How to ‘Double Your Dividends’ in 2014’s Volatile Market

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

2013 was a tough year if you were an income investor.

Advertisement.

After all, the Fed’s zero interest rate policy (“ZIRP”) has been punishing savers with its low interest rates since 2009. Many retirees depending on their accumulated savings had grown increasingly frustrated trying to eke out income from their hard-earned investments. So, it’s no surprise that many had piled into income investments that promised regular high single-digit, or even double-digit, percentage income.

But with the Fed announcing the onset of tapering back in May — and then actually launching it in December — the bottom dropped out from virtually all “safe” income investments.

Income investors suddenly found that even if a diversified portfolio of, say, U.S. Real Estate Income Trusts (REITs) boasted headlines about double-digit yields, that mattered little if the principal dropped by 20%, thanks to the threat of rising interest rates.

Advertisement.

Meanwhile, these same investors stood by as stock market investors enjoyed their biggest gains since 1997.

Is Income Investing Back in 2014?

But with the S&P 500 pulling back 2.53% so far in 2014, many investors are again turning their attention back to income investing.

After all, a handful of income-generating investments — through a combination of income and capital gains — have already generated big gains barely a month and a half into the New Year.

Advertisement.

And the promise of steady income — hearing the cash register of regular returns ring every month or quarter — suddenly offers the security the volatile stock markets cannot.

I manage just such a program of diversified income-generating investments at my firm Global Guru Capital.

The “Double Your Dividends” program assembles a portfolio investment that generates income from the widest possible range of sources. It includes sources of income from Multilevel Partnerships (MLPs), up 26.46% last year, to Business Development Companies (BDCs), up 15.34% in 2013.

Six weeks into 2014, most of these income investments are solidly in the plus column. All but one income investment is outperforming the S&P 500 year to date. One is even on the verge of double-digit percentage gains.

With that, here are the “Double Your Dividends” Program’s top-performing income investments, so far in 2014:

Advertisement.

1. PIMCO Municipal Income II (PML) — 9.66% Gain

PIMCO Municipal Income II (PML) is an actively managed, highly leveraged municipal fund. The fund typically generates its large distribution by venturing down the credit spectrum into non-rated and junk-rated muni debt, focusing on the intermediate and long portions of the yield curve, and then leveraging its holdings.

The fund has maintained a level income-only monthly distribution of $0.065 per share since 2007. This translates to an above-average 7.2% yield. It has logged peer group-topping returns since the 2008 market meltdown, returning an annualized 8.7%. The fund’s advisor is paid 0.65% of the average daily net assets, plus the proceeds from preferred shares.

PML has generated a gain of 9.66% so far this year.

2. iShares Mortgage Real Estate Capped ETF (REM) — 7.64% Gain

iShares Mortgage Real Estate Capped ETF (REM) tracks the FTSE NAREIT All Mortgage Capped Index. The index is weighted by market cap and screens constituents for size and liquidity. Most of REM’s holdings are in medium- and small-cap mortgage real estate investment trusts. REM has large allocations to two giant mortgage REITs, Annaly Capital Management (17%) and American Capital Agency (14%).

Advertisement.

Unlike equity REITs, which generate income by managing properties and collecting rent, mortgage REITs are financial firms that engage in arbitrage on the spread between the short-term interest rate and income from mortgage-backed securities.

Mortgage REITs are very susceptible to rising rate risk. Even small upticks in the short-term rate can have a significant impact on these firms’ profitability. Several Mortgage REITs have cut their distributions and have performed poorly during past rising rate environments.

REM yields an impressive 15.25%, pays dividends monthly and charges a fee of 0.48% annually.

REM has generated a total return of 7.64% year to date.

3. PowerShares Preferred (PGX) — 3.98% Gain

The PowerShares Preferred (PGX) tracks the BofA Merrill Lynch Core Plus Fixed Rate Preferred Stock Index. The index includes preferred stocks that have a market cap of at least $100 million.

Preferred stocks are hybrid securities that have bond- and stock-like qualities. They are usually issued by highly leveraged companies like financial institutions, telecoms and utilities. Almost all of PGX’s holdings are issued by financial companies, which include banks, real estate firms and insurance companies. Preferred stock pays income on a regular basis and does not benefit from earnings growth of the issuing company.

PGX yields 6.68% and pays out dividends monthly. It charges an annual fee of 0.50%.

PGX has generated a total return of 3.98% year to date.

In addition, join me today for an encore presentation of the talk I gave at the Investment Masters Symposium in Orlando last week on “The Myth of America’s Decline” live for the e-Money Show today, Feb. 11 at 3:00 p.m. EST. You can register for the symposium now. It will be available on demand online through Feb. 22 as well.

In case you missed it, I encourage you to read my e-letter column from last week about why the ‘emerging market crisis’ of 2014 is not worthy of worry. I also invite you to comment in the space provided below.

share on:

Like This Article?
Now Get Our FREE Special Report:
Alternative Investing: Investing in Timber

Stock Investor editor Paul Dykewicz reveals why investing in timber may be one of the best long-term portfolio strategies you'll find today.

Get Access to the Report, 100% FREE


img
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle
LEARN MORE HERE

DayTradeSPY

DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops
LEARN MORE HERE