1

April 2015 Vol. 1 Issue 11

April 2015 Vol. 1 Issue 11

Dividend Stocks Performing Well in a

Volatile Market

Fellow Investor,

arch was another month of high volatility in the markets. If

you are watching your own brokerage account, it may seem

like you can't catch a break, you get a good day with nice

price gains, and the market takes it all back the next. If MLPs

and energy sector dividend stocks are up one day, REITs are

down the same day. You may be a little surprised to learn that

the different high-yield dividend stock sectors balanced each

other out for an average total return over the last month that

was better than the broad stock market averages.

To make some return comparisons, let's start with the widely

followed and owned SPDR S&P 500 ETF (NYSE:SPY). Over the

last month SPY is down 4.9% and year-to-date the ETF is up a

paltry 0.2%. In comparison, the average total return of the

stocks that were in The Dividend Hunter portfolio on December

31, 2014 is 8.0%. With an average yield in the

recommendations list of 8.7%, about 2% of that return was

from cash dividends. For the last 30 days, The Dividend Hunter has produced a break even total return.

During March there were very nice positive surprises for a couple of the stocks in the portfolio. I will discuss

these in the portfolio update section of this issue. I would like to say that after its recent very large share price

run up, Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE:HASI) is currently a HOLD, and you

should not be looking to buy shares. Income investors have really discovered HASI in the last couple of month

and the share price is up 30%. This has pushed the yield to 5.6% down from over 7% when the stock was trading

around $14 during the first part of the year. HASI has a very attractive dividend growth outlook, but I would like

to see the yield back above 6%.

Looking forward into April, while it seems that earnings season just finished, the 2015 first quarter is over and

many companies will start reporting earnings and/or declaring their next dividend/distribution in the latter days

of April. Portfolio recommendation stock Kinder Morgan, Inc. (NYSE:KMI) is an earnings reporting company and

I expect KMI to release earnings and declare a higher dividend around the 15th of the month.

This may be the best tip you get out of this month's newsletter: If you have cash available, buy some KMI. If you

are sitting on a big gain in HASI, sell a third or half of your position and use the cash to buy some KMI. The Kinder

Morgan share price has been flat since the end of November and the dividend will grow by 15% or so in 2015.

M In This Issue A New Approach to MLP Fund Products .... 3

MLPS and the Income Investor .................. 4

RLJ Lodging Trust (NYSE: RLJ) ..................... 6

Portfolio Update ........................................ 8

Portfolio Standings ..................................... 9

Closed Positions ......................................... 9

2

April 2015 Vol. 1 Issue 11

Kinder increases its dividend every quarter, so my projected 4% increase in the quarterly payment should give a

nice boost to the share price.

I really like and appreciate all the email questions I receive from

subscribers, so don't be shy about sending me a note.

Also, you will be getting a few more notices from us that I and Bret

Jensen, the other Investors Alley editor, will be making

presentations at the MoneyShow in Las Vegas, May 12 to 14. I know

some of you are coming and if you live in the area or Southern

California, or you just need an excuse to come to Vegas, I would like

to meet and chat with more subscribers. Click here for details on

my presentations, Bret’s presentations, and how to register (it’s

free!). And this year we’ll be manning a booth. It’s #417 to be exact.

Stop by and chat, talk dividend stocks, or just say “hello”.

Land, fly or die,

Tim Plaehn

Editor

The Dividend Hunter

P.S. If you use the Monthly Paycheck Dividend Calendar as a regular part of your strategy be sure to get this

month’s update. Our new additions are included as well as a few adjustments. Click here for your copy.

That's me at last year's show sharing dividend investing tips with an above capacity room full of investors (don't tell the fire chief).

3

April 2015 Vol. 1 Issue 11

A New Approach to MLP Fund Products Master limited partnership (MLP) units are one of the

most attractive investment categories available to

income focused stock investors. From the list of MLPs

and related companies you can find a wide range of

attractive current yields, with many of the companies

dedicated to increasing their distribution rates on a

regular basis. However, in some circumstances an

investor would like to own a basket of MLPs in a single

fund-type product. The financial services industry has

developed and offers MLP focused exchange traded

funds (ETFs), closed-end funds (CEFs), exchange traded

notes (ETNs) and mutual funds. However, there is a

significant issue with MLP funds vs. funds that own

regular, corporate stock shares.

