Last week’s Dividend Pro recommendation, Omega Healthcare Investors Inc. (OHI), took off like a rocket, rising 4.83% in its first week in the portfolio. The December $25 call options that I recommended also shot up 57.1% in a single week.
I recommend that you sell half of your gains here to lock in these big, quick gains. Hold on to the stock and the rest of your options for potentially even bigger gains.
This week, I want to provide you with a review of the investment strategy in your Dividend Pro portfolio. I want to do this because I want you to understand how the various themes I am recommending make up part of an overall portfolio investment strategy — and one that I implement for my own investment management clients.
Your biggest bets today are in the area of U.S. mortgage real estate investment trusts (REITs) and business development companies (BDCs).
You’ve invested in these themes both through individual mortgage REITs like American Capital Agency Corp. (AGNC) and Two Harbors Investment Corp. (TWO), as well as through exchange-traded funds (ETFs) like iShares FTSE NAREIT Mortgage REIT (REM). With all three of these positions boasting double-digit percentage yields, these are the highest-income producing and highest-risk positions in your Dividend Pro portfolio.
Then there is a different class of real estate-related REITs like Hospitality Properties Trust (HPT) and Omega Healthcare Investors Inc. (OHI). These generate high income from a focus on hotels and healthcare-related properties, and not from “playing the yield curve” like their mortgage REIT counterparts. These generally have lower, but unleveraged, more secure yields.
Finally, there is the area of BDCs like Prospect Capital Corporation (PSEC) and Apollo Investment (AINV), which focus on lending to companies at high rates of interest where banks would not do so otherwise. You have a leveraged bet on a basket of such stocks through the UBS E-TRACS 2xLeveraged Long Wells Fargo Business Development Company ETN (BDCL).
Finally, you have two high-yielding “specialist” themes — one in global blue chips through Global X SuperDividend ETF (SDIV) and U.S. municipal bonds through the PIMCO Municipal Income Fund II (PML). These are more like the specialist, unleveraged U.S. real estate rights, offering lower but steadier income.
In constructing your portfolio, I am looking at different types of stable, reliable income streams of at least 5% — but hopefully above 10%.
Overall, your current Dividend Pro portfolio positions yield an average of 10.34%.
In a world of zero percent interest rates, that is nothing to sneeze at.
Now, that number could be higher if I would recommend more U.S. mortgage REITs. But I am careful not to put all of your investment eggs in one basket and to diversify your investment themes.
Portfolio update
Hospitality Properties Trust (HPT) rose 1.91% in the last week. Hospitality Properties Trust is a real estate investment trust, which owns or leases 290 hotels and 185 travel centers located in 44 states, Puerto Rico and Canada. HPT is headquartered in Newton, Mass. You will receive a $0.45 dividend per common share on or about August 22, 2012. Still above its 50-day moving average, HPT remains a BUY.
Global X SuperDividend ETF (SDIV) bounced 2.14% as global markets stumbled. The 12-month yield for the Global X SuperDividend™ ETF (SDIV) has been 7.97%. SDIV remains a BUY.
Two Harbors Investment Corp. (TWO) rose yet another 1.11% as the rally in U.S. mortgage REITs continues. The company’s public offering produced net proceeds of approximately $592.4 million, after deducting underwriting discounts and estimated offering expenses. You will receive a $0.40 dividend payable on July 20, 2012, to common stockholders of record at the close of business on June 22, 2012. With lower leverage and therefore less risk than its peers, TWO is a BUY.
American Capital Agency Corp. (AGNC) dropped 1.02% last week. On Tuesday, July 17, AGNC announced a large secondary offering. This secondary offering is likely to bring in approximately $1.2 billion, depending upon pricing and over-allotments. This hit the share price negatively in the short term, but is positive for the company’s long-term prospects. You received a cash dividend of $0.556 per share on July 16, 2012. AGNC remains a BUY.
Prospect Capital Corporation (PSEC) recovered 2.19%. Prospect has provided a $28 million senior secured loan to support the acquisition of Material Handling Services, LLC, a provider of outsourced business services focused on the procurement and fleet management of forklifts and other material handling equipment ("MHE"), by funds managed by CI Capital Partners LLC ("CI Capital"). PSEC also yields more than 11% and pays dividends monthly. Back above its 50-day moving average, PSEC is a BUY.
iShares FTSE NAREIT Mortgage REIT (REM) rose 0.77% during the past week. REM is well diversified and offers high-risk, adjusted returns in the REIT space. It also is attracting a large amount of assets. REM is a BUY.
PIMCO Municipal Income Fund II (PML) rose 0.54% last week. You will receive a monthly dividend of $.065 payable on August 1, 2012. This leveraged bet on municipal bonds remains a BUY.
UBS E-TRACS 2xLeveraged Long Wells Fargo Business Development Company ETN (BDCL) pulled back 1.61% last week. Trading above its 50-day moving average, it remains a BUY.
Apollo Investment (AINV) was broadly flat. Passing above the 10% yield mark, and trading above its 50-day moving average, AINV remains a BUY.
Omega Healthcare Investors Inc. (OHI) rose 4.83% during its first week in the portfolio. This past week, the company declared a common stock dividend of $0.42 per share, payable August 15, 2012, to common stockholders of record as of the close of business on July 31, 2012. OHI is BUY.