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  • Writer's pictureHigh Dividend Opportunities

Planting Our Income Crops

Good Morning, Income Investors!

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After a slow start to 2024, value stocks had a terrific month in March. We have mentioned before that our portfolio at High Dividend Opportunities closely mimics the performance of the Russel 1000 Value Index.

If we look back over the entire Fed hiking cycle, we can see that the equity markets haven't gone anywhere:

Growth and Value are sitting more or less at the same place, but Growth stocks went on a steeper ride down and, therefore, had a steeper recovery. Ultimately, total stock market returns have been poor since January 2022. The indices have returns in the low to mid-teens over two years. Indeed, until the past couple of months, an investor from January 2022 likely had a negative total return (when adjusted for inflation).

The Importance Of Keeping Your Head

For decades, the U.S. stock market has been one of the best platforms for people to invest in to grow wealth and build their retirement nest egg. People who invest regularly are wealthier than those who don't. However, many people misinterpret this fact. They approach the market with the expectation that they will invest, and will "make money" right off the bat. If they aren't making money, they start thinking that something must be wrong. They panic, and they make mistakes.

Someone who retired with $1 million in January 2022, invested in an S&P 500 ETF, or had a portfolio that closely matched the performance of the S&P 500 would have had their portfolio look something like this over the past two years: Source

Portfolio Visualizer

In the abstract, we see that this theoretical retiree had a balance of $1,139,895 at the end. Hey, $139K for "doing nothing" is a great deal, right?

The problem with stock charts is that they can't capture the emotions that people experience. This retiree, in just nine months, was down to $760,720 – a loss of nearly $240,000 in just nine months! There is a fair chance that $240K is roughly the value of the house that this person took 30 years to pay off. If you were withdrawing money to pay your bills, your balance would be even lower.

We look at the chart in the abstract and think, "That doesn't look so bad, just a little dip", but this "little dip" was 25% of a person's life savings gone in just nine months. Psychologically, that isn't an easy thing for most people to handle.

Imagine yourself being a new retiree who just started managing your own investments. It's September 2022, and you just lost $240K of the $1 million that is supposed to last you the rest of your life. Then you turn to the news.

Here are a few headlines from September 2022:

Are you scared yet? I can assure you that many were. After all, fear is what causes the market to go down. Markets go down because people are in a hurry to sell. We can sit here now and know that the market recovered, and September 2022 was a bottom. Nobody knew that it was the bottom in September 2022, including me.

When faced with this type of paper loss, it is very hard for the average investor to turn off their emotions and avoid realizing large, unnecessary losses.

The Secret

I don't have a secret method to avoid volatility; my portfolio has red days fairly frequently. It will have periods where it is below its all-time high, and sometimes those periods can last very long.

I don't have a secret method to avoid dividend cuts. I invest in companies that I believe will be able to sustain their dividends, but belief doesn't always survive contact with reality. I will be wrong because sometimes an event I identified but judged to be unlikely happens, and sometimes an event I never even imagined possible comes out of left field.

The "secret" I do have to share is a framework that you can use to minimize the impact of mistakes and approach the market with a healthy mental attitude that helps you get through periods of decline like September 2022 without panicking. You wouldn't have panicked if you were focused on your portfolio income in September 2022. Your income was higher than it had been all year. If you have followed the Income Method since then, your income today is even higher. Prices fell, the market panicked, but your income kept growing even with a few cuts that occurred in our portfolio.

What Should We Be Doing?

It is easy to predict what will happen, but it can be very difficult to determine when it will happen. The economy will have a recession—and there will be many recessions in our time as investors. Recessions and bear markets are an inescapable reality of investing.

Should we run away from the market? No. Instead, we should be prepared, stay calm during the downturn, and follow the income. My investment strategy isn't dependent upon my ability to predict the future better than the next guy.

The Income Method we have adopted at High Dividend Opportunities involves focusing on growing your income regardless of what share prices or the economy does.

  • Buy a portfolio of income-producing investments.

  • Ensure that your portfolio is diversified, with at least 42 different companies diversified across sectors.

  • Have a solid base of fixed-income investments. (35-50%)

  • Keep your personal budget below 75% of the income your portfolio produces.

  • Reinvest the remaining 25% to ensure your income keeps growing. You still have a future, and it is still important to keep investing in it.

