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  • Writer's pictureHigh Dividend Opportunities

Want $250 In Weekly Income? Checkout These Magnificent Dividends


Good Morning, Income Investors!


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What does $250 a week mean to you? Depending on your financial situation, it could mean a lot or very little. For a retired person, $250 per week can cover a variety of basic expenses like groceries, transportation, and utilities. For those who have a more modest lifestyle, it can cover some personal care and entertainment as well. Nevertheless, having an extra $250 per week is always a good thing in retirement, providing you with an extra cushion or perhaps an income stream that would fund your annual travel expenses.


But generating $250/week, or $12,000/year isn’t exactly an easy task for a retiree. If you live by the 4% rule, you would need a $300,000 portfolio and pursue timely disposition of your holdings to withdraw the amount weekly, monthly, or annually. During a bear market, you are looking at the destructive sale of more assets to generate the same cash flow. 


We are increasingly seeing data that supports the case for an upcoming recession in the United States. Unemployment just crossed 4%, and higher unemployment numbers are a typical omen that has led to past recessions. No matter what people think about the future, no one can make an exact prediction.


A bad recession can significantly deteriorate the financial well-being of a conventional retiree using the 4% rule. But at High Dividend Opportunities, we don’t sell our assets for sustenance, we preserve our asset size and life off the dividends. A $100,000 portfolio yielding 12% lets you collect $12,000 annually in the form of dividends, and you will not have to sell a single share. Moreover, by investing in defensive and counter-cyclical holdings, we ensure the continuity of our income stream, no matter how the market reacts to the recession.


Let us now look at two such picks with a combined yield of 12% to generate this additional income that can increase the quality of your retirement. 


Pick 1: NLY - Yield 13.1%


Annaly Capital Management, Inc (NLY) is a mortgage REIT that primarily invests in Agency MBS (Mortgage-Backed Securities), whose principal is guaranteed by federal agencies. The majority of mortgages in the U.S. qualify to become part of agency MBS. As a result, the agency MBS market consists of over $7.6 trillion, making it one of the largest and most liquid fixed-income markets in the world.


MBS prices are currently low in an absolute sense and particularly low relative to U.S. Treasury prices. To us, that means it's a fantastic opportunity to buy agency MBS, and NLY is a great vehicle to do this with. You see, NLY is an investment that thrives during a recession since every institution, including the Federal Reserve, would run behind MBS to secure guaranteed returns.


Take a look at NLY during the Dot-Com bust:


And NLY during the GFC:



When it comes to recessions, agency mortgage REITs are invaluable as investments, and NLY is a proven mREIT to actively manage its portfolio to deliver similar outperformance in the upcoming one.


Pick 2: JPC - Yield 10.7%


Nuveen Preferred & Income Opportunities Fund (JPC) is a CEF focusing on preferred equity. The CEF’s portfolio is primarily focused on institutional preferreds from the financial services sector, with diversified banks making up the lion's share of its holdings.


Interest rates are at their highest since before the GFC, which has been a headwind to the prices for all fixed-income. JPC felt the negative impact along with it due to its composition and its leveraged portfolio strategy. As of this writing, JPC’s leverage sits at 38%, which is the high end of its typical range. But this makes sense since we see lower interest rates in the near term, making the outlook for preferred to be bullish. Ideally, you want to be less leveraged on downswings and more leveraged during upswings.


Since the Fed paused its quantitative tightening and the market became reassured that more rate hikes are unlikely, JPC has soared ~25% over the past year. As a result of the strong tailwinds to its portfolio, JPC decided to increase its distribution by 40% to $0.0665/month, reflecting a 10.7% annualized yield.


Conclusion


During an average investor’s tenure, they are likely to experience multiple recessions. No matter how skilled you are, you can’t avoid them altogether by timing your market entry and exit. More importantly, retirement is a time of relaxation and time spent with loved ones, not being constantly stressed by market movements. This is why we recommend the construction of a defensive portfolio that pays regular dividends, so you can just sit back and relax.


Diversification provides a strong defense against recessions. Build a portfolio in such a way that you have some holdings that do well in a bull market and some that do well during a recession. That way no matter the economic condition, you have income consistency. At High Dividend Opportunities, we hold over 45 individual securities, targeting an overall yield of +9%. Our portfolio is well-positioned to deliver income through tough markets. As income investors, we always have cash pouring into our accounts, and by generating more than you need, you can opportunistically reinvest to take advantage of lower prices. This is the beauty of income investing.

 

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