Vol. 30, No. 2
February 2019 Economy Good, But the Markets…? New Income Buys for 2019 Dear Friend, The US economy continues to We are now fully into 2019, and the general stock market has taken a pause from grow. When the fourth-quarter the aggressive selling. For now, at least, the S&P 500 index is modestly positive. numbers come in, we should see But this doesn’t mean that now is the time to embrace risk. Instead, continue to them cap off a year of healthy focus on the defensive parts of the markets. But the good news is, this doesn’t mean domestic production. And even that you need to sacrifice good and even great rates of return, even as I’ve added with the economy coming off of further safe havens to our model portfolios over the past few months. the boil, most expectations are There are plenty of investments that are now on offer that can not only side- for 2019 to see further upward step much of the risk of the general stock market, but also pay you well. In progress. this issue, I’ll introduce a collection of investments that continue to quietly pay Fueling the economy is the US quarterly dividends that range from 7 to 9% or more. And at the same time, they consumer, who is comfortable to are by default lower-volatility investments that will let you eat well and sleep well keep spending. And businesses not only during the winter months but nicely into the spring and summer. remain generally optimistic and I’ll be starting with a series of curated individual preferred shares from cash willing to make investments to cow companies that will easily make their ample dividend payments. Then I’ll meet consumer demand. While bring in a different class of investments that may be new to you, which I call the initial impact of the corporate minibonds. While they have been around for decades, traders and institutions tax cuts of 2017 on company have paid them little heed, as they were designed, built and brought to the market profits might be ebbing, the for individual investors. But while they might be smaller in price, they are big in lower rates continue to support dependable dividends. I’ll show you a great collection to buy right now. continued gains in after-tax But as I said above, we’re not abandoning growth, as I’ll also show where we profitability (if at a somewhat have plenty of companies that continue to deliver in the model portfolios, all slower pace than last year). while paying nice dividends themselves. But will the markets care? Much So, I’ll start with the lay of the land for the markets and the economy—then of the last quarter of 2018 showed it’s on to the new additions and changes to our portfolios. that less profit growth meant less enthusiasm to buy stocks. And while stocks are recovering so far Growth Strategies in January, it’s getting harder to What Worked Is Still Working see an exuberantly bullish case for For the fourth quarter of 2018 and into where we stand in 2019, it is generally buying. accepted that the overall growth of earnings for the members of the S&P 500 Instead, the best recipe for a Index will slow. successful 2019 is dividends, Right now, Bloomberg’s compiled earnings estimates for the S&P 500 especially from steady companies members show growth for the past year coming in at 16.38%. That is projected focused on maintaining and to drop to 10.15% for 2019 and 7.89% for 2020. With the projected decline in improving margins. This is growth in earnings, it is not surprising that the valuation for the index relative exactly what we’ve been doing to earnings fell over the fourth quarter of 2018. for the last year, and in this issue, This is one of the warnings for growth investors looking for a bet on a repeat we’re expanding the focus on of higher earnings growth, and the reason why many of the stocks that drive higher dividends for better returns the index have fallen along with the other indexes (and the indexed funds and regardless of the general stock ETFs keyed off them) over the past few months. market’s actions. Now, we could just throw in the towel, back further into cash and wait out the bearish general stock market we may well return to in 2019. However, there are plenty of sectors and stocks that aren’t as reliant on ever- higher rates of earnings growth to successfully deliver positive returns for shareholders. (continued) REITs Still Right more than 2.13 times the yield of the the impact of the TCJA on utilities’22.00 Real estate investment trusts (REITs) S&P 500 Index, it is no wonder that profitability. The argument was that were one of the better success stories this remains an ever-more-attractive lower corporate taxes would reduce21.00 for investors last year. From the low sector with improving values and regulated services rates, reflecting for the sector in February 2018 to date, better dividend payouts. This is why lower corporate tax liabilities. That20.00 REITs, as tracked by the Bloomberg US we continue to have so many of the and a fear of spiking interest rates had REITs inside the Total Return Portfolio, some investors fleeing. But as with REITs Index, have delivered a return 19.00 of 12.54% even with the big general as well as in the Incredible Dividend REITs, investors figured out that the market downdraft in the fourth quarter. Machine, the Niche Investments and impact of the TCJA was not going be REITs, of course, aren’t about in real estate funds held in the Model as they feared and that interest rate18.00 fast-track growth, but steady asset MutualS&P 500 FundPrice to Portfolios.Earnings Ratio spikes weren’t on the horizon. appreciation and maximizing lease Since June, utility stocks, as 17.0017.095 Utility Players Prove Out tracked by the S&P Utilities Index, revenues for shareholders. REITs Utilities areSep another sectorDec that is Mar Jun Sep Dec pay out the majority of their profits 2017 have turned in a 201return8 of 11.65%. showing its strength. Like the REITs, Utilities aren’t focused on aggres- to shareholders without the double- last year started out with concerns over taxation challenge of corporate taxes. And in turn, individual investors get a Falling Expectations for Earnings tax break from the TCJA, which allows 22.00 for a deduction of 20% of the dividends paid from their taxable income. 21.00 There are plenty of different REITs because there are plenty of different types of real estate, but in 20.00 general, there is demand for quality properties supporting solid to rising 19.00 rents. This, in turn, is supporting attractive dividend payouts, which are 18.00 supporting improving valuations for S&P 500 Price to Earnings Ratio the REIT stocks. Take a look at the 17.0017.095 growth in the price to earnings for the Sep Dec Mar Jun Sep Dec Bloomberg REIT Index in the bottom 2017 2018 chart on this page. Source: Bloomberg Finance, L.P. This graph shows that unlike the REIT Values on the Rise S&P 500 Index, the market for REITs Bloomberg US REIT Index Price to Earnings Ratio is better valuing the underlying 48.00 profits for real estate companies by beginning to bid up values. And yet, 46.00 while the market has been bolstering 44.00 43.401 the shares in this market segment, 42.00 REITs are still a relative value. The average book value for the member 40.00 companies inside the index is only 38.00 sitting at 2.45 times, which is lower 36.00 than recent highs of the past five years by 13.12%. That makes the 34.00 sector still a very good value. 32.00 Mar Jun Sep Dec And with the average dividend yield 2018 2019 for the index sitting at 4.42%, which is Source: Bloomberg Finance, L.P.
