Here’s a “Goldilocks” Strategy for 7.2% Dividends and Upside in 2021

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There’s a dangerous dividend trap setting up out there. It’s easy to fall into, and if you make this mistake, you could do fatal damage to your nest egg—and income stream—in 2021.

It’s a classic error called “reaching for yield.” It happens when investors put too much weight on an investment’s current dividend yield without considering what’s behind that payout. More and more folks are making this blunder today.

I know what you’re thinking: “Michael, I can easily sidestep a mistake like that.” That’s easy to say, but it can be hard to resist when you’re confronted with, say, a 5% payout that seems safe at a time when income go-tos like Treasuries and stocks pay a meager 0.8% and 1.5%, respectively.… Read more

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They’re here again: more articles warning us of the “dangers” of municipal bonds. Don’t take the bait, because these wrongheaded articles will steer you away from some of the safest (and highest) dividends out there.

One claim you’ll read in many of these pieces is that states are losing tax revenue, which could mean they’re gong to default on their debt or go bankrupt. In reality, municipal-bond bankruptcies are really rare.

And I mean really rare: since 1970, the municipal-bond default rate has been 0.0043%, according to Moody’s Investor Services. To put that in perspective, the CDC says your chance of getting hit by lightning is 0.0002%.… Read more

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These days, you can be forgiven for thinking a wave of bankruptcies is going to hit your portfolio (and your dividends!). But there’s no need to worry: this so-called “wave” is way overhyped—in fact, it could send your portfolio higher.

It’s just one more upside-down thing we investors have to deal with in this crisis.

And get this: you could line yourself up for triple-digit returns (and 8%+ dividends!) if you tap into investors’ (overwrought) bankruptcy fears through a corporate-bond-focused closed-end fund (CEF). I’ll have a ticker (paying a monthly dividend yielding 9.2%) in a moment.

First, let’s dispel one myth: that COVID-19 is behind all the bankruptcies we’re hearing about these days.… Read more

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There’s a joke going around that the S&P 500 isn’t the S&P 500 anymore. It’s now the “S&P 5.”

(Well, last Thursday, the five got punched in the face. With no meaningful dividends to cushion the fall, it was all “red on the screen.”)

I’m talking about the five mostly dividend-less stocks that have been driving the rebound since March—tech darlings and low/no yield wonders Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOGL) and Facebook (FB).

Rebound Leaves Dividend Investors Behind

If you’re not holding these big names, or if you only have a small position, well, the joke’s been on you (with the exception of last Thursday, of course!).… Read more

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I don’t know why you’d try to cobble together an income stream with miserly ETFs when there are plenty of closed-end funds (CEFs) trading at big discounts, even after the huge market rebound we’ve seen since March.

What’s more, many of these CEFs are throwing off life-changing 7%+ payouts!

Why are we seeing some great deals in CEFs now? Because the folks who invest in these funds tend to be slower to react to events than the jumpy crowd holding the typical S&P 500 stock. That lag gives us a nice opportunity to buy while these funds’ prices are still deeply discounted from the value of the assets in their portfolios (a figure known as the net asset value, or NAV).… Read more

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There’s a strong buying opportunity unfolding in an ignored corner of the market right now. Steady dividends of 5.8% (and higher) are waiting for savvy contrarians who jump on it.

By “savvy contrarians,” I, of course, mean us!

And the corner of the market I’m referring to is municipal bonds.

If you’ve been following the muni-bond saga over the last two months, you might find my enthusiasm a bit unfounded. After all, the coronavirus is hammering the finances of cities and states across the country and driving up the risk of muni-bond defaults—right? Not so fast.

Your Muni Default Risk? 0.042%Read more

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Subscribers to my CEF Insider service are asking me a lot about corporate bonds these days, so today we’re going to take a close look at it—and what it means for bond funds.

First, let’s talk about interest rates, which are plunging.

Debt Getting Cheaper 

This means companies pay a lower rate than ever when they issue bonds. When rates fall, it can make sense to take on more debt, because you can use that debt to raise cash. If you don’t need that cash, you can pay off the debt later at a low cost because, again, rates are so low.… Read more

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I don’t know why you’d try to cobble together an income stream with miserly ETFs when, thanks to this selloff, we’ve got a huge sale on closed-end funds (CEFs) throwing off life-changing 7%+ payouts.

Why are CEFs a great deal now?

In short, the coronavirus scare has caused a “panic disconnect” between many of these funds’ share prices and the value of the assets in their portfolios, known as the net asset value, or NAV.

These discounts are a quirk that only exists with CEFs, and they make our plan simple: buy when discounts are particularly wide, then ride these markdowns higher as they evaporate—pulling the fund’s market price up with them.… Read more

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I’m annoyed with this bubbly stock market. It’s making it nearly impossible for regular people to find decent dividends.

Sure, we’ll always take upside, and despite overdone drops due to the coronavirus, the market has handed us a 4% total return since the New Year, building on the 31% it delivered last year.

But where the heck do we invest our gains?

Truth is, if you want to deploy cash into higher payers, you’re in for a tough slog: the S&P 500 yields just 1.7% today, a low we’ve only seen a couple times since the financial crisis.

US Stocks Rarely Pay so Little

Treasuries?… Read more

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Brilliant bond manager Jeffrey Gundlach—aka the “bond god”—has decreed that it’s time to sell “junk” bonds. And he’s gone as far as to say that one-third of corporate bonds should probably be rated as junk.

Gundlach is one of the few “gurus” that we pay attention to. He called the subprime mortgage crisis ahead of time in 2007, an epic rally in US Treasuries earlier this decade, and President Trump’s election in early 2016 (when few gave the Republican candidate a chance.)

And his two closed-end funds (CEFs) are excellent long-term additions to a retirement portfolio. Over the last six years his two DoubleLine funds have roared to 72% and 54% total returns (with the majority of these gains coming as cash dividends:)

DoubleLine CEF’s Deliver: Distributions Plus Gains

But no guru is perfectly clairvoyant!… Read more

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