Dear Subscriber,
I’m Tim Plaehn. And I’m here to guide you on your 29-day journey towards building a dividend portfolio that can deliver reliable source of income for life…in other words, to become a Dividend Hunter!
Simply put, I believe the best way to do that is by investing in companies that pay the highest dividends, or “high-yield” stocks.
Here’s why…
During my decades of investing experience — both as a financial advisor and small investor — two huge factors pushed me to develop the high yield Dividend Hunter strategy.
First, in a world of ultra-low interest rates, safe investments such as CDs or government bonds, simply won’t deliver a reasonable return on your capital. And by “reasonable return,” I mean enough to live on while still outpacing inflation.
For example, the current yield on the ultra-safe 10-year U.S. Treasury bond is a measly 0.84%. The 20-year bond pays only 1.41%. Even the yield on the S&P 500 stock index pays a paltry 1.80%. It’s easy to see with inflation running around 2%, that’s a losing game.
Second, I have learned that it’s almost impossible for small investors to consistently make money in the market. Usually, small investors might make money one year only to lose a big chunk the next.
Why?
At some point, they’ll get greedy, chase after a winning stock and overpay. Or, when the market takes a sudden dive, they’ll cave to the pressure and sell everything – only to see it bounce back within weeks. You see, fear and greed are powerful forces that push investors into doing the wrong thing at precisely the wrong times.
That’s important, so let me put it another way. Most Mom and Pop investors are skilled at “buying high and selling low.” Read that again. Most small investors let their emotions get the better of them and end up “buying high and selling low”— losing a ton of their money along the way.
I designed the Dividend Hunter to solve both issues.
But to become a Dividend Hunter you will need to develop a different mindset. We’re going to build a portfolio for the long term, which means we’re not day traders. We’re buy-and-hold investors of Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs), and other high-yield sectors.
Here are the basic features of the Dividend Hunter Income focused strategy:
- To be a Dividend Hunter and earn dividends, you must buy and hold shares of dividend-paying investments. That pretty much rules out timing the market, although not completely. Once you set up your account, it should run almost automatically.
- There are only a handful of investment types that provide high (6%-10% and higher) dividend yields. It’s vital that you familiarize yourself with these “high-yield” sectors. Fact is, designing a strategy to build a diversified portfolio is as important, or even more important, than individual investment selection. We’ll cover the details in another report further into the Masterclass.
- Tracking dividend income that lands in your bank account is the most important way to determine the success of your individual strategy. And since we focus on high dividend yield, it only makes sense to track results based on the income you actually receive. That means share price fluctuations are not our primary concern. First and foremost, we want to see the results on your monthly broker statement in black and white!
How to Research & Pick High-Yield Investments
When you start looking for high-yield investments, you’ll find a bewildering array of products, ranging from common stock to exotic sector-based exchange-traded funds (ETFs).
So, out of the hundreds of available investments, how do you pick the ones that are safe, versus those that might slash dividends and crash your whole portfolio?
Here’s what you need to know…
The press is full of rumors. You may read that a company is going to cut its dividend or eliminate it altogether. But the market thrives on sending out warning signs and red flags that may not be valid. That means our job as high yield investors is to separate the facts from the noise — to find high yield stocks that are safe.
Frankly, there’s only one way to guarantee you’re buying companies with safe dividends…in-depth research.
I do a deep dive to determine how a company generates sales and free cash flow to support its dividend. Before I recommend it, I want to know if it can continue to grow revenues and profits, and how much cash the business throws off.
A huge part of the analysis is finding out if a company can maintain, or even better, grow its cash flows. Simply put, if a company can’t generate cash, it can’t send you dividend checks.
Also, I don’t use earnings per share (EPS) as the main criteria for whether or not we’re buying a company’s shares…
That’s because the businesses in the high-yield world produce free cash flows that don’t really show up in the financials as EPS.
As an income-focused investor, it’s more important for you to become familiar with terms like funds from operations (FFO), distributable cash flow (DCF), and cash available for distribution (CAD). We can use these metrics from companies in high-yield sectors to give us a crystal clear picture of the cash they have available to pay their dividend now…and in the future.
Lessons from the COVID Stock Market Crash
The 2020 stock market crash triggered by the COVID-19 outbreak was unpredictable and different than previous market crashes. And unfortunately, the market melt-down in March was especially brutal for high-yield investments. Across the board, high-yield investments crashed harder and recovered more slowly than other market sectors.
In hindsight, there were a few reasons for this…
First of all, it’s clear numerous hedge funds and other private equity funds were using lots of leverage to boost the yields of REITs, MLPs, and other high yield investments. As the market started to tank, they were caught in a squeeze, forced to dump shares at any price. That sent share prices plunging regardless of quality.
As the coronavirus kicked into high gear, fear about the economy ran rampant, and many companies began to slash or eliminate dividends to retain cash. But when the numbers came in, it became obvious the cuts were overdone. By then, however, investors were spooked out of the sector and share prices never rallied back to their pre-crash levels.
The economic shutdown severely disrupted certain business sectors like movie theaters, cruise ship lines, and hotels. Hotel REITs, for instance, suspended dividend payments across the board. Right now, the odds for reinstating them are slim.
So here’s what it means for us…
The coronavirus crash flat-out gutted many high-yield investment sectors and prices remain ridiculously cheap. That means it’s a great time to jump on board!
Here are a couple of things to focus on.
We want to own companies that slashed dividends in February and March, especially those whose operations weren’t materially affected. These companies will soon resume or increase their payouts. That will give us a double-barreled boost – share prices will zoom higher right along with dividend income.
The February-March crash also decimated another high-yield safe haven — preferred stocks. I immediately sent Dividend Hunter subscribers a list of preferred stocks to buy, locking in excellent yields and upside potential. Read more about preferred stock investing in the “Proper Portfolio Management for the Income Investor” report.
Conclusions
Here’s what you want to take away from this report…
To become a successful Dividend Hunter, you need to be diversified across a handful of high-yield sectors. Different types of high yield have different risk factors, and a balanced portfolio reduces the risks to your portfolio and income.
Selecting individual high-yield investments requires deep-dive analysis. I’ll be sending you regular updates to help you understand how these businesses operate and how they generate free cash flow to pay dividends. Our main goal is to find investments with both a high current yield and sustainable dividend payments.
As an income-focused investor, you need to have a different mindset. The main thing is to build a large, reliable income stream. Share prices are not as important as income.
Being a successful Dividend Hunter may mean buying quality, high-yielding shares when they go “on-sale,” which will bring your average share price down over time. We might be buying when stocks are falling and taking a step back when they’re rallying.
No need to worry though. I’ll be with you every step of the way as you learn how to become an expert Dividend Hunter.