If you are new to the investing let start by saying, dividend’s should be a main part of your investment strategies. Which is why I call a dividend stock a growth opportunity. You can build serious wealth with the stocks to that pay dividends. Most dividends are paid out every quarter but their are some stocks that payout on monthly. Now that is what I want to share with you today.
THE IMPORTANCE OF DIVIDEND GROWTH
I am sure i have convince you that dividend investing is the way to go if you really want to make some money. Now, let’s have a look at the very best way to get your dividend income stream started.
Really high dividend payments look like the best way to go. Buying a stock that pay 8% dividend can double your money over time. The real secret to building wealth is uncovering stocks that will grow their dividends each and every year.
TERMS TO KNOW
Now, let’s have a look at a few key metrics that will help you pinpoint a great dividend stock.
Enterprise Value is the total valuation of a company. Enterprise value combines the value of all stock outstanding (market capitalization), debt, and preferred shares, minus total cash and cash equivalents. Enterprise value is sometimes called “takeover value” because an acquiring company would have to pay at least market value for a company, and it would have to assume its debt.
Of course, any metric alone doesn’t tell the whole story. It’s usually necessary to use a little comparative analysis. In the case of enterprise value, comparisons to market cap are useful.
Look for stocks that trade at a slight discount to enterprise value.
Operating Cash Flow is generally a better metric for a dividend stock than earnings per share (EPS). A company can use all sorts of accounting gimmicks and tax credits to manage its net earnings, but it still may not be able to properly service its debt.
Cash flow is what pays the bills. It is the cash that comes into the company after it collects revenues from sales and pays off its suppliers.
Levered Free Cash Flow is the amount of cash available after interest payments on debt are made.
A company with a small amount of debt will only have to spend a modest amount of money on interest payments, which in turn means there is more money to send to shareholders in the form of dividends and vice versa.
Cash on Hand is an excellent indicator of a dividend’s sustainability. Having plenty of cash means the company can sustain short-term swings in the business/economic cycle. A high level of cash is also a good indication that you will be treated to regular dividend hikes.
That’s because, in a general sense, a company only needs so much cash. Once there is sufficient cash in the bank, more earnings can be returned to shareholders.
The Payout Ratio tells us what portion of the profit is being returned to investors. A payout ratio over 100% indicates the company is paying out more money to shareholders than it is making.
GAMCO GLOBAL GOLD, NATURAL RESOURCES & INCOME TRUST (NYSE: GGN)
Current Price: $3.70
Market Cap: $572.55 million
Dividend: 14.08%
We think it’s a good time to add a gold play. Inflation is starting to show some life and the global currencies are showing weakness. And those are the number one and two reasons to own gold.
For an investment, we don’t want to simply make the same percentage gains as the move for gold; we want an investment that will make more money as the price of gold rises. In other words, we want an investment that is leveraged to the price of gold.
That’s gold miners. They make exponentially more as gold prices rise. And right now, even after a bit of a rally, gold miners are among the cheapest stocks on the markets.
Because The Wealth Advisory is an income service, we want our gold miners to pay a dividend. And that’s fine, because most of the big gold miners do pay a dividend.
The question is, which gold miner to select? Well, how about ALL of them? And we can get an 11% dividend to boot…
The GAMCO Global Gold, Natural Resources & Income Trust is a closed-end gold fund run by Mario Gabelli’s Gabelli Funds company. It’s a leveraged fund, which means it trades derivatives to generate income, which it distributes as a very nice dividend. (When we say the fund trades derivatives, we are mostly talking about covered calls on stocks it owns. This is a low-risk strategy that is especially effective in falling or flat markets, like gold.)
This fund’s holdings are Who’s Who of gold miners — Barrick Gold, Royal Gold, Goldcorp, Newmont, and Randgold are among the top 10 holdings.
Most of the holdings are North American miners, which lowers the geopolitical risk.
This fund also has a relatively high Treasury bond holding. This serves a dual purpose: One, T-bond options are a good trading vehicle for the fund to generate income. Two, it serves as a good store of cash that can be deployed if gold really starts to move.
We believe markets are perfectly positioned for higher gold prices. This fund could double your money, and you’ll get an 11% annual dividend, too.
PROSPECT CAPITAL (NASDAQ: PSEC)
Current Price: ~$5
Market Cap: $2.5 billion
Revenue: $705.17 million
Dividend: 10.51%
*Prospect Capital is not an active recommendation in The Life’s Development Portfolio.
Prospect Capital is the second-largest publicly traded business development company (BDC) in the U.S. PSEC offers a wide variety of investment structures, with a primary focus on mezzanine financing with equity components for lower-middle market companies located throughout the United States.
PSEC typically invests $5 to $25 million for:
• Leveraged buyouts
• Management buyouts
• Recapitalizations
• Growth financings
• ESOPs
• Acquisition financings
9 Prospect offers a variety of financing structures for investments in lower-middle market companies with a history of generating revenues and positive cash flows, an established market position, and a proven management team with a strong operating discipline. Prospect’s target portfolio companies typically have revenues of $10 million to $200 million and EBITDA of $3 million and up.
Since 2005, Prospect Capital’s portfolio assets have grown from $105 million to over $6.17 billion, or about 59 times over. Portfolio investment companies have grown from eight to over 121. Total capital under management stands at about $7.1 billion.
And yet the company is currently valued at just $2.4 billion. Prospect is trading far below its net asset value (NAV). There is a lot of upside for the shares, and you will collect a very nice dividend as well.
ARMOUR RESIDENTIAL REIT (NYSE: ARR)
Current Price: ~$20
Market Cap: $1.16 billion
Dividend: 11.39%
*ARR is not an active recommgsendation in The Life’s Development Portfolio.
ARMOUR Residential REIT is a mortgage REIT, or mREIT. It invests in residential mortgages that have been bundled together into securities called mortgage-backed securities (MBS).
A regular REIT owns real estate properties such as shopping centers or medical office buildings and generates income and pays dividends through lease agreements and payments.
Instead of property, an mREIT generates income and pays dividends from the interest payments on mortgage bonds. 10
There are two types of mREITs: agency and non-agency. Agency mREITs buy agency loans that are issued and guaranteed by government-sponsored entities (GSEs). These agency securities are considered as creditworthy as U.S. Treasurys because they are backed by an actual or implicit guarantee of the U.S. government.
Non-agency debt is issued by investment banks. Non-agency debt offers higher yields but is less liquid and more risky. If the issuer defaults, the holder suffers losses.
mREITs profit from the difference, or spread, between interest rates earned on their mortgage loans and their short-term borrowing rates. For example, an mREIT that earns net interest income of 3% on its mortgage assets but only pays 1.25% to borrow money to buy those assets will earn 1.75% as a return on invested capital (ROIC).
mREITs that focus on agency mortgages eliminate one of the key risks associated with mortgage securities: credit risk. And that’s why we like ARMOUR.
Book value for ARMOUR is above $30 a share. Shares currently trade at a discount to book value. And ARMOUR is paying a high annual dividend. There’s a lot of upside for these shares.
The Life’s Development 2020, All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Life’s Development do not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question. Unauthorized reproduction of this newsletter or its contents by Xerography, facsimile, or any other means is illegal and punishable by law.
