How To Play Defense in Dividend Pro

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

U.S. and global markets pulled back this past week, with the S&P 500 dropping 2.32% and the MSCI Emerging Markets Index down 2.38%.

While that’s not pleasant, weeks like this give you the opportunity to gain an insight into which of your positions in your Dividend Pro portfolio are truly defensive plays.

On the one hand, several of your stock positions held up well this past week, despite the market sell-off. These include Vanguard Natural Resources (VNR), which jumped 1.94%; Fifth Street Finance Corp. (FSC), which fell only 0.64%; and CVR Partners, LP (UAN), which stayed essentially flat.

On the other hand, as a general rule, when stock markets sell off, debt is the place you want to be.

This certainly was confirmed by the performance of the debt-related exchange-traded funds (ETFs) in your Dividend Pro portfolio.

The PIMCO Municipal Income Fund II (PML) actually ended the week 1.31% higher. The PowerShares Preferred (PGX) and PowerShares Emerging Mkts Sovereign Debt (PCY) ETFs also held up well, dropping only 0.27% and 0.26%, respectively.

I also want to highlight performance of the PowerShares S&P 500 BuyWrite Portfolio (PBP). The fund dropped 1.89%, compared to a drop of 2.32% in the S&P 500, thereby confirming this position’s defensive qualities — thanks to its strategy of selling call options for regular income.

Notwithstanding the recent market weakness, remember we are entering Q4 — the strongest quarter of the year. The history is encouraging. Since 2009, the S&P has gained an average of 9% during the last three months of the year. Over the last 30 years, stocks have risen in Q4 24 out of 30 times for an average gain of 7%.

Finally, remember that the good news about all of your positions is that they are all paying you a substantial income — many doing so on a monthly basis. That means that the metaphorical cash register is ringing all of the time, making these short-term market sell-offs easier to endure.

Portfolio Update

Global X SuperDividend ETF (SDIV) dropped 1.6% this past week. With a year-to-date return of 11.42% and a yield of 7.66%, SDIV remains a BUY.

Two Harbors Investment Corp. (TWO) fell 2.43% as the stock went ex-dividend on Sept. 20. With a dividend of 36 cents per share, the dividend yield now stands at 12.4%. TWO is a BUY.

American Capital Agency Corp. (AGNC) dropped 0.8%. A dividend of $1.25 is payable on Oct. 26 to shareholders of record as of Sept. 21. Slipping below its 50-day moving average, AGNC is a HOLD.

Prospect Capital Corporation (PSEC) dropped 1.71%. Business development companies like PSEC can loosely be viewed as closed-end funds for private equity investing. The stock will be paid a monthly dividend of $0.1016 on Sept. 21. PSEC is a BUY.

iShares FTSE NAREIT Mortgage REIT (REM) fell 2.72%. REM continues to attract a lot of assets, adding 4.3 million shares, or a 7.7% increase in outstanding units just last week. Trading above its 50-day moving average, REM’s current yield is 11.28% and it remains a BUY.

PIMCO Municipal Income Fund II (PML) jumped 1.31%, confirming its defensive qualities. Still below its 50-day moving average (MA), PML is a HOLD.

UBS E-TRACS 2x Leveraged Long Wells Fargo Business Development Company ETN (BDCL) tumbled 4.10%, after hitting a record high last week. Yielding 13.43%, BDCL remains a BUY. Raise your stop to $21.25.

Apollo Investment (AINV) dropped 5.65%, as the stock sold off sharply in the last two days. The company will pay out a dividend of 20 cents on Oct. 4. AINV is a HOLD.

Omega Healthcare Investors Inc. (OHI) fell back 4.23%, continuing its recent decline. Slipping below its 50-day MA, OHI is now a HOLD.

PowerShares Preferred (PGX) dropped 0.27%. Yielding over 6.4%, this monthly income payer remains a HOLD.

Fifth Street Finance Corp. (FSC) fell 0.64%. The company has committed to its monthly dividend payout through February 2013. Just off of a new 52-week high, and boasting an 11% yield, FSC remains a BUY.

PowerShares Emerging Mkts Sovereign Debt (PCY) dropped 0.26%. Yielding just under 5%, PCY remains a BUY.

Vanguard Natural Resources (VNR) jumped 1.94%. The stock will trade ex-dividend today for its monthly dividend of $0.20, payable on Oct. 15 — a yield of approximately 0.70% per month. VNR is back to a BUY. Raise your stop to $24.50.

CVR Partners, LP (UAN) fell 0.26% this past week. The company announced that it will release its third quarter 2012 earnings on Monday, Nov. 5, after the close of New York Stock Exchange trading. UAN’s current yield stands at 9.2% and it remains a BUY.

PowerShares S&P 500 BuyWrite Portfolio (PBP) dropped 1.89%. That compares with a drop of 2.32% in the S&P 500, confirming this position’s defensive qualities. Still below its 50-day MA, PBP remains a HOLD.

Rentech Nitrogen Partners, L.P. (RNF) ended the week down 3.74%, after hitting a record high on Tuesday. Trading above its 50-day MA, RNF remains a BUY.

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