in this issueand newsletters for a while, you know
TRANSCRIPT
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October 2021 Vol. 8 Issue 5
In This Issue Global X Nasdaq 100............................ 4
Picking High-Yield Investments ........... 7
Reaves Utility Income Fund ................. 9
Portfolio Update ................................ 12
Current Portfolio ............................... 13
Preferred Stocks Tickers ........................ 15
Some Stock Market Predictions
Managing Editor’s Note: The volatile market of the past month is a reminder that Tim’s strategy allows
you to rest easy knowing you’re collecting steady income from your dividend stocks regardless of what the
market is doing. As last as August it was difficult finding many dividend stocks “on sale” but September delivered
a few. There’s no telling if October will be as volatile September, so keep an eye on your inbox each week for
Tim’s Stock of the Week email with the new best value in dividend stocks.
If you have been reading my articles
and newsletters for a while, you know
that I don't try to predict (guess) the
direction of stock prices.
One purpose of the Dividend Hunter
high-yield strategy is to take much of
the share price prediction process out
of our investment decisions.
Over the long term (years), I expect the
Dividend Hunter to return the average
8% yield plus a small amount from
dividend growth. Reinvesting all or a
portion of your dividend income can significantly boost this average annual total
return number.
In a recent weekly newsletter, the widely followed economist Steve Blumenthal
shared some longer-term stock market predictions from major financial
institutions, which I am including below.
"Vanguard’s 10-year return forecast predicts U.S. stocks will return 2.40% to 4.4%, and U.S. bonds will return 1.40% to 2.40%.”
“GMO’s 7-Year Asset Class Real Return Forecast is more somber. Note that ‘real’ refers to after-inflation returns. Compounding at -8.2% per year for
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October 2021 Vol. 8 Issue 5
seven years means your $100,000 is worth $54,941 in September 2028. Not a good outcome. And you can see returns are negative for all asset classes except for emerging market value stocks.”
In recent years, stock market investors have become used to 20% annual returns.
This level of stock market returns is more than double the long-term historical
average. The predictions shown above are likely the mathematical results of
calculating a reversion to the mean.
If the U.S. stock market returns do post lower returns, in the low single-digit to
negative range, over the next decade, many investors will not hit their savings and
investment goals. If the projections turn out to be accurate, we will be pleased
with the market-beating returns from the Dividend Hunter portfolio.
More importantly, the Dividend Hunter strategy's 8% annual cash returns give you
a much more stable outlook on which to plan your financial future.
On a different note, a few updates on your subscription:
If you have questions for me then use this form. I collect all questions during the
week and answer them in the Weekly Mailbag video that comes out every Friday
-8.2% -8.3%
-2.7% -1.8%
-0.2%
3.2%
-3.7% -4.9%
-1.7%
-3.7%
-1.2%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
U.S.Large
U.S.Small
Int'l.Large
Int'l.Small
EmergingEmergingValue
U.S.Bonds
Int'l.Bonds
Hedged
EmergingDebt
U.SInflationLinkedBonds
U.S. Cash
Seven Year Asset Class Annual Rate of Return Forecast
6.5% Long Term Historical U.S. Equity Return
Source: GMO
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October 2021 Vol. 8 Issue 5
evening. Please don’t include personal information like account numbers and
passwords.
Sign up for mobile text alerts. We’re building services to alert you when monthly
issues come out, account status updates, renewal notices, and more. Click here.
Dividend Hunter Insiders: please note that our next bi-weekly live webinar has
been moved to Wednesday, October 6th. You can use the same link as usual to
join. We’ll get back to our regular schedule of every other Thursday starting on
the 21st. If you’re not an Insider and want to sit in on these sessions, click here.
Recently I was the speaker at a presentation on finding variable dividend rate
payers with retirement writer Dennis Miller. We’ve posted a replay of the video
online. You can watch it here.
If you joined us at the Dividend Hunter recently then be sure to visit our new
member area. You’ll get the five steps you need to take to get the most from your
subscription. Just log on to the website and click the “New Members Start Here”
link under the Dividend Hunter heading.