Funds that focus on MLPs also must deal with additional

tax issues. If an MLP focused fund has more than 25% of

its assets in partnership units, the fund cannot qualify as

a non-taxable, regulated investment company (RIC). The

tax rules force any fund with a higher percentage of

MLP assets to be organized as a corporation and to pay

corporate taxes on its profits.

In practice an MLP fund tracks the accrued income taxes

on the gains in its portfolio and subtracts the future tax

liability from the fund's net asset value (NAV). The result

of a 35% to 40% corporate income tax bill is that the

NAV of a fund will lag the gains in the portfolio by the

tax rate.

For example, the Alerian MLP Infrastructure Index

(NYSE: AMZI) is one of the most widely followed

indicators of MLP sector returns. The index is mirrored

by the ALPS Alerian MLP ETF (NYSE: AMLP). Over the

three years that ended on December, 2014 the index

had recorded an average annual return of 13.24%. For

the same period, the AMLP ETF produced average

returns of 8.18% per year, a 38% per year under-

performance compared to the index. For this reason I

have not recommended MLP ETFs as an investment

option for the MLP sector.

Introducing InfraCap MLP ETF

Launched in October 2014, the InfraCap MLP ETF

(NYSE:AMZA) is just now getting its position in the

market solidified. AMZA was established as one of a

new breed of ETFs. Traditional ETFs automatically buy

and hold securities to match the securities tracked by a

specific index. Over the last year, fund companies have

started to come up with actively management ETFs,

which mix the characteristics of an index fund with

additional investment criteria from an investment

advisor. AMZA is the first actively managed ETF in MLP-

focused funds space. Here is how the InfraCap MLP ETF

is designed to operate:

The fund will own the same MLPs as the ones

tracked by the Alerian MLP Infrastructure Index,

with the following possible enhancements to

the index:

The fund manager can weight individual MLPs

holdings different than the index. The AMZI is

strictly market cap weighted, tracking the 25

largest midstream MLPs, with bigger MLPs

having a greater weight on fund performance.

AMZA will weight these same MLPs based on

the return potential from the management

team's proprietary algorithm.

The fund can own the publicly traded general

partner companies of the index component

MLPs. The general partner of an MLP can

generate an accelerated level of cash flow

growth compared to the limited partnership it

manages. The GP companies can produce extra

4

April 2015 Vol. 1 Issue 11

capital gains for the fund and a faster growing

distribution cash flow stream.

The fund can sell call options (covered call

strategy) to generate extra cash income from

the portfolio.

Fund managers can use a moderate amount of

leverage (up to 33% of the portfolio). Leverage

in an MLP fund helps offset a portion of the

corporate income tax drag.

These strategies are in wide-spread usage by the MLP-

focused closed-end funds. When I was provided the

opportunity to interview the InfraCap fund managers,

my first question was why they had selected to go with

the ETF structure rather than as a CEF. The answer was

the management team wanted to provide a higher level

of visibility on what is happening in the portfolio. They

are and it is a good thing. Also, the ETF structure allows

the fund sponsor to use some additional tools to keep

the market share price in line with the fund's net asset

value (NAV). Closed-end fund shares often trade at

significant discounts or premiums to their NAVs. An ETF

should have a market share price that is within a few

cents of the NAV.

At the end of the investment research, AMZA provides

an MLP ETF with a high level of visibility on how it

operates. Over time, investment results can be directly

compared to the AMLP ETF, which owns the same MLPs

to track the AMZI index. This allows us to directly track

whether InfraCaps enhancement strategies are working

to produce a better return.

Investment Potential

Before the prices of crude oil and natural gas started

their steep declines in the last third of 2014, the MLP

sector had been producing outstanding returns for

investors. This chart shows the AMZI total return results

for the last 10 years.

