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Investors Alley

Investors Alley by TIFIN

It’s Past Time to Get Nervous About This Bull Market

U.S. stock prices have been marching steadily higher since the end of October. The S&P 500 is up over 20% with hardly a glitch in the upward trajectory. While it’s great to watch the gains in your portfolio, now is the time to prepare for the next market correction.

Here’s why – and how.

Here is the SPDR S&P 500 ETF (SPY) chart since October 1, 2023.

A stock market correction is defined as a drop of 10% or more in the major market indexes. If the drop exceeds 20%, it would be classified as a bear market. A 10% drop does not sound like much, but watching it happen to your stock portfolio can be pretty painful. Also, while the S&P 500 may drop by 10% to 15%, individual stocks can and will fall much harder.

A market correction almost always catches investors by surprise. Fear can quickly take over emotions, and investors often sell to prevent further losses rather than take advantage of stock prices that have suddenly gone “on sale.”

With my Dividend Hunter service, I advise subscribers to focus on building an income stream using the high-yield investments in the recommended portfolio.

If you invest to accumulate dividend-paying shares, it becomes easier to buy when share prices fall—you can acquire dividend-paying shares “on sale.” When the stock market enters correction territory, my subscribers, instead of giving into fear and wanting to sell, ask me if it is good to buy more of our high-yield shares. Once you buy into the system, adding dividend-paying shares in a market downturn becomes exciting.

When the market drops, my subscribers and I will seek the best opportunities to boost our investment income. For example, Starwood Property Trust Inc. (STWD) shares are great to acquire when the yield exceeds 10.5%.

History tells us that a stock market correction at some point this year is almost inevitable. Do you have a plan to use the drop to build your future income and wealth? If not, consider joining me as a Dividend Hunter subscriber – see below for how to do that.

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Investors Alley by TIFIN

The Two Strategies You Need to Adopt Before the Market Turns

“What is the market going to do?” That’s the first question everyone asks when investing comes up.

In the short run, the answer is momentum-driven. Right now, in spite of excessive valuations and economic uncertainty, the market is very strong. The uptrend that started in November is going smoothly as time passes, and there is no reason for the prices to fall.

Eventually, there will be, but for now, there is no sign of a meaningful pullback on the near-term horizon.

In the long run, the combination of cash flows, valuations, and interest rates suggests that we are looking at a decade or so of weak returns.

It has happened before with great regularity, and we are due, if not overdue, for a period below average great regularity and we are due, if not overdue for a period of below-average returns.

Investors in need of higher returns on their money have two strategies they need to be considering now before the trend of the market changes course.

Let’s take a look at both of them in turn…

The last time such a rare situation happened with this “secret map” was in 1984. When one stock skyrocketed for all-time gains, that resulted in $5,000 turning into $108,850… and $25,000 into $544,250! Now it’s even bigger. Click here before it’s too late.

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Investors Alley by TIFIN

When Preferred Stock Makes This One Change, You Can Make Bank

My Dividend Hunter subscribers are asking me about preferred stocks that will soon go from a fixed dividend rate to a floating rate. With short-term rates up significantly over the last two years, the small group of preferreds with fixed-to-floating interest rate clauses could make investors a lot of money.

Here’s how.

Fixed-to-floating rate preferred stocks are primarily issued by financial companies such as banks and finance REITs. Preferred shares usually pay a fixed dividend rate, with the dividend amount based on a set percentage and the preferred share’s par value.

For example, a preferred with a $25.00 par value and a 6% coupon rate will pay $1.50 per year in dividends, or $0.375 per share per quarter.

Most (almost all) preferred share issues become callable at a specified date. The issuer decides whether or not to call in shares. If shares do get called, investors receive the par value in cash. But a preferred may not get called in.

A fixed-to-floating rate preferred stock adds an additional twist. When a fixed-to-floating preferred stock reaches its call date, the issuing company can either call in the shares for the par value or start paying a calculated variable rate—the interest rate goes from the fixed annual dividend to a variable rate based on current interest rates.