Neil George’s Profitable Investing® (ISSN 2577-9311) is published monthly by InvestorPlace Media, LLC, 9201 Corporate Blvd., Suite 200, Rockville, MD 20850-3334. Please write or call if you have any questions. Phone: 800/211-8566. Email: [email protected]. Web site: profitableinvesting.investorplace.com Editor: Neil George Chief Executive Officer: Brian Hunt Marketing Director: Mary Southard Managing Editor: David Clarfield Chief Marketing Officer: Brad Hoppmann Marketing Director: Katy Anadale Editorial Coordinator: Wola Odeniran BloombergSenior Designer: US REIT IndexMarc GagarinPrice to Earnings Ratio 48.00 Subscriptions: $249 per year. © 2018 by InvestorPlace Media, LLC, Founding Member of the Newsletter Publishers Association of America. Photocopying, reproduction or quotation strictly prohibited without the written permission of the publisher. While the information provided is based upon sources believed to be reliable, its accuracy cannot be guaranteed, nor can the publication be considered liable for the investment performance of any securities or strategies mentioned. Subscribers should review the full disclaimer and securities holdings disclosure46.00 policy at https://profitableinvesting.investorplace.com/disclaimers-and-disclosures or call 800/219-8592 for a mailed copy. Periodicals postage rates paid at Rockville, MD, and at additional mailing offices. Postmaster: Send address changes to Neil George’s Profitable Investing®, InvestorPlace Media, LLC, 9201 Corporate Blvd., Suite 200, Rockville, MD 20850-3334. 44.00 43.401 2 Profitable Investing | February 2019 | profitableinvesting.investorplace42.00.com 40.00
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sively driving earnings as much as Utility Valuations Due to Spring Higher steadily capitalizing on rising demand S&P Utilities Index Price to Earnings Ratio for essential services from a growing 17.50 economy as efficiently as possible. And in turn, they generate ample cash flows that fuel dividends for sharehold- 17.00 ers. Because some of the best utilities capitalize on regulated local services as well as unregulated wholesale services, 16.50 there is growth to be attained beyond 16.395 just from local service demand. The market has begun to take 16.00 more notice of the successes in this segment. And as with the REITs, the Mar Jun Sep Dec underlying value of utilities earnings 2018 2019 is up from lows in June 2018 to date. Source: Bloomberg Finance L.P. And yet, other valuations are still from other indexes and index-linked The solution was a hybrid of a lower for utilities. For instance, the funds, which will reduce the risk security that would be sold as equity industry is priced, on average, only of volatility while paying you more but with the certainty of higher 1.87 times its book value—11.37% while you own them. dividend payments. And if the lower than recent highs in 2017. S&P Preferred Stock Index Total Return railroads failed, investors would be 35 And the dividends keep coming at next in line just behind bondholders Proven Growth & 30 a more ample rate than for the general and well ahead of common stock stock market. The average dividend Income investors in getting paid. 25 yield for the S&P Utilities Index is Thanks to evolving credit, account- Preferred Investing 20 sitting at 3.48%, compared to 2.06% ing and tax rules, preferreds became a Common stocks make up the vast for the S&P 500. tool for companies to issue them as an15 majority of the stock market and The key to this is that while there attractive additional form of capital. the model portfolios of Profitable continues to be a lot of worry over the Preferreds are much less widespread10 Investing. They represent equity in the rate of growth as it relates to the general than common stocks. And that’s one of underlying companies that issue them 5 stock market, it is of course a market of the things that makes them attractive. and rise and fall in price with the stocks, and there are plenty of sectors Being less noticed than common stocks,0 valuation and projections of success and individual companies that are they tend to trade more under the radar of those2014 underlying companies.2015 2016 2017 2018 performing well. And these are getting of traders, and that makes them more Dividends are paid by the company more recognition in higher valuations, ideal for individual investors that seek without requirement and will fluctuate but even at those levels, they are still less volatility with more certainty of based on the cash flows and profits of good values with ample dividends. higher dividend payments. They also the5.00 companies guided by management. don’t come with voting rights, so they Not Just Utilities and REITs Preferred shares are a different 75 tend to move less with the value of the This doesn’t mean that I’m proposing kind of stock. They are issued by 4.50 underlying business. 70 just a collection of REITs and utilities. companies, typically with a fixed In addition, there are fewer indexes There are plenty of other segments dividend paid quarterly. And while 65 4.00 that track the market for preferreds, with positive returns, including drug they do represent an interest in the and even those that do don’t companies, reforming consumer goods companies’ assets and businesses, 60 necessarily fully reflect the broad companies and technology companies their3.393.50 price will tend to be more variety of the shares. Instead, most55 (many of which are successfully stable than for common stock, as 52.36 of the indexes focus on banks and transforming from unit sales to they represent more of a debt of the 50 3.00 financial firms’ preferreds, which can recurring income businesses). company, much like a bond. distort the true attractiveness of many45 But at the same time, with the They got their start back in the 19th 2.50 of the individual issues. general stock indexes coming under century, as US railroads were seeking 40 Mar Jun But theySep do continue toDec perform. fire in the fourth quarter and into to expand their networks westward 2018 2019 Over the past five years, the S&P 2019, I am increasing the share of and needed capital. But since many Preferred Stock Index has shown a our dividend flows that come from railroads had already borrowed total return of 28.97%, for an annual investments that are more insulated heavily in bank loans and bonds, equivalent return of 5.22%. from the general stock market. These investors were reluctant to lend more This means that the security of investments are also more insulated or buy more bonds. Profitable Investing | February 2019 | profitableinvesting.investorplace.com 3 22.00
