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Immediate Income: Why Individual Stocks Matter

Jul. 12, 2018 9:24 AM ETAMZA, CEFL, CIF, LUMN, KNOP, MLPA, MORL, OXLC, PSF, UNIT39 Comments


  • Immediate income investing is viewed as high risk/high reward.
  • Multiple types of securities can be used to find high yields but none are safe as individual stocks.
  • Individual stocks should be used as ballasts to a immediate income portfolio.

Investment Thesis

Immediate income investing provides an avenue for predictable reliable income, however investing in individual stocks should not be overlooked. Individual stocks provide a ballast against the ever-changing word of high yield closed end funds, CEFs, exchange traded funds, ETFs, and exchange traded notes, ETNs.

The Background

In a previous article, I laid out the groundwork of why immediate income investing is a valuable alternative to the more mainstream investment styles readily used. Furthermore, I illustrated that within a near-term, 10-year time frame that immediate income investing beats out dividend growth investing.

I define immediate income investing as: Investing with a taxable account seeking immediate high return via dividends.

Stocks or CEFs/ETFs/ETNs

Closed end funds, CEFs, Exchange traded funds, ETFs, and Exchange traded notes, ETNs, all offer superior yields against most stocks. They do this via leverage mainly - adding to already complex securities.

Exchange Traded Notes

Exchange traded notes especially offer constantly varying dividends - hard to build your monthly income needs around. Two ETNs that are perfect examples of this are: UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN (MORL) and UBS ETRACS Monthly Pay 2xLeveraged Closed - End Fund ETN (CEFL).

MORL Dividend


Although these ETNs offer high yields, their irregular dividends make them exceedingly difficult to regulate your income from investments to your needs. UBS Group (UBS) offers the ETRACS series of ETNs that are highly popular, and often highly leveraged.

The risk with ETNs run with them being redeemed. This is where the provider shuts down the ETN based on losses, negative momentum or lack of investor interest. UBS recently closed 8 such ETNs last month.

While ETNs make a nice high yield choice, their varying dividends and redemption risk add additional diligence requirements, making them the least valuable option for immediate

This article was written by

Treading Softly profile picture

Treading Softly, aka Scott Kaufman, learned about investing first hand while working at Regions Bank and currently works at the world's largest credit union as a financial analyst. He targets high-yield investments in pursuit of immediate income.

Treading Softly contributes to the investing group Learn more.

Analyst’s Disclosure: I am/we are long UNIT, CTL, MORL, CEFL, KNOP, AMZA, OXLC. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (39)

m8 profile picture
24 Jul. 2018
KNOP dropped 40c today. Div due in two weeks. 9.35%. Buy it.
13 Jul. 2018
Is KNOP Roth IRA "safe"?
Treading Softly profile picture
KNOP issues a 1099div - No K1 or IRA tax issues there
Sympathies on the DLNG if you bought it before May. My parents' had a huge position that they acquired last summer. I did my DD on it in January and decided to steer clear - seemed a trainwreck was coming.
Only 6 vessels and basically 1 customer (who is not exactly popular, ATM) seems a good reason to avoid DLNG, IMO. One accident, breakdown in harsh conditions, unexpectedly-long dry-docking, whatever and revenue can be materially affected. With only 6 vessels, times are good until they are not.
Am holding proportionally too much of my total portfolio in AMZA and CTL and
DLNG, but the high divs have couter-balanced the waiting payoff in the mining
stocks-silver especially. Thanks for the informative article. Going to "follow you".
Jim_Purzickis profile picture
While I own mostly CEFs, I do own BDCs and high yield stocks. CNSL looks like a decent bet with a covered dividend. Owned UNIT and CTL in the past, sold UNIT too soon. NCMI same story.
Thanks for the article! Immediate income and I'd add keet it ongoing and increasing (DRIP) income. Cheer
Treading Softly profile picture
My pleasure, thanks for commenting! Immediately DRIP-ing that income, nice!
MyJourney profile picture
I must be in the right place, TS and SA Comments here. I own many of the high div companies mentioned here: UNIT, NRZ, EVA, PEGI, KNOP, USAC. Thanks to all who commented; you've given me some unfamiliar and previously discarded names for research.
Treading Softly profile picture
Thanks for commenting! I've quickly noticed that this community (Immediate income investors) are active but largely forgotten. I'm glad I can be a resource for additional securities to research!
I was looking forward to your individual recommendations, but it turns out I already own them all! UNIT, KNOP, and CTL are large positions in my portfolio along with ETP, EVA and some high yield preferreds (MTBCP and TGP-B). Will be following you now (and checking out your previous articles) as we think alike.
Treading Softly profile picture
Thanks for commenting! I actually have a large position in EVA also - capturing it when its yield was close to the 9-10% range. I seek immediate income and part of that is well timed transactions - I purchased shares of PEGI (Which I have yet to write about) when its share price dropped on reactionary selling and captured that high yield when normally it isn't available.
TS, congratulations on your very nice paper. What about BDCL? Supposedly BDCs will benefit from increasing interest rates.
Treading Softly profile picture
Thanks for your kind words! I own shares of BDCL also, however I still lean towards predictable dividends/distributions and it leans heavily towards the varying output like CEFL and MORL. My main issue with BDC in general is their dividends are often too high to be sustainable, and the sustainable dividend payers are lower yield. Meaning BDCL has its work cut out for itself with that sector as a whole.
Colin Delaney profile picture
Great article TS!