  • When you make changes or add to your portfolio, prioritize your income. Make changes that improve the quality of your portfolio by increasing the amount, the safety, and the diversity of your income stream.

We have three quality picks to get you started on your path toward financial independence with passive income.

Pick #1: Realty Income - Yield 5.8%

Realty Income (O), also known as “The Monthly Dividend Company,” is the 5th largest global REIT (Real Estate Investment Trust). It enjoys cash flows from over 15,450 real estate properties managed under long-term net lease agreements with credit-worthy commercial clients. 

75% of Realty Income’s diversified real estate portfolio comprises non-discretionary, low price point, and service-oriented retail. It is through this diversification and emphasis on tenant quality that the REIT’s portfolio occupancy has never gone below 96.6% in its 30-year history as a public company.

With a fortress balance sheet in the REIT industry, rated A3/A—by Moody’s and S&P,  94% of the company’s debt carries fixed interest rates. Realty Income maintains a stellar track record of 29 years of consecutive payment raises. The REIT recently delivered a monthly raise to $0.257/share, calculating to a 5.8% annualized yield at current prices, with excellent prospects for long-term dividend growth.

Pick #2: UTF - Yield 7.9%

The recent collapse of the Francis Scott Key Bridge will drive discussions around serious gaps in America’s critical infrastructure. Not only will there be a sense of urgency to rebuild the bridge, but we expect the combination of public and private sector investments to establish measures to safeguard the lifelines of our economy.

Cohen & Steers Infrastructure Fund (UTF) is one of the best beneficiaries of this importance, urgency, and continued rollout of the bipartisan infrastructure law. UTF’s assets include regulated utilities, gas distribution, and midstream C-Corps in large proportions, providing much-needed inflation hedge and income stability. The CEF is actively managed to realize capital gains in addition to investment income.

Together, these fuel the shareholder distributions. The CEF pays $0.155/share per month, a 7.9% annualized yield. 

Pick #3: LAND Preferreds - Up To 7.5% Yields

As the world's population continues to increase, the demand for agricultural output rises. However, this growth is met with challenges such as shrinking arable land and declining yields due to climate change's impacts. This makes Gladstone Land Corporation's (LAND) business model highly sustainable and lucrative. The REIT owns and leases farmland and farm-related facilities to high-quality farmers, primarily on a triple-net basis. LAND’s portfolio includes 168 farms with 112,000 total acres in 15 states and over 46,000 acre-feet of banked water in California.

LAND has raised dividends annually since its operation as a public company, making its deeply discounted cumulative preferred stock very attractive for income investors.

  • 6.00% Series B Cumulative Redeemable Perpetual Preferred Stock (LANDO) - Yield 7.5%

  • 6.00% Series C Cumulative Redeemable Perpetual Preferred Stock (LANDP) - Yield 7.5%

  • 5.00% Series D Cumulative Term Preferred Stock Due 1/31/2026 (LANDM) - Yield 5.2%

We particularly like the 7.5% yielding LANDO and LANDP, which offer 25% capital upside to par. Being perpetual preferred, the issuer is not obligated to redeem these anytime soon, making them an excellent source of long-term income from a robust business model.


Whether your portfolio's liquidation price is up or down, focus on the income it is producing. This provides you with a tangible and more stable way to measure your progress. While others are panicking about their large losses in September 2022, you can be comfortable that your income is climbing.

While others are celebrating their unrealized gains in March 2024, stay focused on ensuring that your income is growing. By focusing on your income, you will find that you are psychologically equipped to deal with the high and low swings of the market – getting neither too enthusiastic when the market is climbing, nor too depressed when it is falling.

As an income investor, the goal is not to consume your portfolio with the hope that it is large enough to sustain you for the rest of your life. Instead, we are farmers. We plant our seeds, harvest a portion of our crop, and use the remaining seeds to grow more. Storms come and go, but when the sun comes back out, our crops will still be growing.

This is the beauty of the Income Method, the time-tested essence of income investing.


Are you ready to become an income investor?

We can't say it better than our members:

Stop wondering if you will have the income you need in retirement; start growing your income stream now. We are the largest community of income investors and retirees, with over 7,500 members. Our "Model Portfolio" targets a +8% yield, with the highest and safest dividend stocks, preferred stocks, and bonds. This service is ranked #1 in dividends, income, and retirement. If you are looking for high sustainable income, you have come to the right place!



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