These investment results are the result of attractive

distribution yields combined with steady distribution

growth. Although MLP stock market prices are down

over the last six months, the midstream distribution

growth story of the 25 companies in the AMZI index

remains intact. There may be a few more rough patches

for the MLP sector as the industry and market adjust to

a different energy pricing world, but long term investors

will do well with the basket of MLPs represented by

AMZA.

The InfraCap MLP Fund paid $0.50 per share as its first

quarterly dividend. That's a 9.4% yield on the current

$21.20 share price. The management team told me

their goal is to be able to increase the dividend rate

every quarter. AMZA works as an attractive high-yield

choice for investors who want energy sector and MLP

exposure but do not want to own individual units. It can

also be used to get MLP coverage in an IRA, where I do

not recommend the use of individual MLPs.

With this issue, I am replacing the Salient Midstream

MLP Fund (NYSE:SMM) –a closed-end fund– in The

Dividend Hunter recommendations list with AMZA.

SMM is down since I added it to the portfolio. The fund

will recover with the overall MLP sector, but if you can

use the tax loss, sell SMM and buy AMZA.

Recommendation: buy AMZA up to $21.51.

5

April 2015 Vol. 1 Issue 11

MLPs and the Income Investor Out of the different high-yield investment types, master

limited partnerships offer both very attractive yield plus

growth potential and additional potential negative

consequences for investors. While I find a number of

very attractive investment prospects in the MLP space,

they are not for every investor or every account type.

Today I want to provide a quick outline of the overall

MLP space and what an investor should consider before

buying into an MLP or putting cash into another

alternative.

As the name clearly states, MLPs are a type of

partnership. When you invest you buy limited partner

units. These units trade on the stocks exchanges just

like the shares of a corporation, but always keep in

mind you are becoming a limited partner in an MLP and

not a shareholder. As an LP investor, your amount at

risk is limited to the money you pay for any units you

buy.

By tax rules, the MLP business structure is limited to

companies that operate in the energy or natural

resources sectors. About two-thirds of all MLPs operate

in the midstream sector of the energy sector.

Midstream includes energy gathering, processing,

transport by pipeline, train or truck, storage and

terminal operations. The other third covers a wide

range of energy related businesses such as drilling and

owning oil wells (upstream) and crude oil refineries and

chemical plants that use natural gas or natural gas

liquids as raw materials (downstream).

An MLP pays distributions, which look like common

stock dividends, but get used to the term distributions.

Under the tax rules, the distributions you receive are

not taxable income. They do go to reduce your cost

basis in the MLP. If you reach the point where you have

earned more in distributions than you paid for the units,

the distributions then become taxable as ordinary

income. The distribution yields on many MLPs are very

attractive, and the better partnerships will increase

their distribution rate per unit every quarter.

Even though the distributions from an MLP are basically

tax-free, you still can have tax consequences from MLP

investments. First, every MLP that you own will send

you an IRS Schedule K-1. This is a partnership form that

lists your share of the partnership's profits or losses

during the past year. You must report the K-1

information on your tax return, which can be a more

complicated process than reporting Form 1099 income.

As an MLP investor, you have your own specific cost

basis and profit or loss situation in the partnership.

Profits and losses are not allocated by unit, but by when

you purchased and what you paid for your units. The

good news is that in most cases you will have little or no

taxable income from your K-1s, unless you have owned

an MLP for quite a few years.

Who Can or Should Own MLPs?

MLPs are a tremendous, tax-advantaged investment for

a high tax bracket investor. The tax-free distributions

and low amounts of K-1 reportable income more than

offset any costs or extra work associated with including

K-1 reporting on a tax return.

Mid-tax bracket investors who are comfortable with

doing their own taxes can quite readily own MLPs. The

different tax planning software packages will handle K-

1s just fine. If you use someone to prepare your taxes, it

is good to ask how much that person charges to process

K-1s for your tax return. Some preparers charge quite a

bit extra report your MLP results. Remember that

accountant types will shy away from things they don't

understand, so they may be leery of you investing in

6

April 2015 Vol. 1 Issue 11

MLPs. The investment choice is yours, based on the

potential return vs. any extra costs of the tax reporting.