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preferred shares, along with declared Preferreds Perform dividends, is no major sacrifice. S&P Preferred Stock Index Total Return In the Total Return Portfolio, we’ve 35 been investing in two funds. The 30 iShares US Preferred Stock ETF (PFF), paying a current yield of 8.77%, 25 has turned in a gain of 3.35% since it 20 was added to the portfolio in March 2017. And this past July, I added the 15 closed-end Flaherty & Crumrine 10 Preferred Income Opportunity Fund (PFO) with its 7.15% dividend yield. It 5 has gained 4.84% since then. 0 In the Niche Investments, I added an individual preferred share, the 2014 2015 2016 2017 2018 Digital Realty Series J Preferred Source: Bloomberg Finance L.P. (DLR.PJ), to complement the ordinary certain that you buy the right issues. coal as the preferred form of energy, real estate investment trust (REIT) First, Seaspan Corporation (SSW) companies upstream to downstream shares of Digital Realty (DLR) in the is5.00 sort of a REIT of container ships. continue to see further progress. Total Return Portfolio. It leases out its ships to various Teekay has rising revenues, 75 But now, with growth expectations companies on longer-term contracts. climbing by 9.10% over the trailing 4.50 70 for earnings slipping in the general As such, it focuses on making year. And operating margins are fat common stock market, causing contracts with viable operating at 34.40%. And as with Seaspan, debt65 4.00 volatility and uncertainty in market for shipping companies to maximize is lower, with debt to assets running common stocks, I’m bringing a trio of revenues from its fleet while at only 56.00%, making for a lower-60 additional individual preferred stocks 3.50 controlling3.39 the risk of default. leveraged company. 55 into the Total Return Portfolio alongside It has done a good job of this, with The company has two preferreds52.36 the ETF and closed-end fund. ample3.00 operating margins sitting at in the market. I’m recommending 50the My reasoning is that these come 36.50%, which results in a return on 9.00% Series A Preferred (TGP.A; from varied industries—companies 45 common2.50 stock equity of 10.30%. It has ISIN# MHY8564M1131). It is another that are well-supported to pay ample ample cash on hand, and its debts are perpetual maturity, with a call on 40 Mar Jun Sep Dec dividends while taking more risk off low at 52.60% of its floating and other 2018October 5, 2021, at $25.00. It is2019 of the table than common stocks. assets, resulting in an under-leveraged trading at $24.42 for a yield of 9.21% Now, a word on buying these landlord of the shipping lanes. and should be bought under $25.00 a stocks. They do not trade with much The preferred to buy is the 7.875% share in a tax-free account. volume, but for good (and beneficial) Series H Preferred (SSW.H; CUSIP NuStar Energy (NS) is a reasons. They are mostly bought #81254U304), which is currently passthrough company with 8,700 by individual investors and funds trading at a yield of 8.40%. This miles of pipeline for refined petroleum that serve them, and they tend to be preferred is perpetual, meaning that products, with additional pipelines for bought and owned—not traded. So there is no maturity. However, there crude oil and other petroleum-related when placing orders, use a limit near is a call that the company can make products. It also provides services for the current quote and look to buy to buy it back at $25.00 starting on marketing companies in the Caribbean them strictly under my buy-under August 11, 2021. It is a buy under and South American markets. price recommendations. $25.00 in a tax-free account. The common stock has been a I’m recommending buying my Teekay LNG Partners (TGP) is member of the Profitable Investing small collection together. Spreading a passthrough that is focused on model portfolios in years past, for around your own allocation to shipping liquified natural gas (LNG) good reason. preferreds will limit your risk and as well as other petroleum products. Revenues are positive, and will make it easier to buy them in I’ve been writing in recent issues operating margins are ample at smaller sums at better prices rather about the attractiveness of the LNG 18.50%. Like the other companies than spiking market prices with market, particularly with the expanded I’m recommending investing in via larger individual buys. I’ll provide production of natural gas in the US and preferreds, it has controlled debts, at the symbols for each of the preferreds the expansion of pipelines and marine only 55.80% of its ample assets. along with the CUSIP or ISIN terminals for LNG. With global demand It has a series of preferreds as part numbers, which you can use to make for LNG remaining strong as it replaces of its petroleum logistics. I’m recom-
4 Profitable Investing | February 2019 | profitableinvesting.investorplace.com mending the 8.50% Series A Preferred are hiding in plain sight among the they tend to be much more stable in (NS.A; CUSIP# 67058H201), which preferred share listings. price during market yield movements has a fixed dividend of 8.50% through To search for them, you need to know overall. And the same can be said for December 15, 2021, at which time it the symbol and also perhaps the CUSIP credit events. When a company has will shift to an adjustable dividend at or ISIN identification (two different challenges or negative developments, the US three-month Treasury yield ways to unambiguously identify a given its traditional bonds are often impacted plus 6.766%. The preferred is trading security) to pull them up on your online while its minibonds remain stable. at $22.37 for a current yield of 9.49%. brokerage account. However, the biggest reward comes I plan on reviewing this preferred, There are a few reasons why from yield. Since they are obscure, like all of the others, leading up to 2021. companies might bring a minibond the yields in the market will tend to But for now, it makes for a great income to market. One of them is to enable be higher for minibonds than for the buy under $25.00 in a tax-free account. the company to raise capital from equivalent full-sized bonds. This makes individual investors beyond its them very attractive for individual Up With Income traditional go-to institutions. This investors—at least the ones who know helps to broaden their bond owner base what these are and where to find them. Minibonds, Maximum Yield and can work to help to reduce the cost Now comes the downside. They You have probably never heard of of issuance and the cost of borrowing. don’t trade with much volume, much a minibond. This is type of a security Another reason is that banks and like the preferred stocks in this issue, that Wall Street has done a terrible financial firms will take advantage for the same reason—investors tend job of explaining, let alone pitching to of a market opportunity to buy to buy and own them instead of investors. But right now, with plenty of traditional bonds and in turn place trading them. That means that while volatility and risk in the stock market, them into a trust, which in turn issues they are more stable, investors need to minibonds are exactly what should minibonds, which in this case are be patient when buying them. find their way into your portfolio. really just traditional bonds broken Just as I mention for preferred stock, They are, as the name implies, down into smaller pieces. rather than just placing a market order, bonds that are small in denomination. The Risks & Rewards use a limit near the ask price when Traditional bonds are generally denomi- placing the trade. And, of course, watch nated in $1,000 face values. This means The risks of minibonds are similar closely that you do not pay more than that each bond has a high price point to traditional bonds. This starts with my recommended buy-under prices. when compared with most ordinary the credit of the issuer. Companies are In addition, most minibonds are common stocks, ETFs or mutual funds. constantly rising and falling in their longer dated, as it is more efficient for Minibonds are normally issued with capabilities and their credibility with the issuer or financial firm to keep face values of $25.00. That makes it bond investors. I’m intimately familiar them on the market. But they usually easier and more efficient for individual with this, since I got my start in the come with calls. This means that the investors to buy and own them. In financial markets as a banker and bond issuer can call them (buy them back) addition, traditional bonds, with few trader. As I have written before, if I at a specific price after a specific