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2 Great Dividends To Reach $2 Million In Retirement

Aug. 03, 2021 8:35 AM ETDFP, ECC, ECCB, ECCPP, ECCW, ECCX, ECCY, PFFA133 Comments


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  • Two excellent picks to make your money earn more money.
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This article was written by

Rida Morwa profile picture

Rida Morwa is a former investment and commercial Banker, with over 35 years of experience. He has been advising individual and institutional clients on high-yield investment strategies since 1991.

Rida Morwa leads the investing group High Dividend Opportunities where he teams up with some of Seeking Alpha's top income investing analysts. The service focuses on sustainable income through a variety of high yield investments with a targeted safe +9% yield. Features include: model portfolio with buy/sell alerts, preferred and baby bond portfolios for more conservative investors, vibrant and active chat with access to the service’s leaders, dividend and portfolio trackers, and regular market updates. The service philosophy focuses on community, education, and the belief that nobody should invest alone. Lean More.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ECC, DFP, OXLC, PFFA either through stock ownership, options, or other derivatives. 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.

Treading Softly, Beyond Saving, PendragonY, and Preferred Stock Trader all are supporting contributors for High Dividend Opportunities. Any recommendation posted in this article is not indefinite. We closely monitor all of our positions. We issue Buy and Sell alerts on our recommendations, which are exclusive to our members.

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 (133)

waldipup profile picture
"These payments are actually larger than before due to the reduction of debt tranche balances after prepayments of those debt tranches, making the NAV of ECC grow like a weed."

I get that prepayments on higher tiers of a loan reduce lower tier (ECC) risk ,
But how do they increase NAV?
PendragonY profile picture

The total amount of the loans that make up the CLO is not changed by paying off some of the higher tranches. The equity tranche gets the amount leftover which is increased by reducing the amount owed to the upper tranches.
waldipup profile picture

Oh , the higher tranches are debt tranches , not equity one's .

ECC gets the leftovers as equity.

Hope there's generally enough left over to make that work , I guess they know what they're doing though since they're still standing .
PendragonY profile picture

The difference between the "debt" and the "equity" tranches have more to do with how they are paid. It all really just debt. And it works for all as long as defaults don't exceed the levels assumed when the CLO was assembled (and so far default rates are well below that). Every tranche benefits when a higher tranche gets a pre-payment of principal. The equity tranche also gets a boost in cash flow (as the other tranches are more bondlike and have fixed payments whereas the equity tranche gets ALL of the cash leftover).
I have a core of mortgage and real estate reits, i have ecc in my accounts . a little scared after the 03 20 plunge, are you worried about the 10 yr bond now at 1.20% and do you trust the ratings companys to rate these traunches correctly thanks
PendragonY profile picture
@john boy

I trust ECC to manage its holdings well. They have a pretty good track record doing that.
waldipup profile picture
@john boy

" and do you trust...."

I don't trust no one because

Nobodie Nose Nutin'

But I also want more than the .4% available on cash so I invest in stuff like this when it seems to make sense , but not a fortune in any one entity .

ECC , par example' - So far I've only bought their bonds , chicken that I am!
PendragonY profile picture

The bonds are a pretty solid investment and quite attractive if you like bonds.
DFP reduced their distribution as of May, from $0.165 to $0.1617, or about a 2% drop. Meanwhile, the price is rising, from about $29.20 to $29.97. Perhaps time to look for a pullback.
Rida Morwa profile picture
@MegaDivGuy DFP will see changes in its dividend as the available yields from preferreds rise and fall. Right now they're about as low as you can get.
PendragonY profile picture

Well, that is still above what it paid in 2019 and what it paid at the start of 2020.
Thanks for the suggestions. However, for retirees, like myself, I propose none of us have 41 years to test these theories.
SleepyInSeattle profile picture
@Willie2 The theory is flawed, mathematically speaking, as both principal and dividend fluctuate. The rule of 72 applies to a fixed amount in interest received after an initial fixed investment. It requires a fixed rate of return, and while investors can use the average stock market return or other benchmarks, past performance doesn't guarantee future results.
Rida Morwa profile picture
@Willie2 Regardless of testing them, the immediate boost in income is something you can try out right away.
waldipup profile picture

"I propose none of us have 41 years to test these theories."

