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I am a IT Professional with a bachelors degree in Computer Science. I am not some multimillionaire (although I hope to be one day) I am an average everyday working person who decided to step out on his own and I want to encourage others to do the same. My investment profile closely resembles... More
  • 4 Stocks Generating Solid Monthly Income 0 comments
    Apr 8, 2013 4:36 PM | about stocks: HYG, MAIN, O, PGX

    Introduction:

    Everyone knows that over the last 4 years the Federal Reserve has taken it upon themselves to try to fix the economy of the United States as best as they can. This has meant a period of time with significantly depressed interest rates which has really hurt income centric investors forcing them to use some of their capital to meet certain expenses. This has further eroded their income since they have had to reduce the amount of principal they have invested. For this reason I would like to highlight 4 alternative investments that when held even in small amounts can ease the burden for income investors. These investments would have even increased the amount of an investors total principal over the last 4 years as well.

    Investments:

    For this discussion I will assume that a $10,000 investment was made 4 years ago. I will calculate the total income paid back to investors as well as the new total principal of the below investments.

    Realty Income Corp (NYSE:O)

    Realty Income Corp is a real estate investment trust company that engages in long term net lease agreements. They are required by law to pay out at least 90% of investment derived income.

    Four years ago during the week of April, 6th 2009, O was trading at $22.02 a share and was yielding 7.7% on its dividend payments. If an income investors would have bought $10,000 worth of O at that point in time they would have bought 454 shares of O which would have been paying them a monthly sum of $64.46. Now let us fast forward to today. This same investment, assuming no money was added and that all dividend payments had been taken in cash, would be currently paying $82.17 monthly. That is a 27% increase over the original monthly payments. The total dividend payments of the last 4 years would have amounted to $3,207. This investment would also currently be worth $20,929 based on today's current price of $46.10. The principal has more than doubled over the last 4 years.

    (click to enlarge)

    PowerShares Preferred Stock ETF (NYSEARCA:PGX)

    PGX is an ETF that invests in the preferred shares of various corporations. These preferred shares although they do not offer large price growth do take precedence in dividend payments above that of common stock. Most of the time the dividend payment rate is higher than of its company stock as well and is locked in at a certain rate for a period of time.

    Four years ago during the week of April, 6th 2009, PGX was trading at $10.37 a share and was yielding 13.5% on its dividend payments. If an income investors would have bought $10,000 worth of PGX at that point in time they would have bought 964 shares of PGX which would have been paying them a monthly sum of $112.78. Now let us fast forward to today. This same investment, assuming no money was added and that all dividend payments had been taken in cash, would be currently paying $75.19 monthly. That is a 33% decrease when compared to the original monthly payments. This is a result of the long term depressed interest rate market which has allowed companies to continue issuing preferred shares at lower and lower interest rates. Although we have seen a monthly decline in income, the total dividend payments of the last 4 years would have amounted to $4,979. This investment would also currently be worth $14,353 based on today's current price of $14.89. The principal has increase significantly over the last 4 years more than compensating for the lost yield of the original investment.

    (click to enlarge)

    iShares iBoxx High Yield Corporate Bond (NYSEARCA:HYG)

    HYG is an ETF containing high yield bonds from various companies. More and more people have been flocking to high yield debt over the last 4 years which has been driving down the interest rates of this type of debt.

    Four years ago during the week of April, 6th 2009, HYG was trading at $72.30 a share and was yielding 13.3% on its dividend payments. If an income investors would have bought $10,000 worth of HYG at that point in time they would have bought 138 shares of HYG which would have been paying them a monthly sum of $111.22. Now let us fast forward to today. This same investment, assuming no money was added and that all dividend payments had been taken in cash, would be currently paying $67.34 monthly. That is a 39% decrease when compared to the original monthly payments. This is a result of the long term depressed interest rate market which has allowed companies to continue issuing high yield bonds at lower and lower interest rates. Although we have seen a monthly decline in income, the total dividend payments of the last 4 years would have amounted to $3,958. This investment would also currently be worth $12,970 based on today's current price of $93.99. The principal has increase significantly over the last 4 years compensating for the decreased yield of the original investment.

    (click to enlarge)

    Main Street Capital (NYSE:MAIN)

    MAIN is a business development company. They provide financing operations to small and middle market companies. These companies are often too large for community banks to loan to but not large enough for larger banks to care about. They are required by law to pay out at least 90% of investment derived income.

    Four years ago during the week of April, 6th 2009, MAIN was trading at $10.74 a share and was yielding 13.9% on its dividend payments. If an income investors would have bought $10,000 worth of MAIN at that point in time they would have bought 931 shares of O which would have been paying them a monthly sum of $116.37. Now let us fast forward to today. This same investment, assuming no money was added and that all dividend payments had been taken in cash, would be currently paying $144.30 monthly. That is a 24% increase over the original monthly payments. The total dividend payments of the last 4 years would have amounted to $6,260. This investment would also currently be worth $28,898 based on today's current price of $31.04. The principal has almost tripled over the last 4 years.

    (click to enlarge)

    Portfolio Summary:

    If all four of these investments were bought on the same day 4 years ago they would have paid $404.83 monthly. These same investments today would be paying $369.00. This is a total monthly decrease in payments of 8.8%. Although the monthly payments have decrease slightly over time the total dividend payments for the last 4 years amount to $18,404. This averages out to $4,601 dollars annually from dividend payments alone. If compared to the total original investment of $40,000 across all 4 investments this would have an annualized dividend yield of 11.5%. This is quite impressive for income seekers when you consider the current interest rates of both fixed income government bonds and bank certificates of deposit (COD) accounts. The portfolio has not only yielded 11.5% annually in dividend payments but is now worth $77,150. This is 92% increase in portfolio value. This is an average annual gain of 23% for these investments which amounts to $9,287 dollars a year in gains. In total this portfolio would have yielded 13888 annually over the last 4 years an average annual return of 34%.

    Summary:

    As you can see although our monthly income has fallen by a small amount the 4 year returns for these investments are very impressive especially for income seeking investors. Although this portfolio would have been successful over the last 4 years I do believe that PGX and HYG may be hitting their upward limit in share price. I would wait for a correction before potentially buying into these investments. Please comment in the section below and let me know what other alternatives to traditional fixed income you have been investing in.

    Disclosure: I am long HYG, MAIN, O, PGX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: income-investing-strategy Stocks: HYG, MAIN, O, PGX
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