Have Your Pie and Eat it Too with this High-Yield, Low-Risk Dividend Stock

Accelerating Dividends, Dividend Investing, ETFs

They say you can’t have it all, and that there’s no free lunch in investing.

All true.

option premium: light bulb surrounded by coins

But that doesn’t mean you can’t have both high monthly yields and be safe.

Look, I spend as much of my time as possible on the road…

Driving from camping site to camping site, seeing as much of this beautiful country as I can.

As my premium subscribers to The Dividend Hunter know, I often have webinars with them from rest stops while I’m on the road.

None of that would be possible without the kind of high-yield portfolio I put my own money in…

And that I show people in The Dividend Hunter. (If you want to join and see what all the fuss is about, just click here.)

It also wouldn’t be possible if it wasn’t safe. There’s no way I could leave my portfolio behind and go traveling for days at a time, if I didn’t think this strategy 

In fact, that’s why I love investing for dividend income. It’s hands off.

Most of the time, I don’t even know what the market is doing, because I don’t care.

When stocks dropped by almost 5% in September, I didn’t notice until my Dividend Hunter people wrote in to ask me about it.

Why? Because falling share prices don’t change how much I get paid in dividends. 

So today, let me tell you about one of my favorite high-yield stocks that’s also quite safe.

As an added bonus, this stock pays out every month.

I’m talking about Virtus InfraCap U.S. Preferred Stock ETF (PFFA).

Preferred stock is issued by corporations as a form of capital that fits in between debt and common stock. The issuer does not have to pay the preferred dividends, but it cannot pay a common stock dividend if the preferred dividend payments are suspended. As a result, the preferred dividends from quality dividend paying companies are very secure.

Unlike bonds, preferred shares do not usually have a maturity date. This fact makes them a long term income vehicle. However, many preferred issues are callable, which can be a danger to investors who are counting on high yield preferred stock dividend payments.

With PFFA the fund managers at InfraCap use the iShares U.S. Preferred Stock ETF (PFF) as their benchmark and starting point from which to differentiate PFFA as a better way to invest in preferred stocks. As a traditional ETF, PFF must contain preferred stock holdings to match the S&P U.S. Preferred Stock Index. There is a wide range of quality and risk in the preferred stock universe. An index-tracking ETF like PFF will own a lot of bad along with the average and the good.

This opens an opportunity for an actively managed fund like PFFA to provide superior performance.

PFFA holds a portfolio of over 100 preferred securities issued by U.S. companies with market capitalizations of over $100 million.  It focuses primarily on preferred stocks issued by micro-cap companies with either high growth potential or strong value characteristics. 

PFFA’s top three holdings are preferred shares of American Finance Trust Inc. (AFIN), a real estate investment trust (REIT) focused on traditional retail and commercial real estate properties; RLJ Lodging Trust (RLJ), a REIT with a portfolio of hotels; and DCP Midstream LP (DCP), a midstream natural gas company.

Here are the added attributes of PFFA compared to PFF:

  • Active investment selection, which includes evaluating potential investments on a variety of key variables, including the competitive position of a company; the perceived ability of the company to earn a high return on capital; the historical and projected stability and reliability of the profits of the company; and the anticipated ability of the company to generate cash in excess of its growth needs.
  • Underweight or eliminate callable preferred securities exhibiting a low or negative yield-to-call ratio. This is a big deal when owning preferred shares. Many investors have been shocked to see negative returns when preferred stocks with prices over par have been called in by the issuer.
  • Employ option overlay strategies primarily to seek to provide additional current income; opportunistic short positions may be employed to hedge interest rate risk. This is primarily covered call writing for the extra income. PFFA pays a stable monthly dividend of $0.16 and currently yields 6.83%, with $502 million under management.

PFFA has delivered a solid 39.2% total return over the last 12 months with a reasonable expense ratio of 1.47%, clearly outclassing its competitors in the preferred sector.

In the current low interest environment, investors are being forced into thinking more about alternative income strategies. Preferred stocks offer a higher yield profile with relatively lower risk profiles. 

PFFA’s proven track record actively managing preferred stocks and delivering reliable, monthly dividends makes it an ideal fit for us as income investors.

It’s why I recommend it to my Dividend Hunter members, along with 30+ other high-yield, low-risk dividend stocks.

To see how to get access to all of them, as well as my research and analysis, click here.

And stay tuned for more here in the Market Cap…

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