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Now You Can Sell Puts for Income in the New ETF

One of the recent trends in the income investment newsletters is the concept of writing (selling) puts for income.  You had to know that it would only be a matter of time before an ETF would be launched using this concept.  Investors sell put options to collect the premium income as an option strategy to generate investment income.  It is interesting to have an ETF to do the heavy lifting but prudent investors should monitor this new put writing ETF for positive results before buying shares.

Are you ready to sell puts on Netflix (NFLX), Green Mountain Coffee Roasters (CMCR) or Salesforce (CRM)?   If Yes, then this ETF is for you.  These and other stocks with current put writes is shown below.

ALPS just launched the U.S. Equity High Volatility Put Write Index Fund (HVPW) . The Fund seeks investment results that correspond generally to the performance, before the Fund’s fees and expenses, of an index called the NYSE Arca U.S. Equity High Volatility Put Write Index. The Index reflects the performance of a portfolio of exchange-traded put options on highly volatile stocks.

The ALPS HVPW Fund is designed for investors who seek to obtain income through selling put options, selling 60-day listed put options every 2 months (6 times per year) on 20 stocks. The Fund intends to distribute, at the end of each 60-day period out of net investment income and/or short-term capital gains, an amount of cash equal to 1.5% of the Fund’s net assets at the end of such 60-day period. If the Fund’s net investment income is insufficient to support a 1.5% distribution in any 60-day period, the distribution will be reduced by the amount of the shortfall. Also note while the Fund only intends to make such distributions out of net investment income and/or short-term capital gains, it is possible that in certain circumstances, a portion of a distribution may result in a return of capital (which is a return of the shareholder’s investment in the Fund).

Put options are a type of financial instrument used to provide the owner the right, but not the obligation, to sell the security at a set price, or “strike” price, on or before an expiration date.  Traders who write put options have essentially sold the right to another investor to sell shares at an agreed-upon price. On the other hand, the buyer has the purchased the chance to sell stock to the put writer.

HVPW offers diversification by holding a portfolio of 20 names rolling every 2 months (i.e.120 puts per year).  This is one advantage to the ETF investor who doesn’t have the time or resources to diversify across multiple investments.

At the end of the two month period following expiration of the options the index is decreased by 1.5% to represent the 60 day period distribution, then the new set of 20 stocks are chosen for the new period’s option positions.


Here is a list of the initial 20 stocks with put writes:  HPQ ALXN, TRIP, CRM, NU, CTRX, ONXX, NVDA, DISH, MGM, BBY, MNST, CHK, GMCR, NTAP, CIE, NFLX, SHLD, VRTX, STZ


HPQ US 04/20/13 P14 -0.01%
ALXN US 04/20/13 P70 -0.01%
TRIP US 04/20/13 P37 -0.02%
CRM US 04/20/13 P150 -0.02%
NU US 04/20/13 P35 -0.02%
CTRX US 04/20/13 P45 -0.04%
ONXX US 04/20/13 P65 -0.04%
NVDA US 04/20/13 P11 -0.04%
DISH US 04/20/13 P31 -0.07%
MGM US 04/20/13 P11 -0.08%
BBY US 04/20/13 P15 -0.08%
MNST US 04/20/13 P42.5 -0.09%
CHK US 04/20/13 P17 -0.09%
GMCR US 04/20/13 P39 -0.10%
NTAP US 04/20/13 P31 -0.11%
CIE US 04/20/13 P22.5 -0.17%
NFLX US 04/20/13 P165 -0.19%
SHLD US 04/20/13 P41 -0.21%
VRTX US 04/20/13 P40 -0.21%
STZ US 04/20/13 P37.5 -0.26%

The Best MLPs to Own Now

Many of the blue-chip dividend payers are hitting new 52-week price highs.  This is concerning as when price increases, yields will fall.  Because of the soaring popularity of blue-chip dividend payers, more investors are turning to master limited partnerships (MLP).  These are pass-through entities that must pay at least 90% of their taxable income to investors. Many of these issues provide yields double those of blue-chip dividend stocks, and three to four times that of the 10-year Treasury note.

With that in mind, here is a list of MLPs that distribute high dividend yields.  Each company boasts a healthy bottom line already, and should continue to generate income as oil prices rise. As they generate income, so too will their shareholders.

Linn Energy, LLC (LINE), an independent oil and natural gas company, engages in the acquisition and development of oil and gas properties.  The master-limited partnership offers a generous 7.4% yield, with a quarterly distribution of $0.725 per share.  The dividend has increased 9.75% in the past year.  LINE is a best in class upstream MLP.  Distribution growth to accelerate as it integrates acquisitions & develops high-return Granite Wash program.  LINE is positioned to capitalize on acquisition opportunities owing to low commodity price environment.  Accretion from these, which LINE “locks-in” upfront via hedging, should drive LT growth.  LINE is projected to increase EPS by 30% next year.

DCP Midstream Partners, LP (DPM) engages in gathering, compressing, treating, processing, transporting, storing, and selling natural gas in the United States.  The master-limited partnership offers a 6.31% yield, with a quarterly distribution of $0.66 per share.  The dividend has increased 5.6% in the past year.  DPM is a high growth NGL dropdown play.  Entering transformative period, as it will acquire $3b of assets from sponsor.  Dropdowns along with additional organic growth will create integrated NGL midstream platform & drive distribution growth to high-single digits.

NuStar Energy L.P. (NU) engages in the terminalling, storage, and transportation of petroleum products primarily in the United States, Canada, Mexico, the Netherlands, St. Eustatius in the Caribbean, the United Kingdom, and Turkey.  The master-limited partnership offers a generous 8.45% yield, with a quarterly distribution of $1.095 per share.  This is a deep value, turnaround story for this crude oil storage & transport MLP.  NU is sowing the seeds for a recovery in distribution growth to the low-single digits.  We believe the recent increase in organic growth capex is sustainable given the number of low cost, high return project opportunities around its assets.

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States, Canada, and Gulf of Mexico.  The master-limited partnership offers a 4.87% yield, with a quarterly distribution of $0.635 per share.  The dividend has increased 6.28% in the past year.  EPD is the largest energy MLP with access to most prolific natural gas, NGL & crude oil plays in US.  Despite its large size, $7.6B of cap ex projects support 5-6% distribution growth per year for next several years with 80% revenues expected to be fee-based by 2013.

Plains All American Pipeline, L.P. (PAA) engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquid petroleum gas (LPG) products in the United States and Canada.  The master-limited partnership offers a 5.09% yield, with a quarterly distribution of $1.065 per share.  The dividend has increased 9.8% in the past year.  PAA is the largest oil transport and storage MLP with a presence in most leading oil shale plays and major storage positions at strategic oil pipeline intersections.  Approximately $5B of organic capex thru 2015 to serve expected increase in US crude production.  Its distributions should grow high single digits the next few years.

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