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7 Monthly Dividend Stocks to Pay Your Bills


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The following is an excerpt from 7 Monthly Dividend Stocks to Pay Your Bills:

I don’t know about you, but most of my bills come monthly, and I don’t see that changing when I’m retired. Utilities, insurance premiums … you name it, and chances are good that it comes on a monthly billing cycle.

The problem is that most income investments don’tpay on a monthly cycle. Bonds generally pay semiannually and most stocks pay quarterly. This can create planning challenges and leave you short of funds come the end of the month.

But for every problem, there is a solution. And one great way to smooth out your income is by adding monthly dividend stocks to your portfolio.

Some might dismiss a monthly dividend payer as being gimmicky, but I disagree. I consider it a sign of shareholder friendliness.

So with no more ado, here are seven quality monthly dividend payers to add a little yield to your portfolio.

You can view the rest of the article at InvestorPlace.

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Why Dividends Matter

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Photo credit: www.SeniorLiving.Org

I like getting paid in cold, hard cash. And frankly, who doesn’t?

But stock dividends are more than just a quarterly paycheck. They are a way of doing things. I would go so far as to argue that they are a philosophy of life (or at least of business).

That might sound a little kooky at first, but hear me out.

In the Wolf of Wall Street, Jordan Belfort (or at least Leonardo DiCaprio playing Belfort) says that money does more than just buy you a better life; it also makes you a better person. That’s certainly debatable. But I can credibly say that paying a dividend makes for a better kind of company. And here are a few reasons why:

  1. Dividends are an outward, visible sign of who the real boss is. Remember, the SEO in the suit running the company isn’t the owner. He’s an employee, no different than a common assembly line worker other than for his larger paycheck. You, the shareholder, own the company. And management shows that they understand and respect that by regularly paying and raising the quarterly dividend.
  2. Dividends dissuade fruitless empire building. Corporate CEOs really aren’t that different from politicians. At the end of the day, they spend other people’s money and often times waste it on useless projects or on mergers that add no value. Why? Because growth – even unprofitable growth – gives them more power and control. Well, paying a regular dividend forces management to be more disciplined. If you’re paying out half your profits as a dividend, you have to be more selective about the growth projects you choose to pursue with your remaining cash. They focus on the most profitable and worthwhile and, by necessity, pass on the marginal ones.
  3. Dividends foster more honest financial reporting. At one point or another, many (if not most) companies will… ahem… perhaps be a little less than honest in their financial reporting. Outright fraud is pretty rare. But accounting provisions allow for a decent bit of wiggle room in how revenues and profits are reported. Even professionals can have a hard time figuring out what a company’s true financial position is if the numbers are fuzzy enough. Well, while revenues and profits can be obfuscated by dodgy accounting, it’s hard to fudge the numbers when it comes to cold, hard cash. For a company to pay a dividend, it has to have the cash in the bank. So while paying a good dividend is no guarantee that the company isn’t being a little aggressive with its accounting, it definitely acts as an additional check.
  4. Share buybacks – the main alternative to cash dividends – never quite seem to work out as planned. Companies inevitably do their largest share repurchases when times are good, they are flush with cash, and their stock is sitting near new highs. But when the economy hits a rough patch, sales slow, and the stock price falls, the buybacks dry up. And another (and frankly insidious) motivation for buybacks is to “mop up” share dilution from executive stock options and employee stock purchase plans. The net effect is that a company buys their shares high and sells them back to employees and insiders low. Call me crazy, but I thought the whole idea of investing was to buy low and sell high, not the other way around. A better and more consistent use of cash would be the payment of a cash dividend.
  5. And finally, we get to stock returns. I’m not particularly excited about the prospects for the stock market at today’s prices. Based on the cyclically adjusted price/earnings ratio, the S&P 500 is priced to deliver annual returns of virtually zero over the next decade. But if you’re getting a dividend check every quarter, you’re still able to realize a respectable return, even if the market goes nowhere. And that return is real, in cold hard cash, and not ephemeral like paper capital gains.

Hey, not every great company pays a dividend. And certainly, a younger company that is struggling to raise capital to grow has no business paying out its precious cash as a dividend when it might need it to keep the lights on next month. But for the bulk of your stock portfolio – the core positions that really make up your nest egg – look for companies that have a long history of paying and raising their dividends.

Charles Lewis Sizemore, CFA is the principal of Sizemore Capital, an investments firm in Dallas, Texas.


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Dividend Growth Returns Year to Date

It didn’t get off to a good start. But 2016 is shaping up to be a fine year for the Dividend Growth portfolio.


Source: Data as of June 3, 2016. Past performance no guarantee of future results.

Through June 3, the Dividend Growth portfolio was up 17.3% in 2016, including dividends and allowing for a 1.5% management fee. That compares to a 2.7% return for the S&P 500. And Dividend Growth generated those returns while actually taking less risk than the S&P 500. The portfolio had a beta of 0.95 and an R-squared of 0.60, meaning that only 60% of my portfolio’s returns were explained by movements in the S&P 500.


Source: Data as of June 3, 2016. Past performance no guarantee of future results.

