3 Ideas for Monthly Dividends

10/08/2020 5:00 am EST


Brett Owens

Chief Investment Strategist, BNK Invest, Inc.

If you’re relying on your portfolio for income, monthly dividends are a godsend, because managing your cash flow from stocks paying quarterly is a total headache; here are 3 ideas for monthly payouts, suggests income expert Brett Owens, editor of Contrarian Outlook.

STAG Industrial (STAG) is a REIT that owns 457 warehouses across the US. It has an attractive yield, at 4.9% — nearly triple the S&P 500 average.

It also offers industry diversification, with its warehouses serving more than 45 sectors and no single tenant accounting for more than 3% of annualized base rent — and an e-commerce trigger, with 43% of its portfolio tied to online selling.

Online-retail king Amazon (AMZN) is STAG’s top tenant. The second-biggest tenant, General Services Administration, handles procurement for the government and the military.

STAG boasted a 97% occupancy rate in the coronavirus-hit second quarter. The REIT's valuation is a reasonable 16-times funds from operations (FFO). And the payout looks safe at 77% of FFO. That’s low in REIT-land, where ratios up to 90% are often sustainable.

Tekla Healthcare Opportunities Fund (THQ) is a closed-end fund (CEF) that holds large-cap pharmaceutical stocks and pays a steady monthly dividend that yields 7.8%.

The key to profiting in pharma stocks is to hone in on those with plenty of drugs in their pipelines and the strong R&D spending needed to keep those pipelines full.

This is where Tekla’s unique approach shines: its team includes medical doctors and researchers who work in tandem with investment experts to find companies in the best position to launch the next blockbuster drug.

The result is a portfolio that includes companies focused on COVID-19 treatments and vaccines, like Johnson & Johnson (JNJ), Pfizer (PFE) and Gilead Sciences (GILD). THQ’s holdings also boast strong pipelines and R&D spending.

If you bought THQ’s top-10 holdings individually, your yield would average 3.2%. But with THQ, you get a 7.8% dividend and upside potential, thanks to its 11.4% discount. The better approach is obvious.

Calamos Strategic Total Return Fund (CSQ) pays an 8.6% dividend; its portfolio is weighted toward US stocks, with smaller complements of corporate bonds and convertible bonds (which management can convert to stocks when it sees upside ahead).

The stock portion of CSQ’s portfolio looks like a typical blue-chip mutual fund, with holdings like Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) topping the list. It also holds consumer stocks like Home Depot (HD) and food maker Mondelez International (MDLZ)—smart buys for the stay-at-home economy.

The fund also uses roughly 30% leverage, which does generate additional volatility but also stokes the fund’s upside. Borrowing to invest is particularly smart today, with interest rates essentially at zero.

CSQ also raised its payout in February and maintained the higher rate through the crisis. Finally, the discount, which doesn’t sound like much at 2.35%, but CSQ has traded at a 4.6% premium in the past year, so we can expect upside as its discount contracts and inevitably flips back into premium territory.

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3 Ideas for Monthly Dividends
10/08/2020 5:00 am EST

If you’re relying on your portfolio for income, monthly dividends are a godsend, because manag...