How To Protect Your Portfolio Using Dividend Stability

Dividend Investing, Futures, Income Investing

I am surprised about how many questions I get concerning investments that may lose money. For many investors, the first question about any investment recommendation is how it can lose money. In one way, the concern makes sense since my focus is on income-producing investments. On the other hand, I wonder if they have been burned by advice from other services.

The challenge is that we currently invest in a world where the traditional safe investments pay very little. Here are some examples.

My credit union pays 0.10% on a regular deposit account. That works out to $100 in interest income on $100,000.00.

The rates for one and five-year Treasury notes are 0.08% and 0.42%, respectively.

The best certificate of deposit (CD) rate I saw from was a measly 0.75%. I am sure you would like to earn just $750 per year on that $100k.

Money market mutual funds are even worse. The sweep fund linked to my Fidelity brokerage account has a current 0.01% yield. That’s $10, yes TEN bucks a year earnings on $100,000.00.

The point to understand is that to earn a more attractive return, you need to go with investments that at least theoretically put your invested capital at risk.

A considerable portion of my communications with subscribers to my Dividend Hunter service discusses how to generate an attractive level of income and do all they can to protect their portfolio values. Here are some bullet points that will help you get started or manage your investments for both income and stability.

  • Understand that price declines and recoveries are part of investing in the various financial markets. History shows that the stock market has recovered from every correction and bear market. Your goal is to pick income investments that will sustain business and dividends through any downturn.
  • Develop the mindset that price declines are opportunities, not tragedies. Following the idea to buy low and sell high is very hard (near impossible) for most investors. Income investors understand that buying low increases their investment income. I receive emails every day from subscribers who jumped into my recommended income stocks during Spring and Summer 2020, and they are delighted with the gains in their portfolios.
  • If you invest in high yield to draw a retirement income, reinvest at least a portion of your dividend income. Generally accepted financial advice says to draw no more than 4% of your retirement savings each year. My Dividend Hunter recommendations list pays an average 8% yield, so my subscribers can draw 5% or 6% and still reinvest a portion of the earnings. Reinvestment automatically lets you buy low, and it ensures a growing income every year.

I think you get the reality that you can’t have investment stability and a livable income in the current investment environment. However, you can use that knowledge to take advantage of market stability to grow your wealth and investment income.

I will close today with an investment idea that provides a high level of stability and great income—preferred stocks.

Preferred shares dividends are much safer than common stock dividends. Most preferred share values will stay close to the typical $25 par value. You can buy individual preferred stocks through your brokerage account. I provide a list of a dozen recommended preferreds to my Dividend Hunter subscribers. The list carries an average yield of 7.8%.

Another way to get started with preferreds is my recommended preferred stock ETF, the Virtus InfraCap U.S. Preferred Stock ETF (PFFA). The fund pays monthly dividends and yields 8.6%, what’s not to like?

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