My Biggest 11.23% Dividend Investing Strategy Blunders

Includes: LRE, TWO
by: Todd Johnson

I believe we can all learn from our dividend investing mistakes. My dividend investing strategy mistakes have taught 3 Core invaluable lessons. I am paid to not lose money. I don't have a Plan B.

People lose faith in me if I can't deliver. In this dark landscape, I offer you this article on how I refuse to lose money.

Unless an investor experiences their own mistakes, the impact "potential losses" reduce the necessary pain and anguish to make a difference. I believe individual investors, putting some time and effort into their portfolios, can obtain 10% annual returns.

QR Energy

QR Energy has experienced significant unit buybacks over the past year. The master limited partnership yields 11.23% per annum. This is significant as the 10 Year Treasury Bond broke 66 year record lows today with a 1.66% yield.

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QR Energy is an upstream master limited partnership. The company has experienced rapid insider buyer. A hedged oil and natural gas production over the next 7 years offers protection on the downside. Keep informed and read the company's SEC filings: specifically their 10-Q and 10-K's.

LRR Energy, L.P. (NYSE:LRE)

LRR Energy is an upstream MLP in the Permian Basin. I recommend owning LRR Energy due to its hedges and high yield. At this same time, trust no one but yourself. Buy a protective put on your position. Oil dropped below $87 today, and that is worth noting.

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1. Believing the Mutual Fund Myth.

Mutual funds are a one way play on an up market or flat market. There are, of course, the few exceptions. The problem is all assets have the same bias. In my world, stocks can go down or up. No excuses. I'm not keen on losing value and waiting for the funds to make up lost ground. The majority of assets are highly correlated to each other, which is unfortunate, as investors attempt to diversify.

2. My Lack of Hedging All Equities.

I work with individuals to produce solid returns and safety is a primary focus. The biggest mistake I have ever made was not hedging adequately. The feedback I hear is "Well it's a bit complicated", "It's too much work", or "I don't hedge". These statements are all fabulous when the world is sound as a pound.

Unfortunately the world is not sound as a pound. I am shocked at the memory lapse of investors from the 2008 - 2009 time frame.

3. Invest in the Obvious.

I ask myself, 'Could I be wrong in a world of craziness and mortgage valuation mispricings?'. A day doesn't pass without a dozen emails about the misevaluation of Two Harbors Investment (NYSE:TWO).

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I have been taught by the mortgage backed security masters to never pay a premium for non agency mortgage real estate investment trusts (mREITs). When I see a 5.69% premium to book value per share, my initial reaction is 'value is not here'.

I explore deeper into Two Harbors Investment's involvement with Home Equity Conversion, Mortgages (HECM). I inquire deeper down the rabbit hold. I understand the pay grade of these mREIT managers. I'll accept the 15% dividend yield with a married put. I'll minimize risk and put a floor on maximum loss.


My remedy to succeed is quite simple. Find the best stocks for the environment on a risk adjusted basis. Secondly, I must hedge the stock in case I am wrong. Protect for the worst case scenario but hope for the best.

Disclosure: I am long TWO, LRE, QRE.