Waddayuh mean Willie?

Da Pahteez Jus' Stahtin'!
Michael-Ho profile picture
Did you be holding onto this investments when the price plunged 75% last year? If you held on, you lost money. If you sold and did not get in at the bottom, you would have lost a huge amount of capital or missed the gains. .
PendragonY profile picture

I held ECC last year (and bought more too). I didn't lose money and have collected plenty of juicy distributions as well.
Michael-Ho profile picture
Did you hold on to these…..

Gotta love these iPhones…
PendragonY profile picture

Like I said. I held ECC last year (and started buying in back in 2019). I even bought more. DFP is a recent purchase, I held a similar fund back in 2020 (and sold it to move into DFP).
birder 4000 profile picture
Although I like reading these suggestions, I am too conservative an investor to follow the advice. As for NEWT, after reading their financials and studying their web site, I sold mine last year.
Henry_22 profile picture
@birder 4000 Smart move. Neither one of those stocks he recommends will be around in 41 years for you to reach your goal.
Rida Morwa profile picture
@birder 4000 I respect your difference of opinion, if preferred securities are took risky for you, bonds and Treasury notes are the next less risky choice.
peter9810 profile picture
@Henry_22 WPG ? Perfect example. Recommendations should be quality, not quantity, as observed here. 2-3 daily ?
Very tough break on NEWT TODAY... BOUGHT $2500 between 24.2 and 25.1. Had sold prematurely? for 30, 32.5, and 35. Buy and hold FAILS. Buy and trim saves cash for these buyback opportunities.

Viacp, 100 par, firesaled today at 67.75. Glop/a, b, c firesaled 5 days ago, went down $2, bought back what I sold and will sell again tmrw after they, OMG, rerallied in 2 days.

Buy the dips!!!!!!!!!!!!!
Alin/a, b, e

With my 25% CASH
Rida Morwa profile picture
@Philip K Blakeney Buying dips of good companies is a excellent way to see your income grow
I'm more interested in how to get the $2mil honestly. Any tips?
ButscherDoug profile picture
@Faninvestor9 What do you mean by honestly? Compounding is not honest?
Henry_22 profile picture
@ButscherDoug He means compounding with stocks that will be around in 41 years, not these two dogs.
SleepyInSeattle profile picture
@Henry_22 I couldn't agree more.
Woke like Jesus aka Guy who thinks profile picture
Not NEWT:( that hurt today.
Rida Morwa profile picture
@A guy who actually thinks Newt has 2 large dividends left to pay this year totaling nearly $2 a share. At these prices you have 10% yield left just this year. Although switching to a bank NEWT can not be trusted as a high income security after 2021
Just Scott profile picture
“These two upcoming picks earn a combined average yield of 7.75%. Using the Rule of 72, we can readily see how quickly our income stream can grow. This means $100,000 invested in them will generate $7,750 annually. Your income will also double every 9.3 years! This means it would only take 41 years for this $100,000 to generate $2.1 million in dividends alone.”
Could you elaborate on this.?
SleepyInSeattle profile picture
@Just Scott you are assuming the stocks' price will not go down and this is the wrong assumption - look at the charts!
Just Scott profile picture
I am not assuming anything. That was copied directly from the article.
Rida Morwa profile picture
@Just Scott I'm using straight income generated compounded at the same yield for the entire period.
Is NEWT still a buy?
Rida Morwa profile picture
@steve20 We released guidance to our HDO members: seekingalpha.com/...
@Rida Morwa Is that a yes?
Phil in OKC profile picture
@steve20 That is an invitation to sign up for a free 2-week trial session and you can read everything that has been written or posted on the NEWT debacle.
Say it with my folks...invest in VTSAX (or similar), not in ECC
Seneca75 profile picture
Surprised you don't think it's important to point out the management fees of some of these picks. For example, $PFFA has total annual fund operating expenses of 1.47%. Quite high. And if you compound that 1.47% over 41 years?? An insane amount of money paid to hold this investment.
Rida Morwa profile picture
@Seneca75 the fund pays the fees internally so you don't actually pay anything yourself
Seneca75 profile picture
@Rida Morwa of course, but that expense ratio compounded over decades is massive.For example, if I invest $10,000, make 7% avg annual return, and pay 1.47% per year in expenses, in 30 years my $10K is worth $50,266. And the cost of those fees is $25,856. Expense ratios matter.
Rida Morwa profile picture
@Seneca75 Again the fees are internally paid, so you lose nothing. Do you worry about the price of debt from any stock on the market or the CEOs pay over the span you hold it? I don't count the CEOs paycheck as losses on my investment.
what would you recommend for 3 million? ;)
Rida Morwa profile picture
@lioneyes You'll have to wait and see!
@lioneyes 75% preferred, buy the dips, and 25% common. For safety, that translates into 60, 20, and 20% CASH to buy those dips. Keep the dividends and reinvest yourself. Most brokerages do a LOUSY job reinvesting. If you want something done right...
jcjk profile picture
Surprised you didn't even mention OXLC which pays 2% more. I see you own both.
PendragonY profile picture