Next month I’ll share with you how to earn extra income with easy to use,
conservative options trades. And then in December we’ll review what’s happened
in 2020 and importantly, my outlook for 2021. As I mentioned in the beginning,
I’m not a predictions kind of investor, rather my outlook will cover more of what
to watch for in the new year and changes we may have to make to our strategy to
adapt and thrive.
Now start reading this month’s issue, it contains a lot of good stuff.
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October 2021 Vol. 8 Issue 5
It’s hard to believe that 15 months
have passed since I added the Global X
Nasdaq 100 Covered Call ETF (QYLD)
to the Dividend Hunter
recommendations list. Let’s revisit
QYLD and see how it has performed.
The fund uses a covered call strategy
to generate monthly income, paid out
as monthly dividends. The fund
holdings consist of owning stocks to
match the Nasdaq 100 Index. This fund
tracks a tech stock heavy index, as you
can see from the top ten holdings:
The QYLD fund strategy is to sell one-
month index options that expire at the
end of each month. Here are some
features of the options used:
Unlike single stock options that can be exercised at any time, index options cannot be called/exercised early.
Settle in cash, not in delivering the underlying index holdings.
Higher index volatility can lead to larger premiums.
If there are gains from writing calls, they are taxed at 60% long-term capital gains and 40% short-term capital gains.
Since the index options cannot be called early, it only matters where the index finishes for the month.
Before expiration, all market swings that take place throughout the month don’t matter.
Currently, QYLD has assets of $4.5
billion, and the net expense ratio is
0.60%. The current distribution yield is
10.36%. While the fund portfolio is
tech-stock heavy, do not expect
tremendous capital gains. Selling call
options puts a limit on the upside
share appreciation potential for each
month.
Global X Nasdaq 100 Covered Call ETF
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October 2021 Vol. 8 Issue 5
It is apparent from the high dividend
yield that the fund is managed to
maximize the options income, which
leaves little room for share price
appreciation. The good news is that
the dividend yield is very attractive,
with a 12.5% trailing 12-month yield.
Monthly dividends have been paid
since January 2014.
The monthly dividends are variable, so
that they will change each month. For
the past 12 months, the dividend has
ranged from $0.1879 per share up to
$0.2333. The average will be right
around $0.20 per share.
The ex-dividend date is around the
20th of each month, give or take a
couple of days as there seems to be no
fixed pattern; check the Monthly
Dividend Paycheck calendar by logging
into the Investors Alley website for
exact dates. Payment is always on a
Tuesday or Wednesday (mostly
Tuesdays) closest to the end of the
month. Sometimes that day falls into
the next month. Again, check the
Monthly Dividend Paycheck Calendar
or the Global X website here, and click
the orange Distribution Calendar in the
right side menu.
A recommendation you might want to
consider is to reinvest at least half of
the QYLD dividends you earn each
month, which would provide an
attractive 5% income stream and allow
you to reinvest to take advantage of
share price swings and grow the
income over the years. Of course, if
you are in the accumulation phase
with your portfolio, put your QYLD
shares on automatic reinvest and
watch the share count and monthly
dividends grow. And, your financial
situation, investing strategy, and risk
tolerance are unique to you, so be
sure to take those into consideration
as well.
I added QYLD to the Dividend Hunter
with a Stock of the Week email on July
7, 2020. Since that day, through
September 22, 2021, the fund
returned 20.17%—a 16.42%
annualized return.
If you bought QYLD at the first
recommendation and reinvested all
dividends, the total return increases to
21.38%, with an annualized return of
17.39%.
Remember that over the bulk of the
returns, 15.23% out of 20.17% came
from the monthly dividends.
This is what it’s about for Dividend
Hunter members – creating a
consistent stream of income for solid
from investments like QYLD. I’m
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October 2021 Vol. 8 Issue 5
adding more all of the time. We know
have a lifetime membership level in
which for one crazy low payment you
can lock in a lifetime of the Dividend
Hunter and a lifetime of new investing
ideas like QYLD. Click here for details
on if your account qualifies.