Much of the outperformance in 2016 can be attributed to the portfolio’s allocation to REITs (about 22%) and MLPs (about 15%). So the portfolio’s continued performance will depend on the performance of these sectors. Given that I consider these sectors to be rare pockets of value in an otherwise expensive market, I’m optimistic on that count.

Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas.

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Closed-End Funds: Still a Bargain


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In a world in which very little is cheap and most mainstream stocks and bonds offer little in the way of expected returns, closed-end funds have been a fantastic source of value. I’ve been writing about closed-end funds for the better part of a year (see Closed-End Bond Funds Near Their Deepest Discounts Since 2008) and I’ve been very pleased with their performance in an otherwise choppy, directionless market.

Yet I’ve noticed that some of the fantastic bargains I saw a year ago are starting to dry up. Or at least they’re not quite as juicy as they were. The 15% discounts to net asset value are now closer to about 10%.

Though it may simply be a case of me getting spoiled. By any historical standard, closed-end funds are still exceptionally well priced. Patrick Galley, manager of the Rivernorth DoubleLine Strategic Income Fund, gave his thoughts to Barron’s this past week. (See 4 Closed-End Funds Yielding Up to 9%):

Q: Closed-end fund discounts have come in a lot since the beginning of the year. Aren’t they getting less attractive in general?

A: Actually, closed-end fund discounts are still pretty attractive overall. In January and February they got so wide it was reminiscent of 2008. Fear was high and investors were dumping assets. Discounts got to the 98th percentile of the widest levels they’ve reached going back to 1996. They narrowed in March and April. Now they are at the 76th percentile of the widest levels.

The averages are very much skewed by the muni-bond sector. Munis have had a good run and everyone wants them. Investors are chasing those past returns. They aren’t even looking at discounts and premiums. Meanwhile, taxable fixed-income spreads are still wide. As the examples I gave you show, a lot of them are still double-digit discount opportunities.

76th percentile is nothing to complain about. Sure, it was a lot more fun buying them at 2008-caliber discounts. But that’s really not normal, and every buying opportunity can’t be that good. So for the time being, I’ll plan on maintaining a solid allocation to closed-end funds in my Dividend Growth portfolio. The portfolio is up 13.5% year to date, and closed-end funds have certainly played their part in achieving those returns.

Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas.

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I Hate Paying Taxes


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I can be something of an ideological nut job when it comes to avoiding income taxes. In my younger days, before my wife dragged me kicking and screaming into normal, civilized behavior, I was known to subsist on rice and beans for a month or two at a time in order to free up cash to max out my 401k plan, Roth IRA, HSA plan and any other tax-free savings vehicle I could get my hands on. Yes, it was Spartan. But it saved me a ton in taxes over the years, and I’m still enjoying those benefits more than a decade later.

Don’t worry, I’m not going to recommend you go to my ridiculous lengths. My pathological need to lower my tax bill is probably an unhealthy obsessive-compulsive disorder. But with the tax return deadline coming up on Monday, I figure a little advice on prioritizing is in order. It might be too late to put any of this into practice for your 2015 return. But you can absolutely make a dent in your 2016 tax bill. So, with no more ado, here are a few tips for lowering your tax bill this year.

It starts with the 401k. Before you invest a single red cent in anything else, you should come as close as you reasonably can to maxing out your 401k plan. In 2016, that maximum contribution level is $18,000. If you’re young, that might not be realistic goal. For some recent graduates, $18,000 might very well amount to nearly half their after-tax income. But if maxing out the 401k isn’t doable, then you should at least contribute enough to take full advantage of your employer’s matching, which usually amounts to 3%-5% of your income.

If I had an employee under me that didn’t contribute at least enough to get full employer matching, I would find an excuse to fire them. Employer matching is an instant, tax-free, 100% return. If you’re not smart enough to take advantage of instant 100% returns, you clearly don’t deserve your job.

Once you max out the 401k plan, look into contributing to a Roth IRA. (A Traditional IRA is usually not tax deductible if you’re already contributing to a 401k plan, so a Roth is going to make more sense.) A single taxpayer can contribute the $5,500 per year to a Roth IRA ($6,500 if 50 or older) so long as their income is no more than $117,000 per year. At higher income levels, the amount of money you can contribute to a Roth IRA starts to get phased out and goes to zero at an income of $132,000. For married couples filing jointly, your eligibility starts to be phased out at $184,000 and falls to zero at $194,000.

If you make too much money to contribute to a Roth IRA… well, congratulations! That’s a great problem to have. But it’s still a problem.

Luckily, there is a loophole. For those willing to do a little extra work, you can open a traditional IRA and then convert it into a Roth IRA.

Ok, let’s say you’ve maxed out all 401k and IRA options. What next?

If you have a high-deductible health insurance plan, consider using a Health Savings Account (“HSA”) as an “extra” IRA.

HSA accounts are intended to be used for health expenses. But no one ever said you have to spend the money. You can let the money sit in an HSA investment account until age 65, at which point you can withdraw it penalty free just as you could with IRA funds. Note: There are differences here. You can withdraw IRA funds penalty free at age 59 ½. With HSAs, you have to wait that additional 5 ½ years to age 65 in order to use the funds penalty-free for non-health-related reasons. Though you can withdraw the funds penalty-free and tax-free at any time so long as you use them for medical expenses.

Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas.


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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.