Immediate Income: Why Individual Stocks Matter

Jul. 12, 2018 9:24 AM ETAMZA, CEFL, CIF, LUMN, KNOP, MLPA, MORL, OXLC, PSF, UNIT39 Comments15 Likes


  • 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

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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 income investing. They should not be ignored but shouldn't be depended upon as the main income driver in a portfolio.

Exchange Traded Funds

There are less high yielding options with ETFs than CEFs or ETNs. ETFs are highly popular for passive investing. ETFs exist for investing following strictly the S&P 500 or other indexes. However some high yield options exist, one such option is InfraCap MLP ETF (AMZA), another is Global X MLP ETF (MLPA).


MLPA Net Asset Value

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A risk with high yielding ETFs is net asset value or NAV decay. AMZA and MLPX both trade and operate within the struggling master limited partnership, MLP, world. Across the board MLPs are down however this negative market sentiment has boosted yields while fundamentals have been unchanged. These ETFs have seen their NAV decrease while trying to maintain their high dividends - creating high yields. Whether they can maintain this in the face of pressure is unsure, but ETFs will not reach $0 unless they pay out every last penny, or their holdings, all of them, crash. Unlike CEFs, ETFs share price is set to their NAV value daily, meaning only during the day can you grab shares at a discount/premium. AMZA and MLPA offer high yields and the surety that they won't disappear overnight, but fall short of the simplicity of CEFs and individual stocks.

Closed End Funds and other Registered Investment Companies

Closed end funds and registered investment companies, RICs, are another route to find high sustainable yields. However, caution here must also be exhibited. CEFs offer a set number of shares from an initial NAV. CEFs can increase or decrease their NAV as their investment strategy takes place, however most focus on giving high immediate income to their shareholders.

Cohen & Steers Select Preferred and Income Fund, Inc. (PSF) is an excellent example of a solidly executed CEF that offers a 7.5% yield along with an annual special dividend which boosts this amount. PSF has a set dividend payment, it monthly pays out $0.172 regardless of how much the fund brings in. Any overage is paid out in the annual special dividend. This set pattern allows investors to enjoy an expected monthly payout while enjoying an added boost at the close of the year. The catch to this method is if the CEF does not earn its dividend - its NAV suffers. So far PSF has grown its NAV while paying out its yield.

Meanwhile, MFS Intermediate High Income Fund (CIF) offers a monthly yield also, it pays out a 9.5% dividend on its NAV monthly. This amount changes monthly based on the performance of the fund and has caused its NAV to decrease steadily.


CIF Net Asset Value

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Over a ten year time span, PSF has quietly grown its NAV while CIF has decreased. This degradation has affected CIF's ability to pay the desired dividends to its holders.

Oxford Lane Capital (OXLC) is a well-loved monthly payer. Unlike other CEFs where you are investing in the fund itself, with OXLC you are investing in the RIC running an collateralized loan obligation, CLO, fund. This is a minor nuance that most brokerages don't spend the time to distinguish. OXLC offers a higher yield than most CEFs and currently is seeing its NAV grow slowly.

CEFs abound and many solid immediate income choices exist - too many to overview here. But these securities are also complicated since they invest in multiple other securities, making it harder to track the risks being taken.


Individual stock picking can be extremely hard. This is why Warren Buffett offered his famous challenge of managers vs. passive ETFs. Spoiler: The ETF won. But for immediate income investing, individual stocks offer unique opportunities for high yields with straightforward risk/reward profiles.

These straight forward risk/reward profiles allow these stocks to become the rebar added to the foundation of your portfolio, providing stability and strength to what you are building upon. Below are a few excellent examples of individual stocks that clearly offer high yields, strong fundamentals and little capital depreciation risks.

Uniti Group (UNIT) I have consistently encouraged investors to consider and open positions with. UNIT offers 11% yield and as a real estate investment trust, REIT, is required to pay out 90% of its taxable income. UNIT has seen strong upward movement after its sudden collapse last year due to external pressures. UNIT covers its dividend and would provide a solid straightforward ballast against complexity of other securities.

KNOT Offshore Partners LP (KNOP) is another high yielding individual stock, it offers a yield of 9.35% and has paid consistently with a strongly covered dividend. This stalwart will provide solid capital preservation and a nice income stream.

CenturyLink, Inc. (CTL) offers a yield of 10.74% which is also solidly covered. This company is fresh focused on selling its services to enterprises and businesses which provide the highest revenue and income. CTL is one of the only telecom stocks that offer this high of a yield - that is without a doubt covered.



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All three of these individual stocks outperformed the S&P 500 this year to date while offering a superior yields worthy of an immediate income investor's portfolio. Meanwhile the market price of the traditionally loved immediate income securities has not performed as admirably.



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Traditionally, investors espousing this style of investing are less concerned about paper losses/gains however having individual stocks as a capital ballast to reduce capital depreciation and paying out high yields is beneficial.

Investor Takeaway

Individual stocks add simplicity to an immediate income portfolio, allowing investors to clearly see the financial situation of the security they are holding. Individual stocks should not be looked over and I strongly encourage my fellow immediate income investors to add this much needed rebar to their portfolios.

This article was written by

Treading Softly profile picture
The #1 Service for Income Investors and Retirees, +9% dividend yield.

Immediate income investing - high yield, strong coverage and limited capital depreciation. MLPs, REITs, CEFs and various other securities are examined to see who fits the bill to fund the future.

Treading Softly is a proud part of the High Dividend Opportunities research team, the #1 marketplace for income seekers on Seeking Alpha.


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.

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