Editor’s Personal Position: Long QYLD
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October 2021 Vol. 8 Issue 5
I review dozens of potential Dividend
Hunter investments each month. I
have my own lists from which I get
updates, and each month I also ask my
Dividend Hunter Insiders to
recommend a stock for my review. The
request list typically tops 100 picks.
And on top of that, each day there will
be several to more-than-several
requests for my opinion about a stock
in my inbox. (Hint: I don’t answer
those requests.)
Investors can choose from amongst
hundreds of high-yield investments
from the stock markets. With over a
decade of digging into the range of
high-yield investments, I am familiar
with many of these stocks and funds.
Yet I still get surprised by a new one on
occasion. A couple of recent Dividend
Hunter additions came out of the
Dividend Hunter Insiders deep dive
stock report requests.
There are some broad guidelines I
generally follow that determine how I
compile the Dividend Hunter
recommendations list.
My primary goal is to diversify the
recommended investments as much as
possible. I want to keep the list to
around 30 investments. I also think of
the individual preferred stocks as a
mono-block group, leaving me 20 slots
to fill. Within that 20, I want stocks or
other investments to be as
uncorrelated with each other as
possible.
I want to include investments from all
the main high-yield categories. These
include closed-end funds, equity and
finance REITs, energy infrastructure
companies, BDCs, and preferred
stocks. Recently, ETFs that use covered
call strategies have become a new
category.
I stay flexible. One surprise over the
last eight years is how much the high-
yield world can change and change
quickly. Existing strategies stop
working, and new ideas provide
excellent high-yield opportunities. I am
sure 2020 will end up as a history
lesson that I keep learning from and
teaching until the next financial crisis.
Thoughts on Picking High-Yield Investments
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October 2021 Vol. 8 Issue 5
Now let’s talk about assessing
individual investments.
Every investment, stock, or fund is
different. Each should be researched
to determine how it generates profits
or cash flow. You cannot do computer
screens for high-yield stocks.
With a new investment idea, I usually
start by taking a look at the dividend
history. If the stock or fund shows
dividend payments that have declined
over the years, it goes into the trash
bin. This simple step will weed out
hundreds of potential high-yield
investments.
After an investment passes the “pays
stable dividends” test, I dig deep into
how it operates, makes money,
generates free cash flow; if it’s a
company, I want to learn as much as I
can about the management’s goals
and strategies for paying dividends.
The goal of this comprehensive look at
a company is to ferret out any deal
breakers, that could, under certain
conditions, lead to a dividend cut. Put
another way: I want to see the stability
of dividend payments and dig down to
see the foundation that supports that
stability.
For me, this type of analysis is fun
work. Over the years, I have reviewed
hundreds of stocks. Many have
eventually disappointed investors with
dividend cuts. I try to understand what
led to the reductions. Because I have
done it so often, I can usually get
through an investment review in short
order.
Final note: recently I was the speaker
at a presentation on finding variable
dividend rate payers with retirement
writer Dennis Miller. We’ve posted a
replay of the video online. You can
watch it here.
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October 2021 Vol. 8 Issue 5
Reaves Utility Income Fund (UTG) is
the Dividend Hunter recommended
investment for exposure to the utility
company sector. I added the fund to
the recommendations list in
November 2015. This closed-end fund
has been a steady income producer.
The UTG dividend increased four times
since I added it. In a volatile market,
UTG is an investment that provides
stability, monthly dividends, and an
attractive yield.
Investors have long viewed utility
companies as safe-haven dividend
stocks. These highly regulated
companies provide electric power,
natural gas, and water to homes and
commercial customers. The regulatory
agencies approve the rates a utility
charges its customers. Rates are set so
that the utility can cover the
infrastructure spending to maintain
and upgrade its assets and then earn a
fixed rate of return above the
necessary capital spending. The
locked-in regulated profit margins give
a high level of cash flow predictability.
