQ:HRZN) has earned a spot on a list of monthly dividend stocks to mull. As the name suggests, Horizon Technology Finance provides capital to young, upcoming technology outfits, though it doesn’t cater strictly to the tech sector.

It’s also heavily involved in the development of life science and biotechnology companies. Its portfolio includes biotech names like AccuVein and Celsion, along with traditional tech plays like cybersecurity company Control Scan and communications technology player Xtera.

Its results are as erratic as what you’d expect from major technology names, but it’s worth the wild ride. Horizon’s yielding 10.23% at its current price, and it has not had any sustained trouble affording its dividend payment.

Learn more about investing for monthly income here.

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8 Ways to Profit from Covered Call Trades

The covered call trade has always been known as an income strategy as you receive premium for selling calls against your stock.  This is the most popular rationale for implementing this type of tradings.  However, there are many more dimensions that can be coupled with covered call trading to further enhance the potential for profits.  Here is a list of 7 methods to more profits writing covered call trades.

  1. Selling the classic covered call against stock you own.  You make money with the time decay of the short call.  usually you sell the near month or next month out so you can continue to compound your money.
  2. You can use LEAPs as stock replacement to leverage a covered call trade which will increase potential profit returns.  Click here  for a recent article on this topic.
  3.  You can sell out-of-the-money (OTM) calls as your short call.  Here you get the call premium and potential for a capital gain as the OTM call offers some upside profits for the stock price to increase.
  4. You can make more money on a short call when volatility collaspse early in the trade and you close the trade.  We have all been in covered call trades when after a few days the call option loses value and you find yourself in a very profitable trade.  You can close this short call to lock in profits.
  5. You can trade the short call as the stock price changes.  For example, if the stock price decreases, you can close the short option early for a profit.  Then, the call can be written again when the stock prices snaps back to higher levels.  This is similar to channeling stocks by trading the short call against stock price changes.
  6. You can roll up or roll out the short calls to a higher strike price or to a later expiration month.  This allows you to squeeze extra profits out of a stock price rise.
  7. You can add option legs to a short call to create spread positions such as a bull or bear call spread.  This is good to take profits from a rising covered call trade or a falling stock price.
  8. You can add a long protective put to the covered call position as it will increase in value as the stock price decreases.  This is usually utilized as protection against stock declines but can create more income when a stock price declines while you are holding a covered call position.

It is not necessary to use all of these methods when trading covered calls.  It will be advantageous to the income trader to use more than one method to make money income from selling premiums.  In addition, some of these methods can be used to enhance and/or protect your monthly income.

Adding these methods does require more monitoring or your covered call positions.  The advantage is that it adds more potential for profits compared to the classic covered call trade.  It really comes down to how active you want to be in your income trading each month.

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How to Capture a 50% Return During a Market Correction

Many investors have a belief that it is impossible to make income selling options during a market correction. I am here to show you how my subscribers have continued to sell PUT options during the recent market downturn. With the market down over 1,000 points? What are we crazy to take on this risk? Here is the trade we offer up as an example.

My subscribers entered a PUT option trade on WK (below) by selling22.5 PUT options with a February expiration. We entered the trade on January 19. In comparative terms, the SPY was around 280 at this time but fell to 255 in just three weeks. However, WK had increased to $23.50 or so at this time and finished the expiration over $25 per share.

This was a big win for PUT sellers as we captured a 4.2% return during a 10% market correction. This is a an annualized 50% return on a monthly income trade. And proof you can make money selling options in a down market. Our strategy is to identify stocks with upward price momentum that we can earn option income with an early exit point to compound returns.

 

 

 

 

 

 

 

 

Sell Put on Workiva (WK)

STRATEGY: Look at the February 2018 22.5 cash-secured put trade. For each 100 shares of WK stock you want to control, sell one February 22.5 put option for a $0.90 debit per option or better. That’s potentially a 4.2% return on the cash-secured put trade.

A “Symmetrical Continuation Triangle (Bullish)” chart pattern formed on Workiva Inc (WK on NYSE). This bullish signal indicates that the price may rise from the close of 22.10 to the range of 24.20 – 24.80. The pattern formed over 46 days which is roughly the period of time in which the target price range may be achieved. Workiva Inc has a current support price of 21.45 and a resistance level of 22.10.

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Learn To Make Monthly Income Trading Stocks And Options. Related: Stock Market, Trader, Trading, Investing, Investor, Investment, Option, Currencies, Currency, Swing Trading, Day Trading, Futures, Forex CLICK HERE

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We continue to identify winning option trades to generate income and to exit early as the stock bullish patterns moves prices higher.

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Income Trade for 70% Return

As income investors, we seek to create consistent monthly income by selling options to collect monthly premiums. This has been successful for our investors for years. Option selling offers another method to diversify investing strategies beyond traditional dividend investing. We have combined technical stock events with our strategy to identify high returns option selling opportunities. This income trade will generate a return of more than 70% annualized.

Stock: Teck Resources Ltd is engaged in the business of exploring for, acquiring, developing and producing natural resources. The Company’s activities are organized into business units that are focused on steelmaking coal, copper, zinc and energy. It operates in five segments: steelmaking coal, copper, zinc, energy and corporate. The corporate segment includes all of its activities in commodities other than copper, coal, zinc and energy.

The RSI is above its neutrality area at 50. The MACD is negative and above its signal line. The MACD must break above its zero level to trigger further gains. Moreover, the stock is above its 20 and 50 day MA (respectively at 21.51 and 21.89).

Chart: We have detected a “Double Bottom” chart pattern formed on Teck Resources Ltd (TECK). This bullish signal indicates that the price may rise from the close of 22.42 to the range of 23.90 – 24.30. The pattern formed over 18 days which is roughly the period of time in which the target price range may be achieved. Teck Resources Ltd has a current support price of 21.22 and a resistance level of 22.93.

 

 

 

 

 

 

 

Strategy: We have an opportunity to sell options for income with TECK as the stock should trade higher in the coming weeks. I recommend to place your trade and exit when you have locked in profits due to the stock price moving higher. Our goal here is to make income short term so we can exit and compound capital into another trade.

We are selling PUTs to take advantage of the stock price move to the upside. For conservative traders, you can create a covered call trade using the call for downside protection.  Before you can become a millionaire, you have to start thinking like one.  It isn’t just a pathway to wealth.  It’s a way of life… a belief system… a mindset – and it will show you how to build a full, rewarding life.

Join our Monthly Income Newsletter to get this trade and many other income trades.

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