Cleaning House, a New Option Recommendation, and Your Current State of Play

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
With 13 holdings, the size of your Dividend Pro portfolio is getting unwieldy. 
 
As a general rule, I generally don’t want to have more than a dozen holdings at any one time. So I am going to address this issue on a “pig in poke” basis. When we get to 13 holdings, I will always push out what I think is the weakest holding in the Dividend Pro portfolio.
 
So this week, let’s say goodbye to Hospitality Properties Trust (HPT). The company missed Q2 earnings per share (EPS) last week. Not that this has been an unprofitable investment. You’ve already made a big option gain of 79% in HPT by selling a covered call against the position. And as long as you held the stock on July 24th, you will receive your quarterly dividend payment of $0.45 on Aug. 22.
 
In addition, I am recommending that you buy the December $25 call option (OHI121222C00025000) on Omega Healthcare Investors Inc. (OHI). You’ve already generated quick 57% and 100% option gains in this stock. With OHI pulling back and due for bounce, I think you can have another bite at the “big option gain” apple.
 
Finally, I also want again review the current state of play in your Dividend Pro portfolio.
 
Your biggest thematic bets today are in the area of U.S. mortgage real estate investment trusts (REITs) and business development companies (BDCs).
 
You’ve invested in the first of 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. 
 
An even more popular theme is the area of BDCs like Prospect Capital Corporation (PSEC), Apollo Investment (AINV) and Fifth Street Finance Corp. (FSC), which focus on lending to companies at high rates of interest where banks would not do so otherwise. The first two of these also pay you a monthly income stream. You also 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 four high-yielding “specialist” themes.
 
First, global blue chips through Global X SuperDividend ETF (SDIV);
 
Second, U.S. municipal bonds through the PIMCO Municipal Income Fund II (PML);
 
Third, preferred stocks through PowerShares Preferred (PGX); 
 
Fourth, government debt through the PowerShares Emerging Mkts Sovereign Debt (PCY)
 
All these offer different sources of lower, but steadier income compared to Mortgage REITs and BDCs.
 
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 just under 10%.
 
That’s approximately 40x what you get on your cash at your bank.

Portfolio Update

Global X SuperDividend ETF (SDIV) rose 0.46%. You received your monthly dividend payment of 11.9 cents per share. Boasting a yield of 7.38%, SDIV remains a BUY.
 
Two Harbors Investment Corp. (TWO) gained 2.08% last week. Offering a yield of 14.5%, Two Harbors shares are up over 20% for the year. TWO is a BUY.
  
American Capital Agency Corp. (AGNC) recovered 1.43%. Last week, the Chief Investment Officer of the company bought $655,000 of AGNC shares, in a vote of confidence for the stock. AGNC is a BUY.
 
Prospect Capital Corporation (PSEC) gained 1.72%. The company is scheduled to report its Q4 2012 results on Aug. 22, after the bell. The street expects EPS and revenue of $0.40 and $85.12M, respectively. PSEC’s next monthly dividend payment is Aug. 24 for $0.101575. PSEC is a BUY.
 
iShares FTSE NAREIT Mortgage REIT (REM) rose 2.08%. Last week, REM attracted approximately $70.3 million dollar inflow — a 12.1% increase in a single week. REM’s current yield is 11.93%. REM is a BUY.
 
PIMCO Municipal Income Fund II (PML) dipped 0.68% last week. You were paid a .065% dividend on Aug. 9. PML is a BUY.
 
UBS E-TRACS 2xLeveraged Long Wells Fargo Business Development Company ETN (BDCL) jumped another 3.12%. The top performing ETF of 2012 with a gain of just over 40%, it also boasts a yield of 13.93%.That’s a tough act to follow. Trading above its 50-day MA, BDCL remains a BUY.
 
Apollo Investment (AINV) jumped 2.11%. Lots of insider buying bodes well for this stock. Yielding 10.5%, AINV is back to a BUY.
 
Omega Healthcare Investors Inc. (OHI) lost 1.01% over the past five trading days. Obamacare and aging demographics all support the long term case for this pick. You received a quarterly dividend of $0.42, yesterday, Aug. 15. OHI is a BUY.
 
PowerShares Preferred (PGX) fell 0.88%. Over $27.3 million flowed into this ETF just last week. You received a $.077 cent monthly dividend yesterday, Aug. 15.  This monthly income payer remains a BUY.
 
Fifth Street Finance Corp. (FSC) was broadly flat this week. Shares were yielding above the 11% mark based on its monthly dividend (annualized to $1.1496), this past week. You received a $.096 cent dividend on Aug.13. FSC is a BUY.
 
PowerShares Emerging Mkts Sovereign Debt (PCY) dropped 1.09%. The ETF paid out a $.119 monthly dividend yesterday. This play on foreign government debt yields over 5% and remains a BUY.
 

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