Forget todays pathetic Treasury rates. And forget the lousy payout on your typical S&P 500 name, too.
Put your nest egg in either and youre locking in an income stream thats actually less than zero for years to come!
I know that sounds crazyIll get into precisely what I mean, and how it could jeopardize your golden yearsshortly. Then Ill show you my two-step dividend strategy (and four specific stocks and funds you can buy now).
Put all four of these picks together and youve got a perfect setup for these days of miserly yields, giving you gaudy 6.1%+ payouts today and an incredible 20%+ cash stream in short order!
How Powell Crushed Savers
First, if youre disappointed in the dividend options out there today, you can blame one man: Jay Powell. (Actually, youll have to get in line to dump your frustrations on the poor fellows head!)
We all know that Powells clumsy pivot from rate hikes to rate cuts at the start of 2019 sent stocks soaring (and dividend yields plungingas you calculate yield by dividing a companys annual dividend payout into is current share price). Powells lurch also sent the yield on the 10-year Treasury note (in orange below) crashing.
Powells Mr. Bean Act Leaves Yields Cold
And now were staring down the boogeyman of negative interest rates.
Think it cant happen? Theres already $16 trillion in debt sloshing around the world yielding less than zero.
Yields could have a minus sign in front of them in America next, especially if an economic pullback sends the Federal Reserve on a stimulative turn. Former Fed Chair Alan Greenspan recently said: Youre seeing [negative] rates pretty much throughout the world. Its only a matter of time before theyre in the United States.
Imagine buying a Treasury note now and, 10 years on, getting back less than you put in! Its a recipe for retirement poverty. And its made the dividend two-step Ill show you now even more urgent.
Lets start with
Step 1: Get Cheap 8%+ Dividends Here
True, there are few cheap dividends in the S&P 500 these days. But I say who cares! Because there are still plenty to be had in other, less-traveled corners of the market.
Consider one of my favorite vehicles: closed-end funds (CEFs). Theyre the antidote to lousy yields: my Contrarian Income Report service, for example, holds nine CEFs yielding 7% on average (not including the fact that the payouts on our municipal-bond CEFs are tax-free for most Americans).
The highest payer? Its throwing off a gaudy 9% payoutwhich it delivers every monthas I write this.
Heres where the bargains come in: unlike other types of funds, CEFs share counts are mostly fixed after their IPOs. As a result, investors can bid their shares totally out of whack with the value of the funds portfoliootherwise known as its net asset value, or NAV.
The upshot? We only buy when CEFs are trading at a discount to NAV. Well collect our big dividends while these discount windows slam shut, propelling our shares higher.
You can see this in action with the PIMCO Dynamic Credit and Mortgage Fund (PCI), which I recommended in Contrarian Income Report on May 6, 2016, when it traded at a 9.3% discount. Since then, PCIs discount has flipped to a 9.7% premium.
Thats right! Investors are currently willing to pay $1.10 for every $1 of the funds assets.
And every time the funds discount has shrunk along the way, its pulled PCIs market price up with it:
PCIs Shrinking Discount Yanks Its Price Up
And if you throw in PCIs outsized dividend (an 8.4% yield currently, paid out every month), the 36% price gain above transforms into an incredible 95% total returnwith most of that in safe dividend cash.
Dividends Boost PCIs Return 2.6X
But with PCI now boasting a premium, I no longer recommend it for new money (though its 8.3% yield makes it a great fund to hang on to if you already own it).
If youre hunting for cheap CEFs to buy now, here are three that are more than worthy of your attention. All of them tick three boxes I insist on before buying a CEF:
3 More Bargain CEFs You Can Buy Now (Ranked by Discount)
Now lets move on to our next strategy for Powell-Proofing your portfolio. Its an automatic dividend machine thats even simpler than buying CEFs!
Step 2: Stair-Step Your Way to a Safe 20.3% Yield
In fact, theres really only one step here: buy dividend growers. But not just any dividend growersif we want to pump up our yield fast, we need payouts that are accelerating.
You can see this in action with CubeSmart (CUBE), a REIT in the self-storage spacea business so boring it would make even the most conservative investor sleepy. But the companys dividend story is anything but!
CUBE pays a 3.7% dividend. Thats okaydouble what the typical stock pays. But check out the incredible 1,180% payout growth CUBE delivered in the last decade:
1,180% Payout Drives a 20.3% Dividend
In other words, if youd bought then, youd be yielding 20.3% on your buy today!
However, as you can see above, CUBEs payout growth is now petering out. Thats not the case with US Bancorp (USB). Check out how the firms dividend has taken offjumping 71% in the last five yearsand is accelerating:
USBs Dividend Takes Flight
Funny thing is, investors havent (yet) taken notice and bid up the share price at nearly the same rate as the payout has risen. (Its common for shareholders to take a while to notice a sprouting payout, and that delay is usually a great time to buy.)
In USBs case, this lag has given us the chance to start our automatic dividend machine with a yield thats very close to a 10-year high:
Investors Miss the Memo on USBs Payout Growth
But how do we know USBs dividend will keep accelerating? For one, the bank only pays out 30.5% of cash flow as dividends as I write this, well below my safety margin of 50%. Meantime, USB is overcoming lower interest rates through loan growth, helping power earnings per share higher (up 8.5% in the third quarter).
The kicker? Rate-driven pessimism around all banks has given you a chance to buy USB at 11.5-times free cash flow. So if youre looking to fill out your finance holdings, now would be a good time to pick up USB.
A New (and Easy) Way to Get Paid $40,000 a Year Forever
This strategywhich delivers high yields now and dividend growth to boost your nest egg (and dividends) down the roadis how every investor should approach retirement.
Problem is, most folks have no idea how to find the high safe dividends (and fast payout growth) they need to make it happen. Thats exactly why I wrote the article you just read. And now Im going to go further and give you my new 8% Monthly Dividend Portfolio.
This sturdy collection of investments gives you the best of both worlds: big cash payouts now, steady growth in your income stream and one other thing investors tell me they want all the time:
Dividends paid out monthly, so they match up perfectly with their bills!
This unique portfolio comes to you fully stocked with high-yielding stocks, real estate investment trusts (REITs) and, yes, CEFs.
All told, it hands you $8,000 in yearly dividend cash for every $100K invested!
So if you invest, say, a $500K nest egg, youll get back $40,000 a year in income. And with that cash dropping into your account every month ($3,333 a month, to be precise), you wont have to lift a finger!
Your cash will come in, your expenses will go outand youll be left with a nice surplus on the side, which you can spend however you like (or reinvest, building your income stream further).
Full details on these stout income plays are waiting for you here. Youll discover:
Dont miss your chance to start tapping this life-changing dividend stream while you can still get in at a bargain. Ill share all the details on every stock in my 8% Monthly Dividend Portfolionames, tickers, buy-under prices and much morewith you right here.