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Realty Income: Let the Monthly Dividend Company Pay Your Bills in 2017

The following is an excerpt from a piece I wrote for InvestorPlace. You can read the full article here.

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I’ve always been a big believer in taking a total return approach to investing, focusing on both capital gains and income. And with the capital gains looking a little more iffy than usual at current stock prices, current income in the form of dividends is more important than ever.

So with all of that said, let me introduce you to one of my very favorite dividend workhorses, conservative retail REIT Realty Income (O). Realty Income owns a portfolio of over 4,700 properties scattered across 49 states and Puerto Rico. And while the property portfolio is extremely diversified, spanning 247 tenants in 47 distinct industries, the properties all have one thing in common: a triple-net lease.

Under a triple-net lease arrangement, the tenant rather than the landlord pays all taxes, maintenance and insurance. The landlord’s responsibility really is limited to cashing the rent checks and occasionally finding a new tenant or negotiating a new lease. Not bad work if you can get it!

Realty Income is about as close to a bond as you can get in the stock market. Its triple-net leases give the cash flows excellent stability and predictability, as does the quality of its portfolio and tenant base. Realty Income tends to focus on standalone retail properties in high-foot-traffic areas. Your neighborhood Walgreens or CVS pharmacy would be a fine example.

But while the dividend may be “bond-like” in its stability, O stock has done an incredible job of raising it over the years.

You can read the full article here.

Disclaimer: 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 nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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The 7 Best Monthly Dividend Stocks for 2017

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The following is an excerpt of a piece I wrote for InvestorPlace:

The second half of 2016 was not kind to income investors. As bond yields rose, the prices of virtually everything paying an income stream got slammed. Some of my favorite dividend stocks, REITs and closed-end funds fell by 20% or more… at a time when the broader stock market was rallying.

That’s frustrating, to say the least. But if you’re investing for retirement, short-term price moves really don’t matter all that much. Earning a regular stream of income is far more critical.

But even here, your dividend stocks are generally misaligned with your actual cash needs. Most dividend stocks pay quarterly, and most bonds pay semi-annually. Yet your regular expenses — everything from your mortgage to the mobile phone bill — tend to be monthly.

This is where monthly dividend stocks come in handy. Monthly dividend stocks align your income with your expenses, making it a lot easier to plan out your life. And after the general bloodletting we’ve had among defensive, dividend-paying names over the past few months, some of my favorite monthly dividend stocks are finally reasonably priced again. Most were prohibitively expensive as recently as late summer.

Some would dismiss a monthly payout as a gimmick designed to impress mom and pop investors, but I would disagree completely. To me, a monthly dividend is a sign of a management team that takes its investors seriously and makes a real effort to do what is best for them.

This is an eclectic list, covering everything from traditional brick-and-mortar REITs to leveraged closed-end bond funds. But all have one thing in common: They pay a reliable monthly dividend.

Dividend Stocks to Buy: Realty Income (O)

You can’t have a list of monthly dividend stocks without “the Monthly Dividend Company” itself, conservative retail REIT Realty Income Corp (O). Realty Income has paid its dividend like clockwork for 556 consecutive months and counting. Importantly, it’s raised that dividend for 76 consecutive quarters and has shown no indication of slowing down. Since 1994, the company has raised its dividend at a 4.6% annual clip.

Realty Income is not a bond. It’s obviously a stock. But in terms of stability and safety, it’s about as close to a bond as you can realistically get in the stock market. The REIT owns a portfolio high-traffic retail properties that are mostly recession proof, and importantly, internet proof.

With Amazon.com (AMZN) and its peers quickly making physical stores irrelevant, you have to worry about the long-term viability of a lot of properties. But a typical Realty Income property would be your local pharmacy or convenience store, the sorts of properties that e-commerce won’t replace any time soon. And its base of over 4,700 properties is spread across 247 tenants in 49 states and Puerto Rico, with its largest tenant accounting for just 7.3% of total rent.

At current prices, Realty Income yields about 4.4%, which is nearly 2% higher than the yield on the 10-year Treasury. But unlike that Treasury coupon, which will never rise, Realty Income’s dividend will likely continue to rise every year.

To read the remaining six picks, please see The 7 Best Monthly Dividend Stocks for 2017

Disclosure: As of this writing, I was long O.

Disclaimer: 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 nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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7 Stingy Stocks That Should Raise Their Dividends

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The following is an excerpt from 7 Dividend Stocks That Owe You More Money.

Nothing is more frustrating to me than stingy dividend stocks.

And this is coming from me, a man with a well-deserved reputation as a cheapskate. (I prefer to think of myself as “frugal,” but my friends and family have other choice words for me.) Yet as miserly as I am, I know when I’m beaten. I once had a friend that was tired of paying for lawn service. So he bought a baby goat at a flea market, had the goat eat his grass, then returned to the same flea market and sold the now fattened goat for a profit.

But while I appreciate extreme frugality, it’s not something I tolerate in dividend stocks. I expect my investments to be lavishly generous… which means paying respectable dividends and raising them over time.

Alas, we have a lot of Ebenezer Scrooges out there in corporate America that either don’t pay dividends at all or don’t pay nearly enough of them. Realistically, not every company can be a dividend-paying powerhouse. Cyclical companies like General Motors Company (GM) or Ford Motor Company (F) have wildly erratic businesses and need to keep a little extra cash on hand for the lean years. (Of course, even then, weak share prices have made the pair of them look generous via nearly 5% yields.)

But companies with consistent revenue streams have no excuse for being tight fisted with their investors.

You can think of this as an exercise in naming and shaming. These seven miserly dividend stocks need to open their wallets a little wider and share the wealth with their long-suffering shareholders.

Dividend Stocks That Owe You More Money: Visa (V)

At the top of the list is global payments leader Visa Inc (V).

Visa sits at the intersection of two of the most powerful trends in the economy today: the rise of the cashless society and the rise of the emerging market consumer. With every passing day, more people around the world are swiping their credit and debit cards in more places. And as the owner of the largest global payments network, Visa sits at the middle of this, like a toll booth operator.

Yet Visa has thus far failed to share its success with its shareholders. The dividend yield on V shares is a pitiful 0.7%. It’s not for lack of resources. Visa’s dividend payout ratio is an extremely low 23%.

Why the stinginess? I don’t know. Capital expenditures are a pittance. Visa could double its dividend tomorrow and still have a reasonable cash cushion.

If you own this stock, Visa owes you more money.

To read the rest of the article, please see 7 Dividend Stocks That Owe You More Money.

Disclaimer: 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 nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Why Dividends Matter

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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.

 

Disclaimer: 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 nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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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.

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Source: http://covestor.com/sizemore-capital/dividend-growth 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.

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Source: http://covestor.com/sizemore-capital/dividend-growth 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.

Disclaimer: 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 nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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