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Proprietary Data Insights Top Retail REIT Searches This Month
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Would You Rather Have $8,100 or $11,999? The Juice loves real estate investment trusts (REITs). REITs own and (usually) operate real estate. They tend to specialize in specific sectors. The SEC requires REITs to distribute a minimum of 90% of their taxable income to shareholders via dividends. Some REITs pay dividends monthly. The monthly dividend payer that holds the top spot in our proprietary Trackstar database of the tickers generating the most investor interest is Realty Income (O), a retail REIT. In a minute, The Juice details how to maximize the income you generate from Realty Income. You can apply these methods to thousands of stocks. O is merely a prolific example. To set the stage… You purchased 100 shares of O this week when it traded for $60.34. A $6,034 investment. You intend to hold the stock for 10 years. However, you don’t plan to reinvest the monthly dividend payments. You’ll take that money as cash each month. Based on its history, we assign O an annual average dividend increase of 2.54%. O has increased its dividend 26 years in a row, making it a dividend aristocrat. Based on O’s $2.98 current annual dividend, you’ll collect roughly $24.80 each month. In this scenario, your $6,034 investment becomes $8,109 after 10 years, assuming O’s stock increases 3%, on average, every year. Let’s run the same numbers, this time assuming you reinvest O’s monthly dividend into new shares of the stock. In this scenario, your $6,034 investment becomes $11,999 after 10 years. Big diff. Now, let’s expand on this along with two additional monthly income-producing strategies. |
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Brought to you by Banyan Hill |
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Income Investing |
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3 Easy Ways to Turn Your Portfolio Into an Income Machine |
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Key Takeaways:
Here are three of The Juice’s favorite ways to squeeze income out of stocks. 1. Buy monthly dividend stocks. Our O example highlights the power of compounding with the difference in the growth of your investment when you collect dividends in cash versus reinvesting them to add to your position. Here’s a visualization of the difference: Source: MarketBeat As you reinvest dividends – $298 for the first year – they increase your position size (from 100 shares in year one to 104.08 shares in year two, and so on). As your position size increases and the company increases its dividend, the amount of the dividend you reinvest increases even more (from $298.08 in year one to $318.11 in year two, and so on). This is compounding. 2. Create a dividend portfolio that pays monthly. Most stocks pay quarterly dividends. But you can construct a portfolio of dividend stocks that pays monthly. Because not all companies pay out their dividends in the same four months. Simply visit a company’s investor relations page and search for its dividend history or payment schedule. Use this information to select a basket of stocks whose dividend payments cover all 12 months of the year. Here’s a fine example via a handy Instagram account we found the other day: Source: financial_tips_motivation on Instagram 3. Write covered calls against dividend stocks. Last month, The Juice reviewed basics on covered call writing, using options on Exxon Mobil (XOM) and Apple (AAPL) as examples. What we didn’t point out is that by writing covered calls on dividend stocks, you’re effectively double-dipping on income. Let’s use O as an example again. You own 100 shares. You reinvest your $24.80 dividend payment this month. Around the same time, you sell the O October 2022 $62.50 call option and collect about $45 in premium income. You can keep this as cash in your account or, better yet, buy more shares of O (or another stock). Double. Dipping.
Repeat, repeatedly! We’ll leave it there for now. But, going forward, The Juice will expand on this strategy. We’ll focus on taxes, finding the right calls to sell, and the risk of your stock getting called away.
The Bottom Line: Generating income from your investments – and reinvesting it – makes sense in almost any market environment. But it can be even more key in down markets. If you’re a long-term investor, you’re not going to dump a stock just because it goes down if the reasons you bought it in the first place still stand. However, you can mitigate downside and buy more shares while the stock price is relatively low by reinvesting your dividend and covered call income. |
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