I'm surprised NRZ wasn't discussed in the stock section of the article. Its one of my top mREIT's and has a large following here (which isn't a reason to write about it, of course).

I'm not to familiar with UNIT, but I'm definitely adding it to my list of RIET's to consider, especially if it makes your individual stock section as an RIET. REIT's hold about 60% of my IRA right now, and the DRIP makes it hard to grow other sectors when I'm already maxed out for this years contributions!
Colin Delaney profile picture
Then again, I'm sure there are hundreds of individual stocks (with high yields) that people could say that same thing about.
Treading Softly profile picture
Thanks for commenting! I haven't personally reviewed all deeper financials of NRZ to add it to the list. I won't mention a stock in a positive or negative way unless I have analyzed it myself - just a personal accountability rule. NRZ is on my list to do a deep dive on though - stay tuned ;)
Colin Delaney profile picture
Totally understandable, and a very good policy to have when writing articles such as this!
I agree that the complexity and leveraged of ETFs, ETNs, and CEFs will probably lead to disaster sooner or later. Many CEFs were thoroughly walloped in 2008-9, but it wouldn't even take that much to send them through the floor.

However, the answer is not to go out and buy complex and leveraged individual stocks, which are just as much a financial engineering play as the synthetic entities. You need to look for real companies with good business models, strong balance sheets, and some growth.

In this environment, you won't get a large dividend payout using such companies, but you'll be safer in the long run, and your income will grow rather than shrink.

If you gave me $1 million dollars right now and told me to construct a dividend portfolio, I would tell you that it's not safe to go over about 5%. I could give you 5% with some risk, but anything higher is likely to lead to grief.
Treading Softly profile picture
Thanks for commenting! I understand your concern, however I might add that the market as a whole often incorrectly values stocks causing mismatched yields for dividends. KNOP isn't a complex stock to look into its financials but yields close to 10% for example. CTL is valued based on its peers, and not its own fundamentals. Exactly why I picked them for my examples.
Smarty_Pants profile picture
Another plus is that KNOP issues a 1099 at tax time rather than the K-1 usually associated with MLPs.

Other MLPs also worthy of consideration:

GLOP (1099) yielding 9% with management goal of increasing payout 5+% annually


USAC (K-1) yielding 12.3% - coverage around 1x but strong management and a history of maintaining the payout during cyclical troughs
Treading Softly profile picture
Thanks for commenting! Those definitely are stocks worth checking out!
Sorry I see AMZA.
Treading Softly profile picture
Its all good! AMZA is definitely a stock endears strong opinions.
I wouldn't under rate AMZA. It has a yield of approximately 18%. Even if it never rises in share price another penny you will have all your capital back through the dividends alone in approximately 5-1/2 years. And in all likelihood the share price is eventually going to go up too as MLP's come back into favor.
Jim_Purzickis profile picture
Once the noise on MLPs subsides, AMZA could have material upside. I believe Jay when he says the current dividend is sustainable but time will tell. AMZA just needs sideways action - permanently- and you're going to do well with it. It will never reach the 20s again as an investor you just want steady and she goes from here.
I held Unit for a year, sailing along and wham, gutted like a pig. Would you buy this security again? Do you think it was a one time Deal? would love to hear your opinion on this. Great article. Only one you missed I like is Amza, REML. Thanks so much. Sam.
Treading Softly profile picture
UNIT got smashed due to WINs struggles, as long as WIN continues to chug along and pay rent - UNIT will have time to continue to diversify. I don't foresee any fundamental weakness - stock price might get hammered depending on the outcome.
Either way UNIT offers a high yield due to the market worries about WIN. I've written multiple times about UNIT and feel strongly that it is worth investigating as a buy. I do get feeling burned by its share price movement over the last year, but its rallying strongly back to its pre-drop levels
The author cited CTL as an “excellent example” of an individual stock offering high yields, strong fundamentals and little capital depreciation risks.

In 2013 CTL suddenly and unexpectedly cut its dividend by 25%. The stock price immediately fell by nearly the same percentage and has never really recovered.

Characterizing CTL as “rebar added to the foundation of your portfolio” is a questionable assertion.
Treading Softly profile picture
thanks for commenting! CTL also recently completed its acquisition of level3 which overhauled its fundamentals and re-oriented it to being a enterprise vs consumer focused company. CTL produced large amounts of FCF which more then covers its dividend. Share price remains suppressed due to that whole sector struggling. I agree in 2013, CTL not a good choice, today? Sign me up.
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