August 2018 Vol. 5 Issue 3

Investing with a Long Term Prospective

s my tenure as the Hunter has evolved, I have become more and more A focused on providing investing education In This Issue and recommendations that will help you be a long- term successful investor. Bond Investing Strategy ...... 4

By long term, I mean strategies that can be adjusted Portfolio Update ...... 6 to work for decades. I am building my own portfolio using the Dividend Hunter, 30 Day , and Current Portfolio ...... 7 Automatic Income Machine strategies, and I plan to have them support my life style for many, many years.

As Dividend Hunters we face two somewhat mutually exclusive facets of investing in higher stocks. The benefit of high yield is the predictable income stream. I focus on building with an 8% yield to produce growing income stream portfolios as opposed to strategies that try to time buying and selling to generate capital gains.

I believe that an income focused stock market strategy is more sustainable for the long term. The flip side of our income focused strategy is that we must stay invested in stocks through market swings, including the inevitable bear markets. Emotionally, it is very hard to hang on to stocks when your portfolio has dropped by 30%, 40% or even more.

To avoid that expected pain, investors fearfully look for signs of the next bear market, so they can sell stocks before it arrives. That strategy results in the unwanted effect of cutting off the dividend income stream.

The final piece of the dilemma is to determine if our high yield stocks will be able to sustain dividends through the next bear market. What happens to dividend payments through the next bear market will likely be determined by the cause of the bear market. A FAANG collapse bear market should not affect dividend payers. An economic recession driven bear market could lead to dividend cuts.

It will be my job to keep a close eye on the finances of our individual stocks and try to ferret out those whose businesses have been put at risk.

As part of my long term focus and desire to help you have a stable long term investment plan, I am always on the look out for investment ideas that would diversify and protect our high-yield stock portfolios.

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August 2018 Vol. 5 Issue 3

To that end, I have recently discovered some investment products that would be a great way to add bond exposure to an income portfolio. I am not at this time officially adding these investments to the Dividend Hunter recommendations list.

However, they are an attractive and safe way to get bond exposure in your portfolio and will provide some peace of mind if you are afraid of a pending bear market or economic recession.

About the next recession, I am spending a lot of time reading different “expert” opinions on when the next economic slowdown will arrive. The just released second quarter GDP growth number of 4.1% indicates we are a long way away from a recession.

That level of growth is the opposite of what we would see with a pending recession. Corporate profits show strong continued growth. Jobs are plentiful, and unemployment is falling. The economy currently is really doing well. The best it has since before the last recession. Many pundits point to a possible inversion of the as a sign of a coming recession.

The rear view mirror shows yield curve inversion as a reliable leading indicator of each recession. I am thinking it might be different this time. The Fed is raising short term rates to normalize those interest rates. That’s a good thing. Long term rates, as indicated by the 10-year Treasury rate, have trouble rising when government bond rates in Europe and Japan remain close to zero.

Long term bond money natural flows to U.S. bonds, holding down yields. This chart shows that none of the usual precursors to a recession are currently occurring.

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August 2018 Vol. 5 Issue 3

There is also the possibility of a “black swan” event drives the U.S. or global economy into recession. One example would be if the Strait of Hormuz was closed by some sort of military action. One-fifth of the world’s oil supply travels through the Strait and if that oil couldn’t move, energy prices would sky rocket.

There is also the possibility that the U.S. stock market could go into a correction that leads to a bear market just because investors get scared and overwhelm prices and ETF holdings with sell orders. This type of market action would be truly ugly, but in the long term not have a meaningful effect on our investment theses.

My point with these discussions is that I keep watch on both the Dividend Hunter recommended stocks and the big picture as far as the economy and markets go. I also strive to give you as much information and knowledge as possible so that you will have confidence to get your investment portfolio safely through market disruptions.

To access this months Monthly Dividend Paycheck Calendar, please click here.

Land, Fly or Die,

Tim Plaehn Editor The Dividend Hunter

P.S. On Tuesday, August 7th we’re hosting our next Insiders live session and I’d like to send you an invitation.

This upcoming live session will be a “ask anything” format where you can ask me and even other attendees questions about dividend and income investing.

We’ll also talk about how to handle current volatility, how to balance aggressiveness with diversification and reinvestment of dividends, and the much discussed – at least by the so-called experts – inverted yield curve and coming recession.

To find out how to become an Insider and get on the list for the invitation click here now. This month’s issue will still be here when you’re done but the invitation might not be. Go ahead and click now.

