How We Trade This Mess: Cash Now, Those 3 Big Dividends Later

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Listen, I’m as ready as you are for this sale to end. And when stocks fall – sending dividend yields skyward – I that bad want to save the truck.

As value-oriented dividend investors, buying dips is what we live for. Being in cash is scary for me, and I’m sure it is for you too.

But now is not the time. That’s why I recommended single action this year in my Contrarian Revenue Report service, while urging my readers to store money. And after last Thursday’s dumpster fire, we’re glad we did!

We have also lightened our portfolio in recent months, in particular by taking good profits on three banking stocks that we sold in May:

There was nothing wrong with those three: they were simply taking advantage of the Fed’s injection of cash into the markets, and the spread between the 10-year Treasury note (which they lend to customers) and the Fed’s key rate (at which they lend to each other).

Now that Powell has overdone it and let the Fed rate rise, bank profit margins are squeezed, so it was time to say goodbye. And we’ve gotten some nice profits off the table doing it.

Priority to the security of your income (and your nest egg)

This is exactly how we negotiate our dividends in Contrarian Revenue Report. And that’s why I won’t be a prisoner of the old-fashioned investment newsletter model that says I have to produce a new pick every month. If I think it would put your money at risk — as I think it would today — I’ll do what I did: urge readers to hoard some cash and build their shopping lists.

When the time comes to deploy that money, we will be ready. I’ll tell you exactly when that moment comes Contrarian Revenue Report.

Closed-end funds top our list

One of the best things we’ll be very interested in buying when the smoke clears are high-yield closed-end funds (CEFs). These vehicles are ideal because they often trade in the open market at different levels (and usually discounts!) of the per-share value of their portfolios, or net asset values ​​(NAVs) in CEF parlance.

CEFs are cheap now, but I expect them to be even cheaper in a few months. Then, when their “rebate windows” close (or return to more normal levels), they will propel our CEF prices higher. It will be a very nice reward for our patience today, in addition to the dividends of more than 7% that CEFs regularly pay out.

Let’s start looking towards those better days now, by starting our CEF shopping list.

CEF “Shopping List” #1: A 6.3% Dividend Propelled by a Megatrend

When it comes to CEF investing, we demand one more thing, beyond rebates and dividends: megatrends! And there is simply no megatrend more predictable than the aging of the American population. Sure, it’s been totally overshadowed by COVID, but it’s still here and it’s accelerating.

According to a recent Reuters report, about 16.5% of the US population, or about 54 million people, are over the age of 65. By 2040, in just 18 years, that number will rise to 74 million, an increase of 37%.

This is going to lead directly to increased healthcare costs, and our top “shopping list” pick is well positioned to take advantage of this: BlackRock Fund for Health Sciences (BME), which yields 6.3% and sports a 2% premium on NAV which I expect to be removed in the coming weeks, creating a nice discount for us. BME also helps reduce our risk by sticking to big pharma stocks such as Johnson & Johnson

JNJ
(JNJ), Pfizer

DFP
(EFP)
and Abbvie (ABBV).

Finally, not only does this fund pay a high return, but it is growth its payment too, with a 6.5% increase announced last October. With the favorable trends we have set for health care in the coming years, further increases are likely on the way.

CEF “Shopping List” #2: 10% dividend thanks to the rise of “Rental Nation”

Sure, housing demand is slowing, but with 30-year mortgage rates now hovering around 6%, buying a home is still expensive. This causes many people to change their house search to an apartment search.

Damn, there is now bidding wars for apartments—in Philadelphia, for example, renters are offering $500 or more a month above advertised rent, according to recent reports.

A CEC well suited to this trend is the CBRE Global Real Estate Income Fund (GRI), which devotes 16% of its portfolio to residential SCPIs, its second largest allocation. communities of the sun

SU
(SU),
which owns mobile and manufactured home parks in the south, is among its top 10 holdings, along with Houses of Invitation (INVH), which owns single-family homes in the west and in Florida.

Both stocks have rolled out healthy dividend increases, including relatively large increases at the end of last year!

We also like IGR’s diversification: its top 10 holdings include other REITs offering in-demand properties, such as cell tower REITs Crown Castle International (CCI) and self-storage companies ExtraSpace Storage (EXD) and CubeSmart

CUBE
(CUBE).

IGR’s management team does a great job handing us the rising rent checks that its holding companies are collecting: it’s not often you hear of a 10% dividend going up (especially those these days), but that’s exactly what happens with IGR:

IGR’s (monthly) dividend yields 10% and increases rapidly

IGR is a textbook case of why we’re holding back now: despite the market carnage, it’s trading at a premium of 0.85%. As is the case with our top pick, I expect this bounty to be removed in the coming weeks, creating an opportunity for a discount (and potentially even higher return).

CEF “Shopping List” n°3: a 93-year-old fund that has seen it all

Tricontinental (TY) is not going to break records for its dividend: it yields 4.6%, low by CEF standards. But given the choice between TY and an index fund, I’ll take TY every time.

I make this comparison, by the way, because TY has the same elements as the reference SPDR S&P 500 ETF Trust (SPY

P.Y.

TO SPY
),
including Apple

AAPL
(AAPL), Pfizer (PFE), Exxon Mobil (XOM)
and Dow

DOW
Inc. (DOW).
He cobbles together this portfolio of blue-chip stocks for a dividend that’s triple the 1.5% that SPY pays.

Plus you get a big discount, which sits at 12.4%, below TY’s average of 8.3% over the last year, and I think we’ll get the chance to buy even less. I don’t know about you, but I’d rather have exposure to the S&P 500 with more of my dividend yield in cash and at a discount! Which, by the way, is something ETFs like SPY never offer!

Finally, we’ll get a ton of institutional memory with this one: TY was launched in 1929, just before the Great Depression, so it takes care of anything the economy can throw at it, including rising rates. Perhaps that’s why, unlike most other CEFs, TY uses almost no leverage – just 3% of the portfolio at last check.

Brett Owens is Chief Investment Strategist for Opposite perspectives. For more income ideas, get your free copy of his latest special report: Your early retirement portfolio: huge dividends, every month, forever.

Disclosure: none

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