exceptions, have to be bought in larger wouldn’t lend money to a company, date. I am aware of these conditions bundles. So even though $1,000 is a I’m not going to buy their stock. So, in and set my buy-under prices to reflect larger sum, most brokerage companies my analysis of any company, I look at the call prices and the potential will have minimums that can run into the credit of the companies behind its impact on the yield and the overall 10,000 or more per transaction—partic- stocks. I do the same with minibonds. total returns for the minibonds. ularly for corporate bonds. Minibonds, The next risk is interest rate risk. however, can be bought in nearly any Bonds, full-size or mini, are open to Minibond Deals Right Now sum, much like common stocks. changes in yield. As yield goes up, I’m recommending a curated Bonds mostly trade over the counter the price of bonds goes down, and in collection of three minibonds, which between bond traders. Even when you turn, if yield goes down, bond prices I’m adding to the Total Return place an order with a brokerage, that go up. And the longer the maturity, Portfolio. I suggest that whatever sum brokerage will either use their own the greater the price movement will you are going to commit, spread the or another bank or brokerage’s bond be, up or down. amount across all three for liquidity and trading desk to execute the trade. One reward of minibonds is that they ease of buying them at the right prices. Minibonds are instead listed on are much less susceptible to yield risk JMP Group (JMP) is an institutional various stock exchanges, much like than the equivalent full-sized bonds. financial firm that offers brokerage, the preferred stocks I discussed earlier The reason is that since they are off the investment banking and asset manage- in this issue. This is what makes them radar of much of the market and they ment services. It has a large client base even more obscure for investors—they appear to be preferred stock to some, of brokerages, banks, other financial
Profitable Investing | February 2019 | profitableinvesting.investorplace.com 5 firms, funds and some very wealthy February 15, 2019, at $25.00, which be had in specific sectors as well as individuals and family offices. I’ve limits the upside for this issue. But the more income focused investments. Sell followed the company, particularly from company’s credit is good, providing for the iShares Core S&P 500 ETF. a credit standpoint, for many years. nice income for a while. Buy it under Meanwhile, I am continuing to Revenues have been up significantly $25.00 in a tax-free account. recommend buying the Vanguard High over the past year, with the most recent Dividend Yield ETF (VYM). This ETF quarter showing gains of 17.68%. And Total Return provides exposure primarily to major its debts are negligible, at a mere 9.4% US companies that pay dividends, with of the company’s assets. Portfolio some very minor holdings in UK and The minibond we’re buying is In this issue I’ve made the case for Swiss companies (less than 2.00% of the 7.25% 11/15/27 Series D under more income from less stock-market- the ETF). While this ETF still provides the symbol JMP.D and a CUSIP of influenced investments. With the general market exposure, for better or 466273109. It is priced at $24.00 for volatility seen recently in the S&P 500 worse, you need to have some exposure a yield of 7.55%. The next call date index as well as other stock indexes, it to the primary stocks even during chal- is November 28, 2020, at a price of behooves us to reduce risk. Adding the lenging times, so we’re sticking with $25.00. It should be bought under individual preferred shares I highlighted this position. Pay up to $83.50. $25.00 in a tax-free account. starting on p. 4 will reduce the volatility Cowen Inc. (COWN) is an old-line of the portfolio while also increasing Petroleum financial firm that has been a stalwart the overall yield that you’ll be receiving. The petroleum market has also of Wall Street for many years, and And by adding individual bonds in been a volatile and unsettled market. which I worked with often in my the form of the minibonds I told you On the supply front, the Organization financial career. Revenues are up about above, we’ll further reduce the of Petroleum Exporting Countries strongly over the past year, with gains overall volatility while adding larger (OPEC) plus Russia came to an of 51.40%. And debts are modest by dividends that are fixed, providing agreement on cutbacks in production. corporate standards, with debts to higher secure income for you. We’ll be This was initially met with skepticism, assets sitting at 41.50%. moving 3% from our cash allocation to but was proven out by shipping reports I’m recommending its 7.75% a new category for minibonds, while confirming compliance with cutbacks, 06/15/33 Series L mini-bond under the our new individual preferreds will particularly from Saudi Arabia. symbol COWN.L, with a CUSIP of share space with the two preferred US West Texas Intermediate crude 223622804. It is priced at $24.50 for stock funds we already own. has since rebounded by 22.06% to a a yield of 7.91%. It has a call on June But while I add more investments, current $51.91, with global Brent rally- 15, 2023, at $25.00. It should be bought I’m also recommending that we ing by similar gains to a current $60.46. under $25.00 in a tax-free account. reduce some holdings in the portfolio Meanwhile, natural gas, after US Cellular (USM) is a wireless to make room. surging on colder weather in the US phone company known for its I’ll start with the iShares Core and then giving back some gains, is inexpensive plans for individuals S&P 500 ETF (IVV) in the Indexed now further rising to a current $3.65 and families. It is majority owned by Equities. This ETF synthetically per million British Thermal Units Telephone & Data Systems (TDS), invests in all of the 505 stocks inside (MBTU), which is significantly from which is a major operator of wireless the S&P 500 Index. But it also goes the lows of last year by 43.14%. communications networks around the further by weighting itself toward the Supply and demand on a global scale US (and has on its own been a very largest companies in the index, with is still favoring pricing for crude to successful issuer of minibonds that the intention that it perform more have some support near current prices. I’ve recommended in years past). closely to the largest companies. The In addition, US production thanks to Revenues for US Cellular are fairly reality, though, is that over the past technological developments, has hit constant, with growth over the years five years, the ETF underperformed new highs again. This means that many averaging in the 2% to 3% range. It the general index slightly. US producers that learned how to drive is efficiently managed and delivers a The general market should be down their lift costs for crude in prior positive return on equity of 10.90%. It performing better than it is, given the years may well be profitable even at maintains a pile of cash and its debts underlying economic and business lower crude prices, particularly in areas are low at a mere 24.60% of assets. conditions that I’ve been writing about. such as the Permian Basin where there The minibond I’m recommending But with the overhang of projected are pipeline constraints. is the 6.95% May 15, 2060 Series slowing earnings growth for this year, But with expanded pipes online A under the symbol UZA, CUSIP# for now I see the S&P 500 Index may or coming online, we should see a 911684405. It is priced at $24.29 for a well continue to be more volatile and compression