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August 2018 Vol. 5 Issue 3

Bond Investing and A Strategy to Do So

A balanced portfolio of bonds and stocks is the Fund managers constantly buy and sell bonds at traditional diversification strategy. Percentages the current market prices and yields. vary, but it has long been recommended to have at least 30% of an investment portfolio in With a bond fund there is not the certainty of bonds. I recently read a recommendation for getting the face value at some future maturity 70% bonds and 30% stocks. Investors who date. As a result, bond funds can be terrible follow this type of asset allocation typically use investments in a rising interest rate ETFs, either on their own or through an environment. investment advisor. Buying individual bonds with the plan of holding For the last decade, bonds have not been an the bonds to maturity avoids the bond fund attractive investment asset. The Fed’s zero dangers. However, unless you can buy bonds in interest rate policy—ZIRP—resulted in very low $100,000 increments, it is nearly impossible to rates across the yield curve. Earning very low, get decent prices, especially outside of U.S. single digit yields is not a way to make a Treasuries. There are very few bond dealers or portfolio grow or to generate a decent income. brokers who want to work with individual investors. From 2008 until the present time, investing in bonds or bond funds kept your money almost Also, once you own individual bonds (outside of completely idol. Most of us with capital to Treasuries) it is very difficult to sell them invest want to earn some sort of return from without taking a serious haircut. Even if we those investments and the bond market did not don’t want to buy individual bonds for an fill that goal. investment portfolio, I want you to understand the individual bond strategy of building a With interest rates now creeping higher, I think laddered bond portfolio. This involves spreading it is time to again understand the investment your bond investments across a range of potential in the bond markets. First, let’s look at maturities. the biggest negative of owning bonds. Rising interest rates cause bond prices to fall. It’s a Once established, the ladder operates more like strictly mechanical, mathematical effect. If you a downward moving escalator where, as near own bonds, and rates go up, you will see your term bonds mature, the capital is reinvested bond values fall. Losing money on bonds can be into longer-term, higher-yield bonds. avoided by holding them until they mature. Now let’s discuss a real investment opportunity. At that time the full face value is paid off. This I recently became aware of the BulletShares technique does not work with bond funds. The Corporate Bond ETFs from . These funds fund share prices will go down with rising rates were acquired by Invesco in April, purchased and will not recover unless rates decline. That’s from Guggenheim Investments. because a fund’s portfolio is not fixed. 4

August 2018 Vol. 5 Issue 3

With the purchase, Invesco slashed the This means you can count on each of the funds management fees on the investment grade to earn the listed annualized return. You can bond ETFs. The BulletShares are ETFs with fixed also see how the yield is higher as the termination dates, a date when the bonds in maturities get longer. each fund will mature and the proceeds paid With this five-year ladder, the blended yield-to- out to investors. Invesco offers both investment worst is 3.3%. Not bad, considering the amount grade and high-yield BulletShares funds. of flexibility this strategy provides. To manage Here are the currently available BulletShares the ladder, as the nearest term ETF pays out the ETFs with their symbols and maturity years. proceeds would be invested in the next longer term ETF in the series. For example, BSCJ will terminate at the end of 2019.

When the proceeds show up in your brokerage account, you would invest that money into BSCO, which matures at the end of 2024, one year past the longest maturity when the ladder was established.

Invesco ETFs can be bought and sold without Because these ETFs have a fixed termination, any commissions through Charles Schwab. I we can build bond portfolios that are low cost have tested that, and it is a fact. and diversified by holdings and lengths of maturity. The Invesco website has a page where With other brokers you will likely pay a regular you can put together your own bond ladder stock trade commission. The funds are easily using these funds. Here is a five-year ladder that marketable, so you can turn shares into cash if I put together using the investment grade bond you need to. At this point in the business cycle, I ETFs: recommend sticking with the investment grade ETFs. The risks in the high-yield side are not https://www.invesco.com/bond-ladder/ worth what you could earn.

Currently, BulletShares are not a new Dividend Hunter recommendation. I think they are an attractive way to get bond exposure in your portfolio. You need to decide if you want to own them and how much based on your own financial situation.

I personally have purchased a small position in each of the ETFs shown on the five-year ladder. Here are some of the important details. An At this time, they make up about 6% of the appealing factor is that the yields-to-maturity money I have committed to following the and yields-to-worst are basically the same Dividend Hunter recommendations. I have set number. them in my brokerage account to automatically reinvest dividends. 5

August 2018 Vol. 5 Issue 3

These are the only investments in my portfolio Macquarie Infrastructure Corporation (NYSE: set for reinvestment. MIC) announced an agreement to sell 100% of the Bayonne Energy Center power generation I am in the accumulating phase of my investing facility in Bayonne, New Jersey for $900M in life cycle and I want to see how much the cash and assumed debt. The net proceeds of positions will grow until the termination dates. $650 will be used to pay down MIC’s debt, At this point in time, BulletShares are sort of an further strengthening the company’s balance experiment and could become a more sheet. I expect MIC to restart dividend growth important investment tool if interest rates in 2019. move higher. The will be much more stable than the share prices of the high yield stocks in PermRock Royalty Trust (NYSE: PRT) declared a the Dividend Hunter recommendation list. $0.1292/share monthly dividend, up 13.6% from the prior dividend. Remember that PRT

will pay variable dividends, dependent on production levels in the dedicated properties Portfolio Update and crude oil prices.

