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  • Writer's pictureHigh Dividend Opportunities

Unlock Stability With 3 Picks for Secure Monthly Income

Good Morning, Income Investors!


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Summary


  • The future is inevitably uncertain; I am buying reliable monthly income.

  • Preferred securities provide much-needed income stability in retirement

  • Up to 8.6% yields from these well-managed CEFs diversified across quality preferreds


Predicting The Future is Futile, I am Preparing for it.


There are always these questions: Will there be a recession in the next few months? What if my holdings drop 50%? Is this the right time to invest? Has the stock market reached its peak? 


The truth is that uncertainty is everywhere and an inevitable part of our daily lives. Whether you are planning your trip based on the weather forecast or you are looking to quit your job to follow your passion, there is always going to be a level of uncertainty. The only way we can cope with the situation is to prepare ourselves for it. 


In the unpredictable world of investing, attempting to foresee the future is akin to chasing shadows. Instead, focusing on what you can control offers a more pragmatic approach. Rather than fixating on where markets may go, the emphasis shifts toward constructing a resilient portfolio capable of weathering any storm.


“Investing intelligently is about controlling the controllable.” - Ben Graham.

This sentiment underscores the philosophy of our investment community. We prioritize a more controllable output from the markets—portfolio income. 


History will repeat itself in fixed income.


Until recently, the markets were convinced that we would see higher rates for longer. But Fed Chairman Powell mentioned that he foresees three rate cuts this year, despite an uptick in inflation data. The last time the Fed cut rates, actively managed leveraged funds with exposure to these fixed-income assets (the same ones we discuss in today’s article) delivered double-digit returns in a very short time frame. History is about to repeat itself, with greater returns, as these asset classes are trading at deeper discounts than in 2019.



Institutional and retail investors alike have begun flocking to fixed-income investments to capitalize on high yields. This strategic move has been a cornerstone of our approach for nearly two years, allowing us to benefit from consistent returns while reinvesting dividends to further enhance our positions. We discussed at least 15 bonus individual preferred securities, and investors who took advantage of the opportunities have collected sizable income over the time frame and would have secured double-digit returns through price appreciation. By not attempting to time the market, we made our investing techniques make it worth our while. 


The opportunity is far from over. While many are skeptical about individual preferred issues, we will discuss three attractively priced monthly-paying high-yield CEFs (Closed-End Funds) for diversified exposure into this income-focused asset class.


Pick #1: RNP - Yield 7.8%


Cohen & Steers REIT and Preferred Income Fund (RNP) is a CEF with a unique blend of REIT equity and non-REIT preferred securities in a 48/52% split of the fund’s assets. Both asset classes are well-positioned to see improving valuations with the rate cuts and are highly income-focused, making it worth your while.


RNP operates with 31% leverage, which is instrumental in boosting the recovery of these beaten-up sectors. 81% of the CEF’s leverage carries a highly attractive fixed interest rate of 1.8%, and 19% is floating with a 6.3% rate.


Within the CEF’s equity portion, high-quality telecom, industrial, and healthcare operator REITs form the most significant components of the fund, and within the preferred segment, the highly regulated and credit-worthy banking and insurance firms form the biggest chunks of the fund’s assets.



RNP pays $0.136/share monthly, reflecting a 7.8% annualized yield to reward you before, during, and after the rate cuts.


Pick #2: JPC - Yield 8%


Nuveen Preferred & Income Opportunities Fund (JPC) is a CEF that prioritizes high current income for shareholders and seeks to invest at least 80% of its managed assets in preferred and other income-producing securities. JPC’s current composition puts almost 80% of the assets in investment-grade territory, with heavy allocation into preferred issues from regulated institutions like banks, insurance firms, and other financial services companies. Source


JPC offers international exposure, with 44% of the assets invested in non-US preferreds and corporate bonds. The CEF is also different from the others in today’s discussion in its heavy allocation to institutional preferreds, constituting almost 87% of the net assets.


JPC trades at a 10% discount to NAV, meaning every dollar you invest buys 10% more of the underlying fixed-income assets. Considering JPC operates with ~38% leverage, your dollar now buys almost 15% more fixed-income assets, making it an excellent bargain in an underpriced category.


Pick #3: HPS - Yield 8.6%


John Hancock Preferred Income Fund III (HPS) is a CEF that focuses on preferred stock and convertible preferred securities. 55% of the fund’s net assets are invested in preferred securities, and 40% in corporate bonds.


Compared to the above two preferred CEFs, HPS’ distributions are largely composed of Net Investment Income, and a small portion is funded by ROC (Return of Capital), which brings advantageous taxation for eligible investors.


HPS pays $0.11/share, an 8.6% yield at current prices, and the CEF operates with a 37% leverage, which should transform into a tailwind with upcoming rate cuts. We can collect big monthly distributions to ride the accelerated recovery.


Conclusion


No matter where you are in life or what you are doing, there will always be a path you need to choose and a decision to make without having a clear path ahead or knowing the future. In order to keep moving forward, we need to understand the variables and make an educated decision that will help us to move forward in the right direction. 


With rate cuts ahead, fixed income continues to be the best place for the dual benefits of short-term gains and long-term income prospects. Today, we have the opportunity to buy discounted prices and lock in big yields for the years ahead. When rates are in line with historical averages, we will have a decision to make with our perpetual securities – sell to capture the gains or keep collecting the high yields we locked. This is a good dilemma that today's prudent buyers will face.


No one can predict where interest rates will be in a year from now, and attempting to do so is a futile activity. This is why, at High Dividend Opportunities (HDO), we consistently advocate for a balanced rate-agnostic portfolio with preferreds, baby bonds, and associated fixed-income securities. Our portfolio holds over 45 preferred securities targeting a +9% overall yield, enabling us to generate high current income today, tomorrow, forever . . . despite where market rates will be at.


 

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 & retirement. If you are looking for high sustainable income, you have come to the right place!



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