Double-Digit Monthly Dividend Payers for 2015.

What's being teased now by Bryan Perry's Cash Machine?

By Travis Johnson, Stock Gumshoe, June 18, 2015

Bryan Perry is pitching his Cash Machine newsletter, which has been recommending high-yield investments for many years, by using the tempting prospect of monthly dividends.

If you haven’t caught the “monthly” bug, these are stocks (or funds) that simply pay their dividend twelve times a year instead of the traditional four. Some income-hungry investors really like that, though the actual income provided isn’t necessarily different (monthly payers typically have yields comparable to similar companies that are quarterly payers, they just divide up that annual dividend into smaller chunks).

It does help slightly if you’re a compounder — compounding your dividends by reinvesting them monthly instead of quarterly gives a small boost, all else being equal, but that’s probably not enough to give a strong conviction that “Monthly” is better than “Quarterly” — what appeals, I assume, is that the dividends come in as regularly and often as the bills do, which feels safe and secure and more like a “paycheck.”

Do note that the dividends of monthly dividend payers are no more “guaranteed” than are quarterly dividends. Companies and funds can and do halt or cut dividends if results change — though they are usually very resistant to doing so unless the situation is truly dire, because they know that investors own their stock because of the yield and will sell it if the expected yield falls.

Here’s how Perry introduces his teased picks:

“In this report, I reveal the very best monthly dividend payers for 2015 — stocks and other investments with yields of 9.17%, 9.7%, 10.3%, even 16.6%.

“Plus, I also I show you can how to put together a portfolio of the very best monthly dividend payers that will give you a guaranteed income for life….”

I hate to see anyone throw around that “guaranteed” word for these kinds of investments, but a diversified portfolio of dividend-paying stocks is hard to argue with (other than the fact that if interest rate expectations change abruptly, all the stocks will probably move en masse — income stocks are pretty much all sensitive to interest rate fluctuations, and we’ve never had rates this low for this long before so there’s a heavy dollop of uncertainty to be aware of with anything that yields more than 3-4%).

What, then, are the stocks?

He gives away the first one…

“My first pick for your portfolio for 2015 is the Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG).

“I believe that this fund, which is composed of world-class stocks and also utilizes a sophisticated options strategy that professionals employ for extra income (covered calls), will deliver the total return of 10% or more that I’m shooting for in the year ahead.

“Top holdings include Royal Dutch Shell (RDS.A), Nestle, Vodafone Group (VOD) and Unilever (UN), as well as U.S. household names like Google (GOOG) and Wells Fargo (WFC).

“… the shares trade at a very attractive 9.05% discount to net asset value (NAV).

“The fund has a managed dividend policy that is set at the end of every year.

“It currently pays out $0.081 per share per month, which translates to a current annual yield of 10.34%.”

That’s one important consideration for investors who are really seeking income from their stocks: If you want substantial income returns, dividends well above the normal company, you have to accept that almost all the time the stock will trail the broader index in bull markets, and that most of your return will come from that unusually large dividend.

Aiming for a 10% return sounds fairly reasonable for a managed closed end fund with a covered-call strategy, since you could probably generate that kind of return by buying blue chips and selling covered calls yourself if you have a portfolio large enough to minimize transaction costs and diversify… it’s just that when the market does well, you’ll trail the market substantially. EXG has been about flat (actually down a little) over the past five years, providing a return of a bit over 50% entirely because of the dividends, while the S&P 500 has gone up 108% during that time including dividends (or 88% if you ignore the dividends).

The discount to NAV is down to about 5% on EXG now, so this data in the tease is a bit stale — but with that continuing monthly payout of just over eight cents/share it still yields almost 10%. I like the Closed-End Fund Association for data on CEFs like this, you can see the current info for EXG here if you’re curious.

And we’ll reveal the first “secret” one for you (the other two I won’t get to today are closed-end funds — we can do those in the future if folks are interested)…

“Monthly Payer #2 for 2015:

“A REIT Handing Shareholders a Monthly Check with an Annual Yield of 16.6%!

“As you probably know, some of the fattest, juiciest dividend payers around are Real Estate Investment Trusts (REITs)…

“But what you might not know is that some of these income investments pay MONTHLY.

“For example, there’s a specialty finance company that manages a portfolio of securities made up of residential mortgages.

“It’s making money hand over fist — and passing it on to its shareholders!

“In the third quarter last year, it earned net income of $6.8 million, or $0.63 per share.