As a result, utility stocks are favored as
steady and moderate dividend growth
payers. I have not included any utility
companies in The Dividend Hunter
recommendations list because yields
tend to be low compared to those in
the other income-focused sectors. For
example, the Utilities Select Sector
SPDR ETF (XLU) yields about 3.0%, well
below my Dividend Hunter usual
minimum of 6%. But the Reaves Utility
Income Fund (UTG) gives utility sector
exposure and a current 6.7% yield.
The S&P utility sector makes up just
over 3% of the S&P 500 universe.
There are about 80 listed U.S.-based
utility companies. As I noted earlier,
the utility sector is highly regulated by
both the states and the federal
government. Thus, the industry is not
glamorous, with few examples of out-
performance or instances of crashing
and burning. The sector has been
much less volatile than the overall
market, with Yahoo Finance showing
UTG with a beta of 0.66. If you are
unfamiliar, here is the definition of
beta from Investopedia:
…you can think of beta as the tendency
of a security's returns to respond to
swings in the market. A beta of 1
Reaves Utility Income Fund
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October 2021 Vol. 8 Issue 5
indicates that the security's price will
move with the market. A beta of less
than 1 means that the security will be
less volatile than the market. A beta of
greater than 1 indicates that the
security's price will be more volatile
than the market. For example, if a
stock's beta is 1.2, it's theoretically
20% more volatile than the market.
Reaves Asset Management
Reaves, which was formed in 1961 and
has performance results going back to
the 1970s, has about $3.5 billion of
assets under management. Services
include separately managed accounts,
a utilities and energy infrastructure
mutual fund, a utilities-focused ETF,
and a closed-end fund—the Reaves
Utility Income Fund. The company
uses a bottom-up investment
approach built on long-term and
ongoing relationships with utility
management teams and regulators.
When I last interviewed one of the
portfolio managers at Reaves, Jay
Rhame, he noted that the Reaves
Jersey City offices are on the route
from Wall Street to the Newark
International Airport. Utility company
management teams make sure they
include a stop at the Reaves location
when they visit NYC to pitch their
companies to the big Wall Street firms.
With its sole focus on the utility sector,
Reaves has a profound understanding
of the operations and financial results
of the companies in the group. I stay in
touch with the portfolio managers,
and we have phone conversations
several times a year.
The Fund
As of the end of June 2021, UTG held
positions in 42 different stocks (full list
here). About 65% of the portfolio is
traditional electricity, gas, water
utilities, and telecom stocks. The fund
also owns media companies like Time
Warner cable and energy and utility
infrastructure companies as smaller
portfolio percentages.
As is typical for a closed-end fund, UTG
uses moderate leverage to increase its
dividend cash flow. Currently, leverage
is at 17%. In dollar terms, the fund has
an asset capitalization of $1.94 billion,
and the leverage allows it to own
$2.34 billion of assets. Some closed-
end funds trade at significant
discounts or premiums to their net
asset value (NAV), the total fund assets
divided by the number of shares. Over
the last 52 weeks, the average
premium for UGT was 1.52%, and the
current (as of 09/22/21) premium is
1.68%. The premium is not onerous,
but if you see UTG trading at a
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October 2021 Vol. 8 Issue 5
discount, take it as a sign to add some
shares.
Investment Results
UTG launched in February 2004, and
the fund has paid a dividend every
month since—yes, this is a monthly
dividend investment! The dividend has
never been reduced, and has in fact
been increased 13 times in the last 16
years, with the most recent increase,
of 5.56%, in June 2021. Since UTG
joined the Dividend Hunter portfolio,
the dividend rate has grown by 25.6%.
The UTG dividends have always been
100% dividend or realized gains
income without any return-of-capital
(ROC). Paying ROC in dividends is a
tactic some closed-end funds use to
support dividends that really have not
been earned by the portfolio. The
occasional, end-of-year special
dividend payments (six in the fund's
history) show that the portfolio
managers have been very successful
with their efforts to invest in the utility
sector profitably.
The bottom line with UTG is that you
get a conservatively and expertly
managed utility stock-focused fund.
