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I have been putting together a list of cheap monthly dividend paying stocks. The markets are in a downward trend, so I will note my ideal entry points. Hedge funds and individuals who are leveraged are likley experiencing margin calls. This can create liquidation of stock holdings. This, in turn, can create opportunities for opportunistic parties. It is quite likely these bargain prices will not be realized, but I can prepare if the opportunity presents itself.

These prices may seem unrealistic as they are my prices if the markets truly start to fall apart. I don't expect the below prices to be reached tomorrow, but it's my buying list as there are outstanding negative economic factors.

The Euro crisis is a negative back drop to the world economies. Germany continues to state a Eurobond is not an option. Germany's economy is the largest in Europe. Germany must be part of any package if the issue is to be resolved.

Business Development Corporation Best in Breed
Main Street Capital Corporation (MAIN) has been a reliable performer and is best of breed. MAIN pays a monthly 13-cent dividend. The BDC survived the 2008-2009 financial meltdown, which deserves a standing ovation on its own merits.

  • Current Price: $17.99
  • Annual Dividend: $1.62
  • Annual Yield: 9%

This is the price where I am looking to purchase MAIN if the markets have a serious fall, along with the hedging I'll have in place. The stock did reach $15.98 on August 8, 2011.

  • Bargain Hunter Price: $14.75
  • Dividend Yield based upon Purchase Price: 11%
  • Hedging Action if Purchased: I would place a 10% stop-limit order based upon my cost basis.

Canadian Energy Best in Breed
Enerplus Corporation (ERF)

Enerplus is the long-in-the-tooth Canadian energy play. The monthly dividends are reliable and management is highly competent. Enerplus has diverse energy asset holdings, focused on crude oil and natural gas, located in the Western Canadian Sedimentary Basin and the United States.

  • Current Price: $27.18
  • Annual Dividend: $2.18
  • Annual Yield: 8%

This is the price I am looking to purchase ERF if the stock dips down. The stock did reach $21.65 in the past 52-weeks. The media are speculating oil will fall based upon the Gaddafi capture. This assumes the Libya wells will be up and running. I have reservations the wells will be turned on as quickly as the media suggests.

  • Bargain Hunter Price: $23.00
  • Dividend Yield based upon Purchase Price: 9.5%
  • Hedging Action if Purchased: Based upon my purchase price, I would want to own ERF Oct 2011 23.000 put (ERF111022P00023000). The option would cost $1-$2, and provide about 2-months heding protection. I anticipate the stock would return to higher levels between purchase date and the Oct put expiration.

Baytex Energy Corp. (BTE)
Baytex is an energy exploration and production (E&P) entity. The company operates out of the U.S., and Western Canada. The company's yield is not as high as many other Canadian E&P dividend payers. This is due, in part, to BTE's focus upon organic growth of their E&P properties.

  • Current Price: $47.23
  • Annual Dividend: $2.44
  • Annual Yield: 5.2%

This is the price I am looking to purchase Baytex if the price drops. The stock did reach $31.14 in the past 52-weeks. Even if BTE reaches a very low $38 bid, the yield on cost is fairly low at 6.4%.

  • Bargain Hunter Price: $38.00
  • Dividend Yield based upon Purchase Price: 6.4%
  • Hedging Action if Purchased: I would want to own BTE Oct 2011 35.000 put (BTE111022P00035000). This would provide a 10% downside risk on cost basis.

Gold-Related Closed End Fund (CEF) Best of Breed
Gold prices have risen to near $1,900 per ounce. Gabelli Global Gold, Natural Resources & Income Trust (GGN) is the closest equity we have to invest in which offers a high yield and gold stocks.

  • Current Price: $16.30
  • Annual Dividend: $1.68
  • Annual Yield: 10.3%
  • Net Asset Value (XGGNX): $15.74

This is the price I am looking to purchase GGN based upon its current net asset value (NAV). As of the August 19th, GGN's NAV is $15.74. Gold equities are picking up slightly to begin to track the price of gold. I have an order at $14.17, which is a 10% discount to the $15.74 NAV.

  • Bargain Hunter Price: $14.17
  • Dividend Yield based upon Purchase Price: 11.9%
  • Hedging Action if Purchased: Based upon my purchase price, I would place a stop limit order at 10% under purchase cost. Options are not available for GGN.

Real Estate Investment Trusts Best of BreedRealty Income Corp. (O)
Realty Income (O) is well-known as the monthly income payer. Realty Income Corporation participates in the purchase and ownership of commercial retail real estate properties. The company leases its retail properties to regional and national retail chain store entities. In fact, the company logo is "the monthly dividend company."

  • Current Price: $32.04
  • Annual Dividend: $1.74
  • Annual Yield: 5.4%

The bargain price at which I am trying to buy O is $28.10. The company has a 52-week low of $27.93.

  • Bargain Hunter Price: $28.10
  • Dividend Yield based upon Purchase Price: 6.2%
  • Hedging Action if Purchased: Based upon my purchase price, I would purchase the O Dec 2011 25.000 put (O111217P00025000). Although the put cost would exceed the $60-per contract, as presently offered, the maximum loss would be contained to approximately 10% of purchase cost.

(Click chart to enlarge)

Peer Group to the Best of Breed
Company NameSymbolPriceYield
Pengrowth EnergyPGH$10.678.3%
Eaton Vance GlobalETG$13.319.3%


Disclosure: I am long ERF, BTE, GGN.

Source: Hedging Plans For Cheap Monthly Dividend Paying Stocks