Whether you are a low tax bracket investor (in the

lowest 10% and 15%) depends on the investor's

experience in the market. The novice who is new to

owning income stocks should probably steer clear of

direct MLP ownership. An experienced stock market

investor in this tax bracket may want to own an

individual MLP or two for the return potential and

energy sector exposure.

IRA Considerations

As a general rule, K-1 reporting MLPs and IRA accounts

do not mix. Owning an MLP in an IRA can result in the

situation where your IRA must file a separate tax return

and pay the corporate income tax rate on the profits

reported on the K-1. You will find plenty of online

investor stories that claim to own MLP units in an IRA

without any tax issues, but it is almost impossible to

determine in advance whether buying a specific MLP

with your IRA will result in an extra tax bill. My advice is,

don't do it.

To get MLP returns in your IRA you can go with a fund

product. This month I have added the InfraCap MLP ETF

(NYSE:AMZA) to The Dividend Hunter

recommendations list. AMZA would be an appropriate

IRA investment. Another recommendation, Kinder

Morgan, Inc (NYSE:KMI) is a corporate stock that

functions very much like a large cap MLP. KMI is also a

good IRA prospect.

For more on MLPs be sure to check out my “Quick Start

Guide to MLP Investing”. In it you’ll learn whether

MLPs could be right for you, how to get MLP exposure

in your retirement account, and the basics of upstream

MLP inverting. The guide is free and is a benefit that

comes with you subscription to The Dividend Hunter.

Click here for your copy.

RLJ Lodging Trust The lodging/hotel subsector of the REIT sector has been

one of the best performing commercial real estate

corners for the last couple of years. The growth is

coming on the back of very strong dividend growth as

the hotel companies are taking advantage of an

upswing in their cyclical market.

I have not previously recommended any lodging REITs

here in The Dividend Hunter because the yields have

been lower than what fits with the goals of this

newsletter. With the recent sell down of the REIT

sector, share prices are lower, which means yields are

up and I can recommend what I think is the class of the

lodging REIT space: RLJ Lodging Trust (NYSE:RLJ).

Business Overview

RLJ currently owns 124 hotels plus two additional

properties that will be converted into hotels. The five

largest locations for EBITDA generation are New York

City, Austin, Texas; Denver, Chicago, and Washington,

D.C. Almost all of the hotels (98%) are branded as

Marriott, Hilton or Hyatt. Although its IPO was just four

years ago, the company has a very experienced

management team, with over 150 years of hotel

experience at the senior levels.

What sets RLJ apart from its peers is an aggressive

approach by management to make the company more

profitable. Some examples:

Since its IPO the company has acquired 27

properties in key high-growth markets totaling

$1.1 billion.

Management actively weeds out under

performing hotels, selling 39 assets for

approximately $370 million, in what the

company calls its capital recycling program.

7

April 2015 Vol. 1 Issue 11

Capital is spent to upgrade newly purchased

hotels and they are often rebranded to one of

RLJ's preferred premium hotel brands. This

allows the company to increase average room

rates and improve profit margins.

Existing hotels are actively managed to

generate higher revenue per room (RevPAR in

hotel jargon) and gross operating profits.

RLJ Lodging Trust can generate growth from both

existing owned hotels and through acquisitions that can

be brought into the RLJ system to further enhance their

profit potential.

I want to spend a few minutes discussing the one factor

that sets hotels apart from most other forms of

commercial real estate and the REITs that own them.

While most REITs own properties that are on long term

leases with no or very low rent payment escalators,

hotels are a variable revenue business. The cash flow

and resulting EBITDA of a lodging rate depend on how

many room nights are sold and what guests pay for the

rooms. RLJ reports the two metrics of hotel EBITDA

margin and RevPAR to show how well the company is

operating as a hotel manager. For 2014, the EBITDA

margin increased by 1.14% to 35.6%. At the end of

2011, this measure of operating efficiency was at 33.4%.

RevPAR is revenue per available room. Quarter after

quarter RLJ has been increasing this metric by 6% to 7%

compared to a year earlier. These two metrics

combined show a steady pattern of increased

profitability from operations.