of the discount of local US yield of 7.15%. It has a call starting on not provide the better returns that can crude helping producers’ profitability. (continued on p. 8) 6 Profitable Investing | February 2019 | profitableinvesting.investorplace.com Stocks (56%) TOTAL RETURN PORTFOLIO Entry Fwd. Buy Growth & Income Plays (18%) Symbol T/TF Date Yield Under Comments AllianceBernstein AB T 11/19/18 9.17% 33.00 December provided screaming buy for this asset manager with big dividend Citizens Financial CFG TF 9/8/17 3.05% Hold Banks have great tailwinds of regulatory relief and normalized interest rates Compass Diversified Holdings CODI T 5/21/18 10.06% 15.69 Market is now figuring out what we know about this big dividend earner Hercules Capital HTGC T 6/24/18 9.98% 14.50 This is the way into venture capital for the best in upcoming tech leaders Hormel HRL TF 4/17/17 1.92% 46.50 Meat is not just what's for dinner—it's also great for your portfolio Microsoft MSFT TF 3/18/09 1.71% 115.00 This recurring income tech company is stepping on the gas with cloud services Nestle NSRGY T 11/30/12 2.99% 85.00 Good turnaround for a consumer goods company, and market is noticing NextEra Energy NEE TF 9/8/08 2.52% 185.00 The big growth company in the vital utility market sector Procter & Gamble PG TF 12/17/08 3.14% 94.00 Looking for further progress from the turnaround in its products Regions Financial RF T 4/23/18 3.57% Hold Bank has improving fundamentals, but the market isn't ready to buy Viper Energy VNOM TF 7/23/18 7.58% 38.00 The oil and gas property landlord keeps cutting checks for investors Indexed Equities (18%) Energy Select SPDR ETF XLE TF 5/21/18 3.32% 70.00 Crude price recovering on OPEC+ cuts despite US production, and natural gas buoyant Vanguard Health Care ETF VHT TF 3/16/16 1.48% 174.00 Drug companies took pause but should continue to perform Vanguard High Dividend Yield ETF VYM TF 6/21/16 3.60% 83.50 While still heavily invested in S&P 500, this does provide a boost with dividends Vanguard Info Tech ETF VGT TF 8/20/18 1.45% 195.00 The best of technology companies continues to come from recurring income Vanguard Utilities ETF VPU TF 9/24/18 3.43% 128.00 Utilities are the go-to sector of the market for income and growth Real Estate Investment Trusts (8%) American Campus Communities ACC T 7/12/18 4.24% 45.00 Strong performance from attractive campus real estate assets Digital Realty Trust DLR T 2/9/18 3.77% 125.00 This is a bargain buy in the vital cloud data center market Life Storage LSI T 12/24/18 4.30% 102.00 Self storage REIT provides good income and defense against uncertainty MFA Financial MFA T 6/24/18 11.27% 8.00 Great management of a mortgage portfolio structured as REIT with dividends W.P. Carey Inc. WPC T 1/3/14 5.90% 71.00 The dividend aristocrat of the REITs keeps working through market changes Toll Takers (6%) Buckeye Partners BPL T 8/21/06 9.36% 36.00 Stock rebounding, with good management decisions proving out for now Enterprise Products Partners EPD T 2/22/05 6.29% 30.00 Increase in distributions from one of the best in the pipeline market Kinder Morgan Inc. KMI TF 11/28/14 4.44% 19.00 Big rebound from oversold point in December as more cash coming from pipes Pembina Pipeline PBA T 8/14/12 4.91% 36.50 Part of plan to unlock more of the local gas and oil from Canadian fields Plains GP Holdings PAGP T 3/10/17 5% 26.65 Nice dividend that's fully shielded from current tax liability World Class Franchises (6%) Starbucks SBUX TF 2/8/18 2.23% 69.00 Newer management is working to focus on growth and not just vanity projects United Technologies UTX TF 8/6/14 2.58% 130.00 On track in its workout for the restructure and breakup to release more value Walgreens Boots Alliance WBA TF 4/7/17 2.43% 84.00 Too cheap still, with stock valued at discount to sales with innovations coming Fixed Income (44%) Cash (9%, down from 12%) Synchrony Bank high-yield savings account 7/31/15 2.20% Market Call 866/226-5638 to order Multisector Bonds (8%) Osterweis Strategic Income Fund OSTIX TF 4/19/18 5.13% 11.67 Good curated collection of well-researched bond holdings Intermediate Credit Bonds (7%) DoubleLine Total Return Bond Fund DLTNX TF 7/22/14 3.52% 10.55 Bonds are a good counter to gyrations in stock market SPDR Interm-Term Corp. Bond ETF SPIB TF 4/21/17 3.40% 33.00 This bond ETF is getting noticed by investors seeking stock alternatives Preferred Stocks (7%) Flaherty & Crumrine Pref. Opp. Fund PFO TF 7/23/18 6.86% 11.51 A screaming buy last issue at big discount, but now watch for a pull-back iShares US Preferred Stock ETF PFF TF 3/9/17 8.70% 38.00 Preferred stocks should be go-to for all portfolios NuStar Energy 8.50% Series A NS.A TF 1/22/19 9.49% 25.00 CUSIP# 67058H201 Seaspan 7.875% Series H SSW.H TF 1/22/19 8.40% 25.00 CUSIP# 81254U304 Teekay 9.00% Series A TGP. A TF 1/22/19 9.21% 25.00 ISIN# MHY8564M1131 Municipal Bonds (4%) BlackRock Municipal Inc Trust II BLE T 4/23/18 7.92%* 14.58 Discount to NAV narrowing to 8% with great tax-free yield and bonus dividend Nuveen AMT-Free Muni Credit NVG T 4/23/18 8.45%* 15.15 Discount to NAV dropping to 9% with monthly tax-free dividends Nuveen Muni Credit Income NZF T 4/23/18 8.65%* 15.00 Discount dropping to 8% as investors are buying and portfolio performs Treasury Bonds (4%) Two-year Treasury bond T 12/24/18 Market Buy US Treasury with current coupon (interest rate) near 2.69% at market price Minibonds (3%, new position) Cowen Inc. 7.75% Series L COWNL TF 1/22/19 7.91% 25.00 CUSIP# 223622804; call option 6/15/23 JMP Group 7.25% Series D JMPD TF 1/22/19 7.55% 25.00 CUSIP# 466273109; call option 11/28/20 US Cellular 6.95% Series A UZA TF 1/22/19 7.15% 25.00 CUSIP# 911684405; call option 2/15/19 At least 10% below buy-below price as of the publication of this issue T: Buy in taxable account for best results TF: Buy in tax-advantaged account (IRA, etc.) for best results *Taxable-equivalent yield Profitable Investing | February 2019 | profitableinvesting.investorplace.com 7 22.00
21.00
20.00
19.00
18.00 S&P 500 Price to Earnings Ratio 17.0017.095
Sep Dec Mar Jun Sep Dec 2017 2018
Bloomberg US REIT Index Price to Earnings Ratio 48.00
46.00
44.00 43.401 42.00
40.00
38.00
36.00
34.00
32.00 Mar Jun Sep Dec 2018 2019
S&P Utilities Index Price to Earnings Ratio 17.50
17.00
16.50 16.395
16.00
Mar Jun Sep Dec 2018 2019
S&P Preferred Stock Index Total Return 35
30
25
20
15
10
5
0
2014 2015 2016 2017 2018
That said, field development in the Crude and Gas Rebound US and particularly around the globe 5.00 continues to be pulled back. This is 75 why I put Schlumberger (SLB) on 4.50 hold, as it a the leader in this market. 70 I see this company doing much better, 65 but the market is really challenging for 4.00 the stock. Sell Schlumberger for now. 60 Meanwhile, our overall up, down 3.50 3.39 55 and midstream synthetic holding in 52.36 the Energy Select SPDR ETF (XLE) 3.00 50 has the benefit of exposing us to the profitability of the midstream 45 2.50 pipelines and the refiners as well 40 Mar Jun Sep Dec as the producers. I continue to see 2018 2019 value across this industry, which Source: Bloomberg Finance L.P. is capitalizing on the improvement ally no debt, and over-the-top returns model. Microsoft is, to me, one of the in natural gas particularly in the on equity and its capital base of land poster children of this movement. liquified natural gas (LNG) market. and other assets. Apple has been resistant to this. Continue to buy and own the ETF. The dividend distribution is, of But while it has had some success Then we have Viper Energy course, dependent on royalty income in its services, if it can’t grow the (VNOM). This is not a producer, a for each quarter. And it has been universe of its hardware then it can’t toll-taking pipeline or a refiner, but a firmly on the rise over the past several significantly expand its services for landlord for oil- and gas-rich land in quarters on both higher petrol prices more recurring income. the Permian Basin of the US. and further leases of its lands. I’ve been writing about this As such, it leases out land parcels to The last distribution was 58 cents, challenge in past issues and in the exploration and production companies for a current yield of 7.93%. The next Journal. And I’m hopeful that Apple and in turn collects rent as well as distribution, payable in late February, will eventually make transformative royalty income from oil and gas could drop as low as the upper changes to the company that will put produced from its lands. 