The Secret Behind a Steady, High-Yield Portfolio

Nicholas Vardy

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

It was a relatively quiet, but overall positive week in global stock markets with the S&P 500 gaining 0.65% and the MSCI emerging market index rising 0.57%.

It was, however, a much more volatile week for your Dividend Pro portfolio.

Northern Tier Energy Trust LP (NTI) soared a whopping 9.17% after announcing a distribution of $1.27 per unit, equaling an eye-popping 17% yield on the stock.

Omega Healthcare Investors Inc. (OHI) also soared 7.7% on better-than-expected results.

Note that I have raised stops on both of these positions.

At the same time, you were stopped out of Apollo Investment (AINV) for a 10.5% gain and Rentech Nitrogen Partners, L.P. (RNF) for an 18.30% gain.

The behavior of your Dividend Pro portfolio offers two important lessons.

Lesson 1: Income themes go in and out of fashion. In the autumn, U.S. mortgage real estate investment trusts (REITs) were getting hit hard amid fears of a collapse in the interest rate spread between the borrowing costs of these companies and what they could earn by investing the money. As it turned out, the REIT sector has recovered nicely. In fact, last week’s Dividend Pro recommendation iShares FTSE NAREIT Mortgage REITs Index ETF (REM) has gained nearly 10% year-to-date, outperforming the Dow Jones Industrial Average gain of 6.5% over the same period.

Today, it is international high-yield and municipal bond plays like your positions in PIMCO Municipal Income Fund II (PML) and Market Vectors International High Yield Bond ETF (IHY) that are coming under pressure.

There are two things you can do to deal with “Mr. Market’s mood swings” — vis a vis any investment. To start, remember than you still are generating high, often monthly, income from these positions. Then you can tighten your stops — as I have done in PML and HYLD — to protect your gains.

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Lesson 2: Individual stock recommendations such as Northern Tier Energy Trust LP (NTI), Rentech Nitrogen Partners, L.P. (RNF) and Omega Healthcare Investors Inc. (OHI) are much more volatile than broad-based exchange-traded fund (ETF) bets on an entire sector.

You see this contrast in last week’s two recommendations. Banco Santander (SAN) is a highly volatile, high-yield pick in the spirit of say, Rentech Nitrogen Partners, L.P. (RNF). Watching it on a day-to-day basis may give you vertigo. But it’s where the big bucks are. (If you prefer this type of investing, check out my new fast-paced trading service launching next week, Triple Digit Trader.)

Last week’s other pick, the iShares FTSE NAREIT Mortgage REIT (REM), is an example of a sectorial bet on U.S. REITs. REM will never soar 9.17% in a single week as Northern Tier Energy Trust LP (NTI) did over the past five days. But REM easily could make that jump in six months, while paying you a steady 3% every quarter.

Investment themes will come and go. But a consistent strategy of generating steady streams of income from the widest array of high-income-producing assets was the key to providing steady, market-beating returns.

That is what I do in managing my client accounts in the Double Your Dividends Investment Program at my firm Global Guru Capital, which invests in many of the same positions I recommend in Dividend Pro.

And that is what I advise you to do every week in your Dividend Pro portfolio.

NOTE: Global Guru Capital is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Publishing.

Portfolio Update

Global X SuperDividend ETF (SDIV) recovered 0.87% last week. SDIV is made up of the top 100 highest-yielding companies worldwide, giving each equal weight of 1%. SDIV paid out a 14.5-cent dividend on Feb. 1. Yielding 7.22%, SDIV remains a BUY.

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Two Harbors Investment Corp. (TWO) rose 1.37% this past week. TWO hit a new 52-week high yesterday as this top bet on the U.S. housing recovery continues to outperform. TWO remains a BUY.

PIMCO Municipal Income Fund II (PML) had a tough week, dropping 1.95%, as the ETF went ex-dividend. Slipping below its 50-day moving average (MA), PML is now a HOLD. Raise your stop to $12.70.

Omega Healthcare Investors Inc. (OHI) soared 7.7% as it announced better-than-expected earnings. For the 12-month period ended December 31, 2012, Omega reported net income of $1.12 per diluted common share, compared to net income of $0.46 per diluted common share for 2011. You should get your $0.45 dividend tomorrow, Feb. 15. OHI is a BUY. Raise your stop to $26.40.

PowerShares Preferred (PGX) rose 0.34%. PGX so far has been relatively immune to the recent pullback in other high-yielding ETFs such as junk bonds and emerging-market debt. This monthly income payer, with a 6.42% yield, remains a BUY.

Fifth Street Finance Corp. (FSC) rose another 0.65% even though it went ex-dividend for its monthly dividend of $0.0958, payable on Feb. 28. FSC remains a BUY.

Annaly Capital Management (NLY) recovered 1.61% as the stock emerges from its oversold position. NLY is a BUY.

Peritus High Yield ETF (HYLD) rose 0.45%. There is fear about an exit from high-yield bonds thanks to rises in rates of “risk-free” U.S. Treasuries. So, I am recommending that you tighten your stop in HYLD to $50.60. HYLD remains a BUY.

Northern Tier Energy Trust LP (NTI) soared 9.17%. NTI has declared its first distribution for 2013. The company is paying out $1.27 per unit, which will be paid on Feb. 28 to unit holders of record as of Feb. 21. That equals a yield of 17% at the current share price of $29.50. NTI remains a BUY. Raise your stop to $26.50.

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Apollo Residential Mortgage Inc. (AMTG) was flat this past week. The company’s Q4 and full-year 2012 financial results will be released after the market closes on Wednesday, March 6. AMTG is a BUY.

SPDR S&P Emerging Markets Dividend ETF (EDIV) dropped 0.28%. High-yielding dividend international ETFs provide a regular and reliable source of income that, unlike many bonds, has yields above the inflation level. Yielding 5.40%, this bullish bet on emerging markets is a BUY.

UBS E-TRACS 2x Wells Fargo Bus Dv Cm ETN (BDCL) jumped 2.32% last week. Business Development Companies (BDCs) are partnerships that are able to pass through income without paying corporate tax, similar to the REIT structure. With a double-digit percentage yield of 12.87%, BDCL remains a BUY.

Market Vectors International High Yield Bond ETF (IHY) fell 0.55%. This ETF announced a monthly payment of 13.1 cents on Feb. 1. Falling below its 50-day MA, this high-yield play is now a HOLD.

Banco Santander (SAN) recovered 1.89% after you re-entered this position last week. Bouncing strongly from its lows, this high-yield bet on European banks is a BUY.

iShares FTSE NAREIT Mortgage REIT (REM) was up an even 1%. REM has a 30-day SEC yield of nearly 12%. The bullish case for mortgage REITs is that mortgage rates will go up while short term interest rates stay low. REM is a BUY.

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