With the market sell-off continuing, your Dividend Pro portfolio had its lousiest week in recent memory.
Had Gov. Romney won the election, Wall Street would be rallying on two counts: first, to celebrate its candidate getting elected, and second, on a belief that the fiscal cliff — and the long-term health of U.S. government finances — would be addressed by a fiscal conservative. But with the United States set to hit its fifth consecutive year (!) of $1 trillion plus deficits, President Obama’s re-election — and all future fiscal cliffs — have been pulled to the forefront of investors’ attention.
And you only need look at your Dividend Pro portfolio this week to see that the results aren’t pretty.
You were stopped out of no fewer than five positions, as investors headed for the exits in droves: American Capital Agency Corp. (AGNC), Prospect Capital Corporation (PSEC), iShares FTSE NAREIT Mortgage REIT (REM), the UBS E-TRACS 2x Leveraged Long Wells Fargo Business Development Company ETN (BDCL) and the UBS E-TRACS 2x Leveraged Long Alerian MLP Infrastructure Index ETN (MLPL).
As I noted last week, once you hit your stops, you should close your positions. You always can re-enter them later. At this point, the game is about riding out the market storm as much as anything else. As a reminder, I will keep these positions on an informal “watch list” and may recommend that you re-enter them at a later date — specifically, when they climb back above their respective 50-day moving averages (MA).
That said, it is always darkest before the dawn, and I do expect the markets to bottom in the next few days — certainly by Thanksgiving. Assuming there is some sort of “band-aid” style agreement from Congress on taxes and spending, markets should rally into the end of the year.
If you have nerves of steel — and are of a contrarian mindset — there are ways to profit from this coming bounce. A handful of technical indicators I look at suggest that many of your current Dividend Pro positions are severely oversold. That’s another way of saying that the recent bout of heavy selling may be in the process of exhausting itself.
Specifically, I want to highlight, Rentech Nitrogen Partners, L.P. (RNF),PowerShares S&P 500 BuyWrite (PBP), CVR Partners, LP (UAN), Vanguard Natural Resources (VNR), and Fifth Street Finance Corp. (FSC) as strong candidates for a solid rebound.
But with the market not showing signs of bottoming just quite yet, I am going to hold off on making a new Dividend Pro recommendation this week. With the current high level of uncertainty, positions that are trading above their 50-day MA — my primary technical requirement for making a new recommendation — are virtually non-existent.
Portfolio Update
Global X SuperDividend ETF (SDIV) fell 3.54% last week. In a “risk off” week, you can always expect a sell-off in overseas markets. Trading below its 50-day MA, SDIV is a HOLD.
Two Harbors Investment Corp. (TWO) plummeted 6.97% this past week. The company announced that its Board of Directors has authorized the repurchase of up to 25 million shares of its common stock, which is an increase of 15 million shares to the previously authorized share repurchase program. This stock repurchase expansion should provide long-term support for the shares. TWO remains a HOLD.
PIMCO Municipal Income Fund II (PML) dropped 3.06%. PML paid out a monthly 6.5-cent payment on Nov. 8. PML is now a HOLD.
Apollo Investment (AINV) dropped 6.91%. The company’s most recent earnings report showed a modest increase in income and net asset value. S&P recently raised its target price to $8.50 — almost 17% above yesterday’s closing price. Yielding 10.2%, but still trading below its 50-day MA, AINV is a HOLD.
Omega Healthcare Investors Inc. (OHI) ended the week 4.93% lower. Omega is the “big dog” of the health-care dividend dynasty owning or holding mortgages on 460 skilled nursing facilities. It has maintained and increased its dividend yield for more than 10 years. With the stock trading below its 50-day MA, OHI is back to a HOLD.
PowerShares Preferred (PGX) dropped 1.42%. In a remarkable vote of confidence among investors, this ETF attracted approximately $37.7 million dollar inflow last week. Yielding more than 6.4%, this monthly income payer is a HOLD.
Fifth Street Finance Corp. (FSC) dropped 5.30%. FSC went ex-dividend on Nov. 13 and will pay a dividend of $0.0958 on Nov. 30, after announcing earnings on Nov. 28. Extremely oversold, FSC is due for a bounce and remains a HOLD.
Vanguard Natural Resources (VNR) pulled back 11.47%. You received a $0.20 per unit dividend on Nov. 14. Severely oversold and due for a bounce, VNR is a HOLD.
CVR Partners, LP (UAN) dropped 7.30% this past week, as the company went ex-dividend. A cash distribution of 49.6 cents per common unit was paid on Nov. 14. Severely oversold and trading below its 50-day MA, UAN is a HOLD.
PowerShares S&P 500 BuyWrite Portfolio (PBP) dropped 3.02%. With a 10.37% yield, but trading within a hairsbreadth of its stop price, PBP remains a HOLD.
Rentech Nitrogen Partners, L.P. (RNF) dropped 2.04%. The company announced last Thursday that its Q3 profit rocketed 900% from a year earlier to 80 cents a share. It was the fourth straight triple-digit percentage increase in earnings. Revenue jumped 56%, recovering from a 5% drop the previous quarter. With the highest yield in the sector, RNF remains a BUY.
Annaly Capital Management (NLY) stumbled 5.63%. On Nov. 12, Annaly outlined a strategy shift under which it may allocate up to 25% of our shareholders’ equity to real estate assets other than agency mortgage-backed securities. Annaly also announced a bid to acquire the rest of Crexus Investment Corp. Annaly already owns roughly 12% of the commercial real estate focused REIT and plays a large role in its management. NLY remains a HOLD.
Peritus High Yield ETF (HYLD) fell 0.80%. High yield bonds are proving very attractive relative to investment grade bonds. Below its 50-day MA, HYLD is a HOLD.