For example, the Annaly Capital Management 6.50% Preferred G (NLY.PrG) shares became callable on March 31, 2023. Before the call date, the 6.5% coupon rate resulted in quarterly dividends of $0.4063. The floating rate after the call date is SOFR (Secured Overnight Financing Rate) plus 4.172%. The variable floating rate dividends have ranged from $0.59 to $0.62 per share for the last four quarters. NLY.PrG currently yields 9.9%.

Quite a few fixed-to-floating preferred stocks have call dates in the next several months. When these become callable, the issuer can either call in the shares at $25.00 or start paying the higher floating rate. Here are some preferred stocks to research:

MFA Financial, Inc. 6.50% Preferred C (MFA.PrC) becomes callable on March 21. The floating rate will be SOFR plus 5.395%.

Chimera Investment Corp 8.0% Preferred B (CIM.PrB) is callable starting on March 30. The floating rate is SOFR plus 5.791%.

PennyMac Mortgage Investment Trust 8.125% Preferred A (PMT.PrA) shares become callable on March 15. The floating rate will be SOFR plus 5.831%.

PennyMac Mortgage Investment Trust 8.0% Preferred B (PMT.PrB) Is callable on June 15. The floating rate for these preferred shares is SOFR plus 5.99%.

The next dividend for the listed preferred shares will be a few months after the call dates. You may not know what direction the issuer will take (call the shares or pay the variable rate) until a few months after the listed call date. If you can buy these shares at prices below par, the investments are a win-win, regardless of the issuer’s decision.

10 years ago, I showed a small group of dividend investors 3 dividend stocks to buy and hold until 2024. Those stocks could’ve generated up to $671,727 in dividends in that time. Now, here’s 3 new stocks to buy and hold until 2034. Click here to see them.

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Investors Alley by TIFIN

How to Find Undervalued Stocks, From the World’s Leading Value Expert

Today, we talk to an investor and author who has helped the art and practice of valuation for individual investors take a huge leap forward. Before settling into investment management, Tobias Carlisle was an attorney who worked on M&A deals all over the world. Valuation is not some theoretical idea pulled out of the textbook

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Investors Alley by TIFIN

Hot Stock Picks from My MoneyShow Panel

Last month, I was a speaker at the MoneyShow investor conference in Las Vegas. I enjoy presenting there very much. I also love to learn what other investment services like mine are recommending to their subscribers.

So I took some notes.

At the MoneyShow, I gave two solo presentations. I discussed the rapidly expanding universe of high-yield, option strategy ETFs during one. My other presentation explained defined maturity bond ETFs and how to integrate them into a diversified portfolio.

My final event was as one of the panelists on a five-member panel of experts with a theme of sharing some of our favorite stocks for 2024. Each panelist recommended five to six stocks, so there were a lot of very interesting investment ideas.

Several of the panel members discussed a few of the same stocks. Each of us had different analysis approaches and investment strategies, so I thought that stocks that worked for three or more experts would be of interest to a lot of investors.

Here are three stocks with widespread mention from the panelists and my thoughts:

3M Co. (MMM) was highlighted as a Dividend Aristocrat with an above-average yield. 3M Company has increased its dividend for 65 straight years. The current yield is 6.5%. Those are very attractive numbers for investors interested in blue-chip dividend stocks.

I wasn’t one of the 3M Co. fans. I think the dividend growth rate of 2% over the last five years is unappealing. With a bit of work, it’s not hard to find solid companies with yield plus dividend growth numbers significantly higher than the 8.5% total of 3M Co.

Enterprise Product Partners LP (EPD) is an energy midstream company organized as a master limited partnership (MLP). With a $60 billion market cap, Enterprise Product Partners LP is the largest company in the MLP sector. It recently became a Dividend Aristocrat with 25 consecutive years of dividend growth. The yield of 7.5% plus a five-year average payout growth of 3% makes Enterprise Product Partners LP more attractive than MMM.

The problem with MLPs is that they send Schedules K-1 to investors for tax reporting. K-1s complicate your tax return, and these investments should not be owned in qualified plans such as IRAs and Roth IRAs. The MLP world has shrunk to a handful of very capable companies, so I recommend owning an actively managed MLP ETF, which sends out a 1099 at tax time.