Be aware that the hotel industry is cyclical. The cycle

tends to mirror the U.S. economy. A recession will drive

down business travel, reducing room occupancy, room

rates and hotel profits. When the economy recovers,

hotel companies will sell more rooms at steadily higher

rates. Typically, in the growth cycle companies will start

to construct large numbers of new hotels, putting a cap

on occupancy and RevPAR growth. In the current cycle,

the memory of the last recession remains strong and

the industry has not yet started to significantly increase

the number of hotels through construction. Because of

this, I expect the ability of quality lodging REITs to be

able to continue their trajectories of dividend and share

price growth.

Big Time Dividend Growth

RLJ Lodging has been generating real cash flow growth

and sharing that growth with investors. Since the end of

2013 the quarterly dividend rate has been increased

three times by a total of 61%. In early March the

dividend was bumped up by 10%, just two quarters

after a large increase in the quarterly payment to

investors. The new dividend rate is still just 57% of the

adjusted funds from operations (AFFO) per share

generated in the 2014 fourth quarter. In the current

economy, RLJ should be able to sustain at least 10%

annual dividend growth and I would not be surprised by

growth in the high teens.

With the dividend growth over the last 2 1/2 years, the

RLJ share price has climbed to keep the yield at about

3.5%. However, over the last two months the general

REIT sell off combined with the announced dividend

increase has pushed the RLJ yield up to about 4.25%.

This is a strong trigger for me to buy and accumulate

shares. You will not find growth like this with a 4%+

yield in the REIT universe.

Recommendation: Buy RJL up to $33 for a yield greater than 4%.

8

April 2015 Vol. 1 Issue 11

Portfolio Update Let's start this off with a question I field from

subscribers regularly. Here are three portfolio

recommendations that I would cull out of the

bunch as currently extra-attractive investments.

Ship Finance International Ltd.

(NYSE:SFL). The SFL share price is below

$15 and the yield over 11%. My

reasoning: What the market is currently

not taking into account is the 30% of

SFL's revenue from crude oil tanker

leases. Tankers are being used to store

excess oil production, driving up daily

tanker lease spot rates. All of the Ship

Finance tanker lease contracts have

profit share clauses which means that

the company will participate in the

current tanker spot price boom.

Kinder Morgan Inc. (NYSE: KMI). The

share price has been stagnant and KMI

will announce a 3.5% to 4% dividend

increase in mid-April, and next quarter

and the following quarter also.

Lexington Realty Trust (NYSE:LXP). The

share price is down 8% since I added

this REIT to The Dividend Hunter

recommendations last month. (REITs

are down as a sector). LXP now yields

almost 7% and should announce a

dividend increase in June.

On about February 20 New Residential

Investment (NYSE:NRZ) announced an

agreement to purchase the only other company

operating in the same, niche, mortgage

servicing rights business. The NRZ share price is

up 15% and the total return is 34% since NRZ

was added to The Dividend Hunter in August

2008. However, this finance REIT still yields 10%

and the share price has the potential to reach

$20 in 2015.

Hannon Armstrong Sustainable Infrastructure

Capital (NYSE:HASI) has been discovered by the

investing public. What was a 7% plus yield is

now 5.7% as the share price has gained close to

30% since early February. I would recommend

against buying shares at the current price and

yield. It is possible that the share price will

come back to earth and HASI would again be

attractive with a 6.5% yield. If you caught all or

most of the run up, taking some gains would

not be a bad idea.

Otherwise things are steady in The Dividend

Hunter portfolio. The upstream MLPs,

Memorial Production Partners

(Nasdaq:MEMP) and Legacy Reserves

(Nasdaq:LGCY) are still at the mercy of the

swings in the energy prices market. I wrote and

sent articles on each during March. You can find

them in the archives of your InvestorsAlley.com

account.

With the end of March, the first quarter closes

for most companies. We will get some earnings

reports and dividend announcements in the

second half of April. Have I mentioned that it

would be a good idea to buy some KMI before

Kinder Morgan announces first quarter earnings

on about April 15. Good.