We like OXLC as well, but right now we like ECC better as it has started increasing the distribution again why OXLC is keeping the extra cash to grow book value.
jcjk profile picture
@PendragonY Yes ECC increased div but it is still under OXLC's percentage wise by 2%
Rida Morwa profile picture
@jcjk I like both very much and we have recent coverage of OXLC as well.
Rida, a bank that you possibly might want to check out. NWBI, yielding over six percent. Raised the dividend this year, last earnings report, beat estimates on revenue and profit. NWBI got a downgrade, which resulted in a dip that could make NWBI a good buy.
Rida Morwa profile picture
@bengraved Thank you for the suggestion.
I just doubled down on NWBI this morning aftet it went ex. dividend.
lateralgs profile picture
Curious, how does any lender manage to lend senior secured loans with first recovery rights covered by the borrower’s complete asset base to a company that is already loaded with debt? Most companies’ prior debt structure would include loan covenants restricting a borrower from assigning “first lien” rights to additional newly acquired debt. I assume the new lender would basically refi the borrower’s entire debt portfolio.
Rida Morwa profile picture
@lateralgs Many loans are unsecured or only secured by a sub company for example. As such the parent company, with its control of those subcompanies can have debt at its level that is superior.
lateralgs profile picture
@Rida Morwa

Thanks. I hadn’t thought of it from the perspective of parent and subsidiaries.
Will104 profile picture

Negative pledge protection in the current market is weak to virtually non-existent
Where would YOU call "the bottom"?
Rida Morwa profile picture
@drjoanv seekingalpha.com/... We just released guidance to HDO members.
RIDA....What are your suggestions re: NEWT????

Exactly WHO is "smart money"!!!!
Rida Morwa profile picture
@drjoanv Smart Money is the term for hedge funds and institutions vs Retail investors.
gnewmie23 profile picture
NEWT today..... wowzer! :(
Rida Morwa profile picture
@gnewmie23 Retail investors and smart money are reacting to the plans to convert to a bank from a BDC. Retail didn't like it, but it seems smart money is buying the dip.
gnewmie23 profile picture
@Rida Morwa I'm watching it closely today; considering buying the dip. Will definitely not be selling into this dip. Will hold nd possibly buy additional shares once I do some additional due diligence on the news. thanks Rida.
Me too. I notice no words on this recommended stock.
23k vanished.
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