Recommendation: UTG is a
conservative addition to any income
portfolio. Currently, the yield is almost
7%, with low to moderate dividend
growth potential and monthly
dividends. That is an attractive combo
for a typically low-volatility fund
investment.
Editor’s Personal Position: Long UTG
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October 2021 Vol. 8 Issue 5
Year-to-date, the Dividend Hunter
recommendations list has performed
well.
The Stable Dividends category has an
average year-to-date return of 27.3%
and a current average yield of 7.2%.
The only real laggard is AT&T (T),
which has a negative 0.4% total return
for the year.
The Variable Dividend Investments
have returned an average of 26.5%.
These results are skewed by PRT,
which has returned 160% for the year,
and the fact that three of the
investments have been on the list for
less than all of 2021 to date. SLVO
remains the only laggard in the
portfolio, down 13.9%, as of
September 22. The average yield for
the category stands at 10.6%.
The Individual Preferred Stocks have
returned 6.7%. That return is not bad
for shares we own for the safe
dividends. The current average yield
for the group is 7.23%.
On September 7, I added PennyMac
Mortgage Investment Trust Preferred
C (PMT.PC) as a new addition to the
Individual Preferred Stocks list. PMT.PC
is a brand-new preferred stock issue
with a 6.75% coupon, and it trades
close to the $25.00 par value.
Portfolio Update
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October 2021 Vol. 8 Issue 5
Current Portfolio
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October 2021 Vol. 8 Issue 5
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October 2021 Vol. 8 Issue 5
Our journey into individual preferred stock shares has produced a lot of questions about
actually buying these shares. Unlike regular stock shares, each broker uses its own
format for preferred shares.
Below is a listing of how different brokers will show preferred shares. You can also use
the symbol lookup function. Enter the regular stock symbol, such as NRZ, and you will
get a list of related securities. Pick the one that looks like preferred shares. You will get
the full name after you select the symbol.
To help you out, here the format for NRZ preferred A on the different brokerage
websites:
TD Ameritrade: NRZ-A
E-Trade: NRZ.PR.A
Fidelity: NRZ/PA or NRZPRA (yes, they use both)
Firstrade: NRZ.PR.A
Interactive Brokers: NRZ PRA
Merrill Lynch: NRZPRA
Schwab: NRZ/PRA
ThinkorSwim: NRZpA
TradeStation: NRZ.PA
T.Rowe Price: NRZ.PRA
Vanguard: NRZ PRA
Wells Fargo: NRZ.A
Note: These formats may not be hard and fast.
I have heard from subscribers that Fidelity treats different preferred stocks differently.
With some, you have to call in and place a trade over the phone—at least a first trade
for the shares. Subscribers have told me this is the case for NRZ/PA. There are other
preferreds that you can buy using the regular online trading system. I purchased some
preferred stock shares this way.
Preferred Stock Dividends with Your Broker Preferred Stock Dividends with Your Broker
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October 2021 Vol. 8 Issue 5
Portfolio prices are determined by the last “Ask” price at the closing of the market on the day before publication; most recent update 09/29/21. Notes: 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.
© 2021 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 Ave | Floor 31 | New York NY 10010 or www.investorsalley.com. The information in this email and corresponding websites are
neither an offer nor a recommendation to buy or sell any security, options on equities, or cryptocurrency. Investors Alley Corp. and its affiliates may hold a position in
any of the companies mentioned. Investors Alley Corp. is neither a registered investment adviser nor a broker-dealer and does not provide customized or
personalized recommendations. Past performance is not necessarily indicative of future results. No trading strategy is risk free. Trading and investing involve
substantial risk, and you may lose the entire amount of your principal investment or more. You should trade or invest only “risk capital” – money you can afford to
lose. Trading and investing is not appropriate for everyone. We urge you to conduct your own research and due diligence and obtain professional advice from your
personal financial adviser or investment broker before making any investment decision.
You should trade or invest only “risk capital” – money you can afford to lose. Trading and investing is not appropriate for everyone. We urge you to conduct your own
research and due diligence and obtain professional advice from your personal financial adviser or investment broker before making any investment decision.
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