“Third-quarter dividends totaled $0.54 per share, and book value was $13.27 per share, a $0.22 per share increase. Revenues are forecast to rise by 52% in 2015 to $35 million — which explains why insiders own 11% of the stock.

“Another reason: It pays a monthly dividend of around 18 cents per share with an eye-popping annual yield of 16.6%!

“Someone with $50,000 to invest will collect a nice check of $691 a month… month after month after month.”

That “month after month after month” makes it sound a bit like an annuity, so be careful about how much safety you assume from these kinds of high-yielding investments. Thinkolator sez that here we’re being teased about Orchid Capital (ORC), a mortgage REIT (they’re sometimes called mREITs) that I’ve never heard of before — probably partly because I’ve been avoiding the whole mortgage REIT sector because of the often extreme interest rate sensitivity.

Mortgage REITs primarily invest in portfolios of mortgage bonds — so how can they have such crazy-high yields? 16% is high even for a mREIT, but yields of over 10-12% are commonplace in this group. You obviously can’t invest your own capital into bonds that yield 3-4% and expect to make 16%, so they have to borrow money. They borrow short-term money at relatively low rates to lever their portfolio, and use that larger portfolio to buy relatively longer-term mortgage bonds. If they can borrow at 1.5%, for example, and buy a lot of stuff that yields 4%, that’s a nice spread — and they borrow far more than their equity, often 6-10X their equity, so that’s how these small spreads of one or two percent turn into 10-16% yields for equity holders.

The biggest risk is that they lose access to short-term borrowing, which is what happened to a lot of these mREITs during the financial crisis… and the most likely risk is that changing interest rates (and a changing yield curve, with a different gap between short-term and long-term rates) will change their profitability. On the operating side, they spend most of their time dealing with interest rate risks, with hedging and management of the portfolio — and though rising rates have the biggest impact on their book value (bonds lose value as rates rise — which is particularly important if you borrowed money to buy those bonds), falling rates are not necessarily great either — lower long-term rates cut into profitability if short-term rates stay where they are (and short-term rates can’t fall much more)… and lower long-term rates also lead homeowners to refinance, which might mean that bonds are “matured” early at less than what the mREIT might have paid. They don’t have any meaningful default risk because they’re focused on agency bonds, the mortgage bonds that are guaranteed by Fannie Mae and other government arms and agencies.

Can’t say that I know this one at all, but they are premium-priced relative to many mREITs (at least on a price/book value basis), they do have a huge yield, and they’re quite small and are externally managed (meaning, they don’t run their own portfolio and have their own administrative operations like some larger REITs do — the mREIT is really just a portfolio, and the management is done by an outside investment management company… in this case, Bimini Capital Management, which itself is a publicly traded REIT at BMNM… BMNM is also quite levered and doesn’t pay a dividend at this point, don’t know much else about them).

Sound exciting? Have other monthly (or other) dividend payers that interest you? Feel free to share your thoughts or ideas with a comment below. Thanks!


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24 Comments on "Double-Digit Monthly Dividend Payers for 2015."

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Gerald
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I subscribed to Bryan Perry’s Cash Machine several years ago and followed his recommendations for a year. while his picks do yield a good return, it seems that he is recommending them when they are near their 52 week highs and my experience was that many lost value so quickly that even with the monthly dividends it took a year or more to get back to being equal to the money invested. I would recommend D/D and or review the technical charting, checking the trend, making sure that your buying in an up trend and use either trailing stops or… Read more »
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WD Shaneyfelt
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Monthly dividends also has another cost to company for providing monthly dividends and there by also another reason not to like monthly dividends as the company costs are handed down to the dividend receivers. Interesting process.

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Jimmy
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What cost are associated with monthly dividends?

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Peter Livingstone
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If you want a monthly income while retaining the freedom to invest anywhere, take the net yield (or target yield) on your portfolio and deposit that amount of money (ie. one year’s net income) in a separate bank account and have one twelfth of it sent to your main account by standing order each month. In turn, as each dividend comes in, have it mandated to the separate account so tht, over the year, what comes in equals what goes out. At the end of the year, if there is a surplus in the “feeder” account you can raise the… Read more »
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Vic Bowman
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A stock that was discussed here a couple of months ago, Tobin Smith’s blue chip,Newtek [NEWT], just increased their quarterly dividend to .47 from .39. This BDC looks like it is doing well and yielding over 10% at today’s prices. I am long this stock and quite comfortable with it despite it being a Tobin Smith recommendation.