30-cent level. But even at that level, it back on a growth trajectory. I was The stock was on a nice ascent until the yield would be around 5.49%— going to wait for the quarterly report the general stock market slump in the still quite attractive. And note that if later this month for a conclusion. fourth quarter. But since December petrol remains at levels even close to But with the company warning of 24, the stock has rallied by 27.58%. where it is now, the following payout unit sales and suppliers providing Meanwhile, there have been numerous would be higher. more behind the scenes numbers, I’m reports of fund investors buying into the Of course, there is also the revenue fearful for more disappointment. company. This news comes on the back from royalties from higher natural gas I recommended selling Apple in of the buying of thousands of additional prices that would also be bolstered. I the Journal on January 15, and I am shares by the President and COO of continue to recommend buying Viper reiterating the sell again here. There Diamondback Energy (FANG), which under $38.00 for a tax-free account. is much to like about the company, has a significant ownership stake in including its products and its loyal Viper, as Viper was formed in a drop- Time’s Up customer base. We’ll be able to down transaction from Diamondback’s Apple (AAPL) has been a tough stock buy it back at a later date after its property and other assets. to call. It’s been in the portfolio since fundamentals improve. Viper, of course, benefits or loses December 2015, and even with the on the general price of oil and gas, as recent sell-off it has garnered Profitable Banking Blues that impacts the value of its royalty Investing readers a total return of Last year saw so many positive payments. But at the same time, since it 47.85%. This is better than the S&P developments for US banks. First, the doesn’t need to commit capital for field 500 Index, but it is less than the S&P Tax Cuts & Jobs Act (TCJA) provided development and equipment repair, it Information Technology Index with its a big boost to net profits. Then came a doesn’t need to worry about cash-flow return of 61.34% for the same period. series of legislative and administrative levels—cash only comes in. As such, There are many successful regulatory reforms. All the while, the it doesn’t need to hedge against oil and technology companies that have economy continued to rapidly advance gas prices, which cuts costs. quickly moved away from unit sales and interest rates normalized. This It has piles of cash on hand, virtu- to recurring income as a core business should have been positive for banks.
8 Profitable Investing | February 2019 | profitableinvesting.investorplace.com We started with Citizens Financial and C cycles. Of course, with the S&P But now, let’s look at the three cycles Group (CFG) in the portfolio, and I 500 Index up so far, the rising tide is and some of the highlight stocks. added Regions Financial (RF). Both doing its job to lift nearly all boats. of these regional banks were primed to The key themes that are working Cycle A benefit from all of the above to improve for the Machine start with dividends. One of the best sectors last year their efficiencies, improve their margins Cash is king for investors, who should was drug stocks, until it pulled back including their net interest margins and continue to line up for dependable and in December. Merck’s (MRK) stock generate more loans at better prices. hopefully rising dividend distributions. has taken a pause at the start of the Much of the above has been coming And while the general stock market year, with a slight drop in price. forward for both banks. But the stock is up for now, as I note in this issue, I However, the pipeline for new drugs market has not been as appreciative of see plenty of challenges for the market continues to prove out well, including the results so far. In addition, strangling and continue to advise that a focus the company’s cancer drug line. Use regulation over the past decade has on income will be the best and safest the pull-back to buy in under $75.00. resulted in competition for corporate course of action for all investors. As noted above, utilities remain loans made by non-banks. I still see lots The two sides of the coin for us the best go-to for dividend income. that is working for both banks. But I right now are dividend-investing BCE (BCE) provides telecom for the placed them on hold in the Journal on stalwarts like utilities and real estate Canadian market, and while revenue January 15. I will review both compa- investment trusts (REITs), which growth continues to be modest at nies’ quarterly reports and will have a worked for us through most of 2018, 4.60%, it has been dependable for divi- call to buy more or sell in the next issue. and finding bargains in companies dend support with a yield of 5.42%. I’m and industries that were dumped in raising the buy-under price to $43.00. Incredible Dividend the fourth quarter’s general sell-off Back in the US market, PPL (PPL) and volatility for emotional rather and South Jersey Industries (SJI) are Machine than fundamental reasons. proving out my theory that the utilities We’re starting the year with a lot This includes stocks in the segment should outperform the S&P of success in the Incredible Dividend petroleum industries and our limited 500 Index over 2019. Up 5.01% and Machine across all of the three A, B including of financial companies. 6.29% so far, we’re off to a good start. The key for both is the dependability of regulated local market revenue as well The Incredible Dividend Machine as the addition of broader open-market Cycle A (January, April, July, October) T/TF Buy Under initiatives for growth over time in reve- BCE Inc. (NYSE: BCE, 5.4%) TF $43.00 nue-producing assets. Both stocks are Cisco Systems (NASDAQ: CSCO, 2.9%) TF $50.00 still at nice discounts to what I see as Merck (NYSE: MRK, 2.9%) TF $75.00 more fair values and should be added Mondelez International (NASDAQ: MDLZ, 2.4%) TF $46.00 to with any cash on hand for this cycle. Northern Trust (NASDAQ: NTRS, 2.4%) TF $90.00 PPL Corp. (NYSE: PPL, 5.5%) TF $33.00 Now a word on Northern Trust South Jersey Industries (NYSE: SJI, 3.9%) TF $36.00 (NTRS). Earlier, I noted my concern that despite the number of regulatory Cycle B (February, May, August, November) and economic tailwinds for banks, AT&T (NYSE: T, 6.6%) TF $37.00 investors might continue not to notice. Colgate-Palmolive (NYSE: CL, 2.7%) TF $64.00 I’m also concerned that the past General Mills (NYSE: GIS, 4.5%) TF Hold decade of constraints on lending Magellan Midstream Partners (NYSE: MMP, 6.3%) T $65.00 has left the industry susceptible to ONEOK Inc. (NYSE: OKE, 5.4%) TF $64.30 non-bank competitors. Northern Trust Realty Income Corp. (NYSE: O, 4.1%)* T $68.98 is a bit different, as it is more focused Verizon (NYSE: VZ, 4.2%) TF $62.50 on the asset management side. Its Cycle C (March, June, September, December) stock rally so far in 2019 may well Dominion Energy (NYSE: D, 4.9%) TF $78.00 show the way for the year. It is a buy Easterly Gov’t Properties (NYSE: DEA, 6.0%) T $21.54 ideally under $90.00. Main Street Capital (NYSE: MAIN, 6.3%)* T $42.00 Marathon Petroleum (NYSE: MPC, 2.8%) TF $74.27 Cycle B Pfizer (NYSE: PFE, 3.2%) TF $45.00 Cycle B is really off to a good start. Public Svc. Enterprise Group (NYSE: PEG, 3.5%) TF $56.00 AT&T (T) is one of the best value stocks Ventas (NYSE: VTR, 5.2%) T $63.00 in the market right now. The combina- tion of its utility-like business along *Monthly dividend payer with content integration and expansion