Hercules Capital Inc. (HTGC) is a business development company (BDC) that provides debt and equity funding in the venture capital world. BDCs are pass-through entities, so they must pay out 90% of net investment income as dividends to investors. Hercules Capital yields 8.5%. The company has grown its dividends by 5% per year over the last five years and has paid supplemental dividends every quarter since 2020.

Hercules Capital has been a recommended stock to my Dividend Hunter subscribers since 2015. I consider it to be one of the top two or three BDCs. With dividends reinvested, Hercules Capital returned 145% over the last five years.

To learn how to join my Dividend Hunter service and see all my favorite income stocks, click below.

Savings accounts paying 5% right now are hard to pass up. But what if I show you 3 stocks that could pay double what they’re paying… and they’ll do that for the next decade. Today, I’m releasing my next “Decade of Dividends” stocks to buy and hold over the next 10 years. Take a look.

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Investors Alley by TIFIN

What the Best Tech Investors are Buying Right Now

Last week, I told you I would circle back and share the latest buying and selling activities of some of the best energy and technology investors.

I covered SIR Capital, one of the best energy investors in recent years, but followed that with Donals Smith and Company, a deep-value firm with very little technology exposure.

Today, let’s talk about technology stocks…

Everyone is an instantly minted artificial intelligence (AI) genius right now.

Everyone is singing the praises of NVIDIA and other AI companies.

With all the chatter about how great the company is, one would expect that tens of thousands of new NVIDIA millionaires were minted this year.

Sadly, that is not the case because most people traded in and out of the stock and reacted to the news flow surrounding AI.

Very few investors have done what UK-based Baillie Gifford has done. The firm took its first stake in NVIDIA in early 2016 at a cost (adjusted for a 4:1 stock split in 2021) of about $8.60 a share.

The company sold some of its shares in the chipmaker as the stock price increased. It then bought more shares when the NVIDIA stock price fell in 2022, and still own a significant amount of the company.

The folks at Baillie Gifford ignored the headlines, the stories, the analysts, and everyone else who had an opinion. NVIDIA was a good business that kept improving, so they held the stock.

One of the best-performing tech stock investors, is a firm most people have never heard of before: Whale Rock Management is a Boston-based firm founded in 2006 to invest in the technology, media, and telecom sectors.

Without considering leverage, the firm has averaged well over 20% a year over the past decade. Simply buying the firm’s top ten holdings and rebalancing every quarter would have given you a 20% annual return.

However, the top ten strategy was down over 50% in 2008 and just shy of that in 2022. The recovery following the two worst years was epic, with gains of 89% in 20089 and 75%, but you had to stay in through the drawdown to participate in the recovery.

You would have to have held positions in market leaders like Microsoft and Amazon for years, not just weeks or days.

Here are your current ten stocks to own using the Whale Rock clone strategy:

If you are not prepared for wild swings in your account value in the short term, this strategy is not for you. If you get motion sickness on the financial equivalent of Dumbo’s Wild Ride, this will not be your best option. And if you insist on trying to trade every day, this approach will almost certainly fail.

I would venture a (strong) guess that you could use Whale Rock Management’s top ten stocks along with a trend-following approach that takes a signal from the Invesco QQQ exchange-traded fund.

Another tech firm worth tracking for ideas is Vista Equity, the private equity firm founded and run by Robert Smith. Vista Equity specializes in software companies, so the public holdings tend to be cutting-edge software companies the firm has taken public or has interacted with on some level.

Like every other tech-centric firm, Vista had a rough 2022 but bounced back nicely. Returns before the 2020 meltdown have been consistent since 2013.

Of course, the market has been moving up for most of that time, but stealing ideas from Smith and his team would have outperformed even the powerhouse that has been the S&P 500.

Technology investing has been a lucrative endeavor for the past decade. For most investors, the hard part is figuring out which companies have the real deal tech and which do not.

Stealing ideas from experts in the field can tip the odds somewhat in your favor.

The other major factor in scoring big wins in technology is true of every sector: Longer holding periods usually equal larger profits.

You must get in by November 8th for the best chance at growing a $91,761 yearly income stream from just ONE stock as it happens! Click here for the full details.

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