Golar LNG Partners (: GMLP) declared a It is again quarterly earnings season. Most of $0.5775/share quarterly dividend, the same as the stocks on the Dividend Hunter the previous dividend. This is a very good sign recommendations list will be reporting during that the company will continue the dividend for the first 10 days of August. Here are the news the next few quarters while we wait for cash items of interest that came up over the last flow to rebuild and again fully cover the month. dividend payments. GMLP should report earnings on August 24. New Residential Investment (NYSE: NRZ) reported earnings on July 26. The results were right in line with my expectations. The company is doing very well. Comparison with Q2 2017 results are not useful, do to a big, one-time book value gain. The NRZ dividend is secure, with room for an increase when the Board of Directors feels ready. I expect they are waiting for the recent acquisition of Shellpoint Partners, a mortgage origination and servicing company to be fully absorbed into the NRZ business results.

ONEOK, Inc. (NYSE: OKE) will increase its dividend rate every quarter. Last week the company announced a 3.8% dividend increase for the next payment on August 14. Nice!

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August 2018 Vol. 5 Issue 3

Current Portfolio: Buy / Accumulate

Entry Recent Div. Current Cash Stock Entry Date Price Price Earned Yield Return

PermRock Royalty Trust (PRT) 06/29/18 $16.00 $16.15 $0.00 8.5% 0.00% TPG Real Estate Finance Trust (TRTX) 03/28/18 $20.00 $20.66 $0.43 8.3% 2.15% ONEOK Inc (OKE) 03/01/18 $57.74 $70.11 $0.7950 4.5% 1.41% Pattern Energy Group (PEGI) 12/29/17 $21.56 $18.43 $0.8440 9.2% 3.91%

Arbor Realty Trust Inc. (ABR) 09/29/17 $8.12 $11.16 $0.65 8.9% 7.93%

STORE Capital (STOR) 09/01/17 $25.55 $27.23 $1.24 4.5% 4.85%

Infracap REIT Preferred ETF (PFFR) 06/30/17 $26.27 $24.93 $1.747 5.9% 6.65%

LTC Properties Inc. (LTC) 09/28/16 $52.61 $41.23 $4.18 5.5% 8.04%

Golar LNG Partners LP (GMLP) 09/01/16 $19.29 $15.88 $4.0425 14.2% 20.96%

MGM Growth Properties LLC (MGP) 07/01/16 $26.43 $30.39 $3.22 5.6% 12.18%

Uniti Group Inc. (UNIT) 05/31/16 $24.98 $16.95 $5.40 13.9% 21.62%

Chatham Lodging Trust (CLDT) 03/31/16 $20.62 $21.29 $2.97 6.0% 14.40%

Easterly Government Properties (DEA) 03/01/16 $17.50 $18.85 $2.44 5.4% 13.94%

Reaves Utility Income Fund (UTG) 11/02/15 $29.95 $30.02 $5.960 6.6% 19.90%

Hercules Tech. Growth Capital (HTGC) 04/30/15 $13.90 $13.46 $3.72 9.2% 26.76%

InfraCap MLP ETF (AMZA) 03/31/15 $21.51 $7.59 $6.87 17.2% 31.94%

EPR Properties (EPR) 10/30/14 $55.64 $65.78 $14.28 6.5% 25.66%

New Residential Investment (NRZ)** 07/30/14 $12.16 $17.78 $7.3000 11.1% 60.03%

Main Street Capital (MAIN) 06/27/14 $32.51 $39.34 $11.070 5.8% 34.05%

Starwood Property Trust (STWD) 05/30/14 $24.39 $22.52 $8.16 8.6% 33.46%

Macquarie Infras. Company (MIC) 05/30/14 $61.48 $45.43 $19.02 8.8% 30.94%

Recent price is determined by the last "Ask" price at the closing of the market on the day before publication; most recent update 07/30/18.

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Notes:

Entry price is determined by the last "Ask" price at the closing of the market on the day before publication. Recent price is determined by the last "Ask" price at the closing of the market on the day before publication. Status denotes whether you should continue to accumulate shares, listed as “Buy” or should hold but not accumulated any more shares, listed as “Hold”. Annual Div is the dividend payment as declared by the company and made publicly available. It is as of the closing of the market on the day before publication. Current yield reflects the yield of the regular annual dividend payments (monthly or quarterly depending on the stock) in relation to its share price at the time of publication. We make no guarantee that any company in the portfolio will continue dividend payments. For a more detailed look at the portfolio, log on at www.investorsalley.com.

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

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