Tune out the nervous Nellies panicking over last week&a;rsquo;s job numbers: they missed the &l;i&g;real&l;/i&g; news&a;mdash;and their panic has handed us a straight shot at a cheap 7.6% dividend today.
More on that opportunity shortly.
First, the real story here is that wages jumped 3.4% in February, which is the fastest rate in half a century. And the unemployment rate sits at 3.8%, far lower than just two years ago, when it levitated north of 4.8%.
&l;b&g;A Direct Line From Paychecks to Profits&l;/b&g;
I&a;rsquo;m sure I don&a;rsquo;t have to tell you that consumers drive the economy, and more workers, making more cash, are &l;i&g;great&l;/i&g; news for stocks. But Wall Street, distracted by the Chicken Little headlines, is still in a funk, as we can see by the performance of the &l;b&g;SPDR S&a;amp;P 500 ETF (SPY)&a;mdash;&l;/b&g;more on this fund below.
Despite stocks&a;rsquo; uptick since the start of 2019, they&a;rsquo;re still far from 10-year highs, even though most companies posted revenue growth that beat expectations at the end of 2018.
This disconnect&a;mdash;stocks dipping, wages rising&a;mdash;slides open our buy window. Here are three ways to leap through, with far-and-away your best play, that bargain-basement 7.6% payer I mentioned off the top, bringing up the rear.
&l;b&g;Strategy No. 1: Go With the Popular Name&l;/b&g;
An easy way to benefit from strong wage growth is to simply buy the SPDR S&a;amp;P 500 ETF&l;b&g;, &l;/b&g;which will track the market&a;rsquo;s rise as richer consumers boost the economy.
But if you&a;rsquo;re a regular subscriber to my dividend-obsessed &l;i&g;CEF Insider&l;/i&g; service&a;mdash;whose portfolio yields 7.4%, on average&a;mdash;you know what I&a;rsquo;m going to say next: SPY&a;rsquo;s dividend is pathetic! With a 1.8% yield, it will give you just $18,000 in yearly income on a million bucks. That&a;rsquo;s just a hair over the poverty level for a two-person household.
If you want to grab more of your return in cash (the only true way to protect your retirement from a market crash), you&a;rsquo;ll need a lot more income.
&l;b&g;Strategy No. 2: Buy a Sector ETF&l;/b&g;
Another way many folks would look to tap this trend is through the &l;b&g;Consumer Discretionary ETF (XLY), &l;/b&g;which tracks the S&a;amp;P 500 consumer-discretionary sector. Since this fund&a;rsquo;s biggest holdings are &l;b&g;Amazon (AMZN)&l;/b&g;, &l;b&g;Home Depot (HD)&l;/b&g; and &l;b&g;McDonald&a;rsquo;s (MCD)&l;/b&g;, you&a;rsquo;ll grab a piece of the action as consumers eat out more, buy online and upgrade their homes.
XLY isn&a;rsquo;t even overbought, either: The fund is up 3.6% from a year ago, which is decent, and better than most S&a;amp;P 500 sectors, but that gain is a shadow of the 11% annualized return the fund has put up over the last five years (when the consumer-discretionary sector was the second-best performer, behind technology&a;rsquo;s 18% annualized return). This makes the sector attractive, since you&a;rsquo;re getting strong companies whose shares are performing below their usual level.
Too bad XLY&a;rsquo;s dividend is worse than that of SPY&a;mdash;just 1.2%. And while you &l;i&g;are&l;/i&g; looking at price upside here, we demand much more of our return in cash in &l;i&g;CEF Insider&l;/i&g;&a;mdash;and so should you.
Which brings me to your third (and best) play here:
&l;b&g;Option 3: Buy This 7.6% Dividend for 8% Off&l;/b&g;
You can supercharge your income stream with a &l;a href=&q;https://contrarianoutlook.com/why-you-need-to-invest-in-closed-end-funds/&q; target=&q;_blank&q;&g;closed-end fund (CEF)&l;/a&g;, namely the &l;b&g;Liberty All-Star Growth Fund (ASG),&l;/b&g; whose 7.6% yield crushes what you&a;rsquo;d get elsewhere; ASG holds discretionary favorites like &l;b&g;Amazon (AMZN) &l;/b&g;and &l;b&g;Visa (V).&l;/b&g;
Plus it&a;rsquo;s cheap: its discount to NAV (or the difference between its market price and the value of its portfolio) stands at 7.8%.
The fund has also done a great job of beating the S&a;amp;P 500&a;rsquo;s performance over the last decade, with a near-500% return!
It&a;rsquo;s tough to find this kind of growth with such a massive income stream, and in a market like the one we&a;rsquo;re facing, that&a;rsquo;s exactly what you want.
Why? Because you need equity exposure as the market continues to improve, but you also want to be able to access a percentage of that investment in the form of dividends in case you need cash but don&a;rsquo;t want to sell during a downturn.
With growing volatility in recent weeks, despite the strong data, this combination of being invested in the market and being able to slowly receive cash payouts is exactly what we&a;rsquo;re delivering in &l;i&g;CEF Insider&l;/i&g;&l;i&g;.&l;/i&g;
Disclosure: none
&l;/p&g;
No comments:
Post a Comment