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who noze
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tobin smith ugh

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Vic Bowman
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I know, I know. I don’t understand how he got involved with this stock but it has been my best performer ytd. Two weeks ago two directors bought stock and Barry Sloane bought more. I buy more whenever I see insider buying. I try to examine fundamentals, short interest and just about anything else an investor should look at but to me you just can’t beat insider buying.

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jbsod
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Vic — I just checked the nasdaq.com site for NEWT. The last tab “Insiders (SEC form 4)” has no info on recent insider trades.
Where can you get the info you mentioned about two directors buying NEWT stock?

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lova10x1
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Insiderinsights.com

Ronald Homan
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And of course these high “dividend” stocks are mostly taxed at your full tax bracket rate, not the 15% rate for qualified stocks. Sooner or later that will make a big difference.

John
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Morl pays over 20% monthly.

tampabob
Member
10

Travis – I’m a current subscriber to Perry’s Cash Machine so I can tell you that the Thinkolator is spot on. I’m generally happy with his recommendations. He updates every week and more frequently if needed. He also has an associated service where he writes covered calls on some of his picks to increase the monthly income.

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william thomson
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i have been holding 2 stocks, that continue to frustrate me for different reasons. the first is HTY ( john hancock ) it has been paying a quarterly dividend of 32 cents,but the stock seems to suffering from the exchange rate with the euro. as i have been getting around 11% , am i too concerned with the stock price ? the second is NLY ( annaly ) . there are a few top execs getting huge annual incomes ,as both the dividend and stock price continue slipping. as the mortgage business is super sensitive to the feds whims/rumors ,is… Read more »
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Sargam
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My bias against NLY is that is is a Stansberry favorite. Being the largest newsletter out
there, his guys move markets in anything not huge. You could make a living shorting his recommendations after a couple of weeks. They will usually overshoot and end up even lower than where they started.

tampabob
Member
10

I dislike NLY for a different reason. Take a look at its dividend history.
Cut, cut and more cuts. From a high of 75 cents/qtr to the current 30 cents/qtr.
That’s the wrong direction for six years. I prefer stocks that raise divs. Take a look at Main Street Capital (MAIN).

Jan Shuster
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Mreits will take a big hit depending on what interest rates do and how fast.
You cand buy funds and levereraged funds of them and avoid the individual company risk at least
REM MORT MORL come to mind.

Scott
Guest
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Receiving monthly divis is a nice change for, say, UK investors who have to wait 12 months for each main div. and six for a tiny interim. Plenty good Canadian prospects that you can trade regularly and still pick up these nice little sweeteners.

Carbon Bigfoot
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Buckeye Partners BPL is earning my original investment over 7% albeit quarterly. Monthly two Eaton Vance ETV, EVT both paying about 7%.

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Jeff Whallin
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Cefconnect.com is a good source for evaluating closed end funds. Look for a good discount to NAV and historical performance. There are quite a few good CEFs out there, but this is an investment most attractive to income investors. Funds like BDCL, MORL, CEFL are 2x leveraged funds and can be quite volatile, but typically within a relatively narrow price range. I’ve had very good results with GOF, ETO, EVN, JCE, JRI & CEFL. V

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Alfred Jones
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getdastock
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38

Re: tax implications on dividends; would trading within an IRA negate the effects of dividend earnings?

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David Weeks
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I have been investing with Cash Machine for about 2 years now. I will not renew when my current subscription ends. It seems, overall, that the high yield sector is extremely volatile and risky. Any piece of news that carries the slightest suggestion of the possibility of a chance that the dividend might get cut eventually leads to vicious sell-offs that are beyond most people’s pain threshold. Also, my experience is that Perry is almost always late to the party, recommending stocks after significant run-ups. He is also usually late to the exits, as he seems to have no real… Read more »
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Nunya
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Three years late here, but I would’ve saved a whole lot of money by finding this article sooner. Bryan Perry is still selling his newsletter unfortunately. One of his recommended stocks dropped $17 per share about 2 wks after I bought it, and he showed it was a buy up to a couple of dollars higher than where I entered. The other stock I bought has just dropped and will take a year of dividends to recover if it doesn’t fall more. He’s still saying to hold or add to these. I agree with everyone else here. He doesn’t suggest… Read more »
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