Profitable Investing | February 2019 | profitableinvesting.investorplace.com 9 is providing for dependable higher divi- recently that has been challenging in from its refineries. It’s up so far by dends with growth I see for the year. the Commonwealth of Virginia over nearly 9% and is a buy under $74.27. The market may finally be catching on. its Atlantic Pipeline. Use the near- It is a bargain buy under $37.00. term challenges to buy this impressive Model Mutual Fund Verizon (VZ) is priced at a much stock under $78.00. higher value than AT&T and has a Like Merck, Pfizer (PFE) has taken Portfolios lower yield. This makes it a purer a pause from its great performance The model mutual fund portfolios play on the telecom utility sector. It last year. I like the drug companies, continue to provide more of a is also going its own way on fifth- with drug pipeline investments and focus away from the general S&P generation wireless (5G) with lots of management of existing products. Use 500 stocks and towards the more new equipment investment, primarily the pull-back to buy it under $45.00. dependable income-producing sectors from Ericsson (ERIC). I’m concerned REITs, as noted in this issue, should of utilities, REITs and the increasingly that it may be ahead of the market and be a dependable go-to for dividends resilient recurring revenue companies regulators in terms of 5G standards. again this year. We have Easterly in information technology. However, that shouldn’t threaten the Government Properties (DEA) and In addition, my changes in the last dividend. It remains a buy for income Ventas (VTR) in this cycle. Both are few months to up the income focus under $62.50. off to a good start. There are some from dividends in the general market The consumer companies Colgate- concerns over the government shut- index funds and the fixed income Palmolive (CL) and General Mills (GIS) down’s effect on lease payments. This (bonds) should provide more of a are also both up. Colgate has shown is very short-term, and our REITs will cushion from volatility in the general progress at cost control and product see these rents being paid. Use this stock market that I see coming this year. focus. General Mills has been on talk to buy into the expanding real And as I presented earlier in this hold, pending some proof of the same estate assets of Easterly under $21.54. Issue, preferred stock is one of the more improvements. But with strong buying Senior living and care is also very attractive segments of the stock market. of the stock and the possibility of good dependable and what Ventas does Note in the Hassle-Free ETF Portfolio news in its next earnings report, we well. I’m raising the buy-under price that the iShares US Preferred Stock may be provided that proof. Keep the to $63.00. ETF (PFF) continues to be a good buy. stock for now, and I’ll be watching their As noted earlier, traditional banks I’m looking at alternatives for the other presentation at next month’s Consumer are feeling the competition from model mutual fund portfolios and will Analyst Conference. non-bank lenders like Main Street be bringing my selections in the next The other key sector that I like in Capital (MAIN). This business issue. For now, the allocations across Cycle B is the petroleum market, with development company (BDC) is a good the different model portfolios should be Magellan Midstream (MMP) and the player in this segment, as the market good, and the addition of preferreds will gas-focused ONEOK (OKE). Both are is noticing. It remains a bargain under only make them better in short order. rallying, as revenues should be on the $42.00 with monthly dividends. In addition, please note that in each rise for both. Marathon Petroleum (MPC) is now portfolio, we’ve been holding more Cycle C able to use cheaper feedstock crude cash than normal. You should adhere from Canada and the shale fields of the to these levels—even though it could In Cycle C, Dominion Energy (D) US to bolster margins. And while gaso- cost us opportunity, it also provides continues to juggle its utilities and line inventories are up, the company a needed cushion for the market’s pipelines businesses. It is the champ should be able to keep cash flowing potential volatility. when dealing with regulators—but
All-in-the-Family Fund Portfolios Fidelity (800/544-8888) T. Rowe Price (800/638-5660) Vanguard (800/662-2739) Advisor Strategic Income (FADMX)...27% Spectrum Income (RPSIX)...... 29% High Dividend Yield Index (VHDYX)...... 22% iShares Core High Div ETF (HDV).....22% Equity Income (PRFDX)...... 18% Intermed.-Trm Inv.-Grade (VFICX)..... 17% Real Estate Investment (FRESX)...... 15% Real Estate (TRREX)...... 15% Real Estate Index (VGSIX)...... 15% Money market...... 12% Value (TRVLX)...... 14% Money market...... 10% L-C Value Enhanced Idx (FLVEX)...... 7% Money market...... 12% Total Bond Market Index (VBMFX).... 10% L-C Growth Enhanced Idx (FLGEX).....5% Growth Stock (PRGFX)...... 5% Value Index (VIVAX)...... 9% Select Software & IT Svcs (FSCSX)....5% Science & Technology (PRSCX)...... 5% Growth Index (VIGRX)...... 5% Select Utilities (FSUTX)...... 5% Global Stock (PRGSX)...... 2% Information Technology ETF (VGT)...... 5% Worldwide (FWWFX)...... 2% Utilities ETF (VPU)...... 5% Global Equity (VHGEX)...... 2%
10 Profitable Investing | February 2019 | profitableinvesting.investorplace.com rate would be 0%; for income over REIT dividends, despite being You Have Questions, that but under $425,800, it would be ordinary, often come with return I Have Answers 15%; over $425,801, it would be 20%. of capital, which is deducted from I always appreciate your queries and But you must have held the stocks the taxable amount of the dividends comments on my work in Profitable paying the qualified dividends for paid, and is a way passthroughs share Investing and the Journal. This extends at least 61 days to be eligible for the deductible expenses like depreciation. to the collection of individual holdings lower tax rates on the dividend income. In addition, thanks to the Tax Cuts & in our model portfolios as well as Ordinary dividends are paid by Jobs Act of 2017, REIT dividends also general investing discussions. Please passthroughs as well as by bonds and get an additional benefit of offering a keep your queries and comments other fixed-income investments. They 20% deduction of the taxable amount coming. You can email my team at are taxed at your own general tax rate of the dividend for individual taxpayer [email protected] or by for all earned income based on the investors in the US. This makes the calling us at 1-800-211-8566. general filing rules of the IRS, which dividends held in a taxable account Here are some of the queries that can reach 37% for individuals. more valuable. my team and I and recently received, Q: What are the tax advantages