Please drop me an email note if you any questions

concerning any of The Dividend Hunter portfolio

holdings. I can be reached at

tim.plaehn@investorsalley.com.

9

April 2015 Vol. 1 Issue 11

Current Portfolio

Stock

Entry

Date

Entry

Price

Recent

Price

Buy Up

To

Annual

Div

Proj.

Yield

Cash

Return

RLJ Lodging Trust (RLJ) 03/31/15 $31.31 $31.31 $33.00 $1.32 4.00%

InfraCap MLP ETF (AMZA) 03/31/15 $21.51 $21.51 $22.51 N/A N/A

Lexington Realty Trust (LXP) 02/27/15 $10.83 $9.83 $0.68 6.25%

Kinder Morgan (KMI) 01/30/15 $41.05 $42.06 $43.00 $1.80 4.50%

Blackstone Mortgage Trust (BXMT) 01/30/15 $29.90 $28.37 $30.00 $2.08 7.00% 1.8%

Stag Industrial (STAG) 12/30/14 $24.86 $23.52 $25.50 $1.35 5.00% 1.4%

ONEOK (OKS) 11/28/14 $44.08 $40.84 $45.60 $3.10 7.00% 1.9%

TCP Capital Corp. (TCPC) 10/30/14 $16.51 $16.02 $17.00 $1.44 8.50% 4.7%

EPR Properties (EPR) 10/30/14 $55.64 $60.03 $57.00 $3.42 6.00% 2.7%

Memorial Production (MEMP) 09/30/14 $22.02 $16.21 $23.00 $2.20 9.50% 5.0%

Legacy Reserves (LGCY) 09/30/14 $29.68 $10.12 $30.00 $2.44 8.00% 4.1%

Hannon Armstrong Sustainable

Infrastructure Capital (HASI)

08/28/14 $14.49 $18.28 $15.00 $0.88 6.00% 5.1%

New Residential Investment (NRZ)** 07/30/14 $12.16 $15.03 $12.50 $0.70 11.00% 9.1%

Arc Logistics Partners (ARCX) 07/30/14 $25.10 $19.28 $28.00 $1.55 6.00% 4.9%

Main Street Capital (MAIN) 06/27/14 $32.51 $30.90 $32.50 $1.98 6.00% 5.5%

Starwood Property Trust (STWD) 05/30/14 $24.39 $24.30 $25.00 $1.92 7.80% 7.9%

Ship Finance International (SFL) 05/30/14 $18.46 $14.80 $19.00 $1.64 8.50% 8.9%

Macquarie Infras. Company (MIC) 05/30/14 $61.48 $82.29 $63.50 $3.75 4.75% 4.8%

Closed Positions

Stock

Entry

Date

Entry

Price

Close

Price

Close

Date

Div

Earned

Total

Return

Cash

Return

Salient Midstream & MLP Fund (SMM) 08/28/14 $31.23 $21.67 03/31/15 $0.93 -27.64% 2.97%

Oaktree Capital Group (OAK) 05/30/14 $49.98 $54.14 02/09/15 $1.17 10.66% 2.34%

Ventas (VTR) 05/30/14 $66.80 $80.52 01/30/15 $1.45 22.71% 2.17%

10

April 2015 Vol. 1 Issue 11

Notes:

Entry price is determined by the last "Ask" price at the closing of the market on the day before publication. Recent price is determined by the last "Ask" price at the

closing of the market on the day before publication; most recent update 03/31/15. Annual Div is the dividend payment as declared by the company and made publicly

available. It is as of the closing of the market on the day before publication. Proj. Yield may deviate from current yield as it’s based off the share price at the time of

initiating the position, not the current share price. We make no guarantee that any company in the portfolio will continue dividend payments. For a more detailed

look at the portfolio, log on at www.investorsalley.com.

** NRZ entry price adjusted for 1 for 2 split on 10/20/14. Original entry price on 07/30/14 was $6.08.

© 2015 Investors Alley Corp. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from

Investors Alley Corp., 41 Madison Avenue, 31st Floor, New York, NY 10010 or www.investorsalley.com.

For complete terms and conditions governing the use of this publication please visit www.investorsalley.com.