Monthly Income — “Preferred”

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
Last week, I told you how we assembled your DividendPro portfolio to balance different sources of income. This week’s DividendPro pick adds another asset class — preferred stock — to that already eclectic mix by betting on “preferred stocks” through the PowerShares Preferred Portfolio (PGX).
PGX mimics the performance of The Bank of America Merrill Lynch Core Fixed-Rate Preferred Securities Index, which, in turn, consists of a diversified group of investment-grade preferred securities. PGX currently yields 6.54% and pays out a dividend around the 15th of every month.
A quick word on just what “preferred” stocks are…
In terms of risk, preferred stockholders occupy a place between stocks and bonds. Investors have no voting rights, but they are entitled to a fixed dividend rate that is paid out before dividends on stock, but after interest payments on debt.
Put another way, the cash flow from preferred stocks is more risky than interest payments on debt but less risky than dividends on stock.
In addition, some preferred stock is convertible into common stock offering more upside in an investment, while reducing downside risk.
Think of it like buying a call option on the stock.
The one downside I see is PGX’s high exposure to banks — which, as you know, can be a highly volatile sector. But with the U.S. housing market recovering and U.S. banks much better capitalized than in 2008, I believe that the reward of consistent 0.5%-plus income per month in a world of essentially zero interest rates is well worth the risk.
So buy PowerShares Preferred Portfolio (PGX) at market today and place your stop at $14.10.
Portfolio update
Hospitality Properties Trust (HPT) dropped back 5.07% in the last week. That’s because the stock went ex-dividend yesterday for its quarterly dividend of $0.45, payable on Aug. 22. Now below its 50-day moving average, HPT is a HOLD.
Global X SuperDividend ETF (SDIV) dropped back 2.37% as global markets stumbled. Your monthly dividend payment should be coming next week. SDIV remains a BUY.
Two Harbors Investment Corp. (TWO) jumped another 3.2% as the rally in U.S. mortgage REITs continues. You should have received a $0.40 dividend payable on July 20, if you held the stock on June 22. With plenty of insiders buying the stock, TWO is a BUY.
American Capital Agency Corp. (AGNC) recovered 3.01% last week. Yielding 14.30% and trading back near a 52-week high, AGNC remains a BUY.
Prospect Capital Corporation (PSEC) pulled back 0.72%. You received your monthly payment of $0.1016 cents per share on July 24.  Yielding almost 1% per month and trading above its 50-day moving average, PSEC is a BUY.
iShares FTSE NAREIT Mortgage REIT (REM) rose 1.31%. REM is becoming very popular, and attracted $35.0 million dollar inflow — a 6.8% increase in the size of this ETF in a single week. REM is a BUY.
PIMCO Municipal Income Fund II (PML) rose 1.22% last week. You will receive a monthly dividend of $.065 payable on Aug. 1. Unperturbed by recent municipal bankruptcies in California, this leveraged bet on municipal bonds remains a BUY.
UBS E-TRACS 2xLeveraged Long Wells Fargo Business Development Company ETN (BDCL) pulled back 3.81% last week. As of July 25, BDCL has returned 35.90% year to date and has a 12-month yield of 13.93%. Still trading above its 50-day moving average, it remains a BUY.
Apollo Investment (AINV) dropped 3.53%. Now yielding 10.5% and trading above its 50-day moving average, AINV remains a BUY.
Omega Healthcare Investors Inc. (OHI) dropped back 1.52%. The stock will trade ex-dividend today, for its quarterly dividend of $0.42, payable on Aug. 15 to common stockholders of record as of the close of business on July 31. OHI is a BUY on the coming pullback.

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