Other passthroughs, like MLPs, and my replies: of holding REITs and MLPs in also pay ordinary dividends and often come with tax deductions of their own Q: I’m waiting on my tax taxable accounts? A: In general, I recommend holding that reduce the current tax liability information from my broker for for individual investor taxpayers. This my portfolio holdings. What is the passthroughs, including real estate investment trusts (REITs), business is called income tax shielding and difference between qualified and means that you will have some or all ordinary dividends, and how will development companies (BDCs), limited partnerships (LPs) and master of the dividend shielded from your this impact my tax bills? income tax liability for the year. But A: In general, qualified dividends limited partnerships (MLPs) in taxable this comes with cost that the amount are considered so if they are paid accounts. The reason is that these shielded reduces your cost basis for by regular corporations and not stocks are tax-advantaged to reduce the the stock, which could increase your passthroughs (see the next question tax liability on your dividend income capital gains tax when you sell. But for a brief list of these). during your holding period. Qualified dividends are taxed at the capital gains rate, which will vary depending on your overall taxable Hassle-Free ETF Portfolio income for the year. For overall Vanguard High Dividend Yield (NYSE: VYM) 20% Vanguard Real Estate (NYSE: VNQ) 15% taxable income under $38,600, the SPDR DoubleLine Total Return Tactical (NYSE: TOTL) 12% SPDR Barclays Intermediate-Term Corporate Bond (NYSE: SPIB) 11% Vanguard Value (NYSE: VTV) 11% Fund Supermarket Money market 9% Portfolio iShares U.S. Preferred Stock (NYSE: PFF) 5% iShares Russell 1000 Growth Index (NYSE: IWF) 5% Vanguard High Dividend Yield 20% Index (VHDYX)* Vanguard Information Technology ETF (NYSE: VGT) 5% Vanguard Real Estate Index 15% Vanguard Utilities ETF (NYSE: VPU) 5% (VGSIX)* SPDR MSCI All-Country World ex-US Index (NYSE: CWI) 2% DoubleLine Total Return Bond (DLTNX) 13% Money market 13% Osterweis Strategic Income Fund 12% The Ten-Minute Retirement Portfolio (OSTIX)* Vanguard High Dividend Yield ETF (NYSE: VYM) 20% Vanguard Value Index (VIVAX)* 8% DoubleLine Total Return Bond Fund (DLTNX, $2,000) 17% PRIMECAP Odyssey Stock Vanguard Real Estate ETF (NYSE: VNQ) 14% (POSKX) 6% Fidelity Select Software & IT Vanguard Federal Money Market Fund (VMFXX, $3,000) 10% Services Portfolio (FSCSX) 5% SPDR Intermediate-Term Corporate Bond ETF (NYSE: SPIB) 8% Fidelity Select Utilities Portfolio Goldman Sachs MLP Income Opportunities Fund (NYSE: GMZ) 7% (FSUTX) 5% Osterweis Strategic Income Fund (OSTIX, $5,000) 6% Baron International Growth 3% Vanguard Information Technology ETF (NYSE: VGT) 5% (BIGFX) Vanguard Short-Term Investment Grade (VFSTX, $3,000) 5% *Transaction fee charged by most discount Vanguard Utilities ETF (NYSE: VPU) 5% brokers. You can avoid this fee by dealing directly with the fund sponsor. WisdomTree International Equity ETF (NYSE: DWM) 3%
Profitable Investing | February 2019 | profitableinvesting.investorplace.com 11 since capital gains taxes are less than ordinary income tax rates (and can be SUMMARY offset by taking capital losses), this again makes them tax-advantaged and best to be held in a taxable account. Actions to Take In addition, if you hold some of these sorts of stocks in tax-free accounts, This Month the IRS limits the dividends earned to less than $1,000—otherwise, they will be taxed even if held in a tax-free account. This is under the IRS rules 1. Sell Apple (AAPL) from the Total Return Portfolio if you concerning Unrelated Business Taxable Income (UBTI). haven’t done so already. See p. 8. 2. Sell the iShares Core S&P One Final Thought 500 ETF (IVV) (see p. 6) and 2018 and the Power of Dividend Investing Schlumberger (SLB) (see p. Investors dismissing dividends as trivial do so at their own peril. Sure, 8) both from the Total Return buying stocks is about figuring out economic and market opportunities and Portfolio. researching the best companies that will build the value of their businesses. 3. Buy the collection of individual But even the best companies can see their stocks undervalued by the preferred stocks from Seaspan market as it takes its time coming to the right stock price. As we saw (SSW.H; CUSIP# 81254U304), last year, there was a long stretch of time where the general stock market Teekay (TGP.A; ISIN# stalled, leaving many good stocks in limbo. And, of course, in the fourth MHY8564M1131) and NuStar quarter, the market’s sell-off took down many good companies’ stocks. (NS.A; CUSIP# 67058H201) I Dividends are important. In tough markets, they pay you to be patient and introduced starting on page 4, each wait for the market to properly value your stocks while cushioning the blows under $25.00, for the Total Return from sell-offs. In my book, paying a generous dividend shows that the company Portfolio. Use a tax-free account. values shareholders, and committing to regular dividends forces discipline in cash and capital management. And, of course, shareholders can always make 4. Buy the minibonds from the determination to buy more shares with their dividend distributions, growing JMP Group (JMP.D; CUSIP# the value of their position even if the stock’s price isn’t going up. 466273109), Cowen (COWN.L; Last year, the S&P 500 Index was down 6.24%. But with dividends, the CUSIP# 223622804) and index’s net loss was limited to 4.39%. That’s an off-set of 1.85%, saving US Cellular (UZA, CUSIP# 29.65% of the price loss of the stocks in the weighted index. 911684405) I laid out on page 6, each under $25.00, for the Total That’s a good proof element. And of course, in the Profitable Investing Return Portfolio in a tax-free model portfolios, the dividends from many of our holdings are significantly account. higher than the average yield of the S&P 500’s current 2.06% This year may be starting off on a good foot, with some buying across 5. Buy Viper Energy (VNOM) the markets. But I’m preparing you for challenges to the general stock under $38.00 and Vanguard High market with more dividend income from more stable investments. Dividend Yield ETF (VYM) under Start by taking some of your available cash to buy into the three new $83.50 for tax-free accounts. individual preferred stocks you’ll find on pp. 4-5 that are paying dividend yields from 8% to over 9%. NEIL GEORGE From there, continue to focus on higher dividends with the new began his financial minibonds on page 6 that all yield in the 7% range. services career in 1987 with Merrill Lynch And note, portfolio investing always requires the discipline of knowing International Bank in when to sell. I’m recommending cashing out of the iShares Core S&P 500 Vienna, Austria and ETF (IVV) as well as Apple (AAPL) and Schlumberger (SLB). subsequently held senior Continue the focus on dividends with the rest of our good payers from positions at what are now our stocks, bonds and funds in the rest of the model portfolios as we US Bank and globally-based Investec PLC. continue to head on into 2019. Neil’s long career has included stints as a bond trader and the manager of a fixed- income fund worth over $1 billion. An All My Best, income hunter at heart, he’s also the former editor of several successful investment advisories dedicated to finding Wall Street’s best yields. Neil earned an MBA Neil George in international finance from Webster University in Europe and a bachelor’s degree in economics from King’s College. His market commentary and insights have been featured in the Wall Street Journal, Barron’s, Bloomberg, CNN and NBC.