In the fourth quarter of 2018, the major U.S. stock market indexes experienced a severe correction, with index value declines approaching 20%. After almost 10 years of bull market, that drop let investors understand the pain of a steep market decline. One of the head clearing benefits of a correction is that one will make you focus on your portfolio management strategies.
As an income stock guy, I recommend and practice the strategy of using stock price drops as buying opportunities. When the share price of a high-quality dividend stock drops, that is the time to add shares, which will increase the income stream and average yield of that holding. The point is that I recommend buying shares during a market correction.
Before a correction will be a period of high stock values. This is the time to unload shares of income stocks where the ability of the underlying companies to continue to pay the dividends may be challenged, especially if the economy slows or goes to negative growth.
With the market back up, here are three stocks that I have recommended my subscribers sell so that we aren’t holding them when the next stock market correction arrives.
The Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX) is a closed-end fund that seeks attractive total return with less volatility than the Nasdaq 100 Index by investing in an equity portfolio that seeks to substantially replicate the price movements of the Nasdaq 100 Index, as well as selling call options on 35%-75% of the value of the Fund’s equity portfolio.
The fund employs a covered call strategy on the tech stock-heavy Nasdaq 100 Index. Selling the call options allows the fund to have a current 7.4% yield.
My sell recommendation was based on there is too much downside risk to the fund in a steep market correction compared to the income and capped upside that comes will doing a buy/write option strategy.
LTC Properties, Inc. (LTC) is a real estate investment trust (REIT) that owns a portfolio of seniors housing and skilled nursing properties. The properties are leased out to independent operators. For its 200 property portfolio, it has 31 operating partners.
Collect $2,123 monthly with Congress-approved “Venture Royalties”
If you’re not cashing large enough checks from Social Security or your dividends – and that means large enough checks to pay your all of bills, treat yourself to nice dinners, and travel where you want – then you’re going to get excited for what I’m going to show you today.
See, not too long ago Congress approved what could be the most lucrative income stream in history. I’m calling it ‘venture royalties.’ It’s a brand new source of income for you and millions of other Americans.
See, ‘venture royalties’ tap into a formerly untouchable $109 trillion dollar market. But now early investors in venture royalties are enjoying large and consistent income streams on top of their normal stock market dividends.
While LTC is a very well run healthcare REIT, its commercial real estate sector is facing a lot of headwinds. Operators are being squeezed on insurance reimbursement or skilled nursing services. Labor costs are increasing rapidly. There have been several operator bankruptcies over the last several years.
For LTC as an investment, the 4.15% yield does not get close to covering the risk.
This type of REIT makes mortgage loans on commercial properties. The company came out of the gate fast with nice dividend growth. However, over the last year, TRTX has not increased the dividend and free cash flow is barely covering the current dividend rate.
There are other commercial finance REITs with yields similar to the 8.7% paid by TRTX with much stronger dividend coverage and long term track records.
TRTX does not bring any added value to a diversified high-yield, income stock portfolio.
This article by Tim Plaehn was originally published at InvestorsAlley.com. None of the content on Library For Smart Investors should be considered as investment advice nor a solicitation to buy or sell any security.