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Keep calm, run with the smart money and profit from all the fears linked to stock markets and coronavirus. Now is the time to be greedy when others are fearful. It’s during times like these that I’m actively hunting for reliable dividend stocks that are selling at a bargain price. As you’re aware, my objective is to retire in 5 years and live off dividends; hence the more I can accumulate at a lower price, the better my cost average will be. If like me, you want to retire on dividends, I strongly urge you to read this simple cheat sheet: How to Retire on Dividends: Earn a Safe 8%, Leave Your Principal Intact. It really inspired me to start this journey and it’s been a blessing. You can find it here.
Proper companies that can keep dishing out fat dividends during these harsh times are the first ones that’ll explode when the mayhem stops, and I have three companies that I think will do just that.
Arbor Realty Trust (ABR)
Arbor provides lending to multifamily and commercial properties. It serves loans between $1 and $5 million and is in the loan origination business. Loan origination means that Arbor takes care of the entire process from the loan application up to the disbursal of funds if necessary. Between 2015 and the last half of 2019, they increase their loan origination activities by a staggering 21% annualized, and they manage to collect 98 cents for each dollar loaned. Regardless, if the interest rates are lowering quickly, Arbor just lends more money, collects more interest payments and has a good collection history.
They have another stable source of revenue, which is loan servicing. Loan servicing is the process of managing everything from funds disbursements to when you pay it off. Meaning they collect the interests, the payments and are also responsible for collection purposes if need be. Their loan servicing is showing a high annualized growth rate of 20% between 2015 and 2019. In a billion dollars, their revenue in that sector increased from 11 billion to 19.5 billion in only four years.
Astonishingly, before the stock market’s correction, ABR’s stock price had an 84% increase from 2015 to 2019 and a dividend increase of 81% during the same period. To show how dependable the company is, they had a 20% dividend growth between 2018-2020 and the stockholders just received a juicy quarterly dividend of 30 cents.
Action to take: Buy more ABR midst the market drop. A current 14.34% dividend yield is a bargain.
DoubleLine Income Solutions Fund (DSL)
DoubleLine Income Solutions Fund is a fund managed by famed portfolio manager Jeffrey Gundlach aka Bond King. He has been managing this fund since the 2013 inception year. His fund has a broad mandate to buy bonds wherever necessary to achieve a high level of income and capital appreciation.
It managed to achieve an annualized growth rate of 5%, which is not enormous. I give you that nevertheless, the beauty is not there. The magic lies in the dividend yield and the stable regular monthly distributions that it provides. It has a current dividend yield of 11.05% and a steady monthly income of 15 cents per share. So regardless of how jittery the market is or gets, I know that I’ll always get my 15 cents per share on my 50,000$ investment bought at 17.07$. It equals to 440$ month or a whooping 5,272.20$ yearly. It’s mind-blowing how easy it is.
The constant downward pressure on interest rates is a good thing for bonds because the lower the interest rate, the lower the yield on a bond, but the higher the prices of these same bonds.
Action to take: Buy more DSL midst the market drop. A current 12.92% dividend yield with stable monthly distributions is robust for any portfolio.
Chimera Investment Corporation (CIM)
Chimera Investment Corporation is a society headquartered in New York City that’s in the business of residential mortgage loans, asset securitization, and mortgage-related securities. Half of Chimera’s portfolio comes from residential mortgages, and how it all works together is pretty convoluted but compelling. The firm buys residential mortgages and then deposits the bonds and loans into a trust. And the trust, in turn, issues bonds that are backed by the cash flows of the original mortgages. With the mortgages turned into bonds, Chimera will now sell some to third parties and retain the rest.
The other half of their business model makes money with commercial and residential mortgage-backed securities. Most of these are issued or guaranteed by the likes of Fannie Mae or Freddy Mac, which means that the US government will absorb the risk and not CIM.
From the beginning of 2016 to the recent market debacle, it had a total return of 116% versus the S&P500. CIM has distributed an impressive $4.8 billion in dividends since inception, and with its current price, the dividend yield is at a massive 12.20%. This opportunity is little-known because many people are still hurt from the 2008 market recession and run away from anything that resembles mortgage securities. What I’m telling you is that as long as the Fed continues to cut the short-term rates, the odds are in our favour.
Last quarter it declared earnings of 60 cents per share and distributed 50 cents per share as dividends every quarter. The distribution is well covered and offers us a sweet $2.00/share annually.
Action to take: Buy more CIM midst the market drop. A current 12.20% dividend yield with stable monthly distributions is a secret that will keep on giving as long as the Fed maintains a low-interest environment. I’m unlocking this idea and sharing this private information with you.
Fear brings opportunities
It’s always easy to follow the herd and be shackled by all the doomsday news we hear. The stock market corrects itself every couple of years, and it’s during these impromptu times of panic and high volatility that fortunes are made or lost. My suggestion is to run with the smart money and let the weak hands sell their stocks at the worst possible time. We’ll be there to buy them at bargain prices. A company that had incredible financial results last quarter and each quarter before that will not suddenly falter and crumble (exclusion of companies who practice creative accounting). The discounted value of its future cashflows determines the worth of a company. An excellent company yesterday will surely still be a stellar company tomorrow.
It is awkward and foolish to try to time the market. If you want to beat the market all the time, you must remain in the market at all times. A Ridiculously simple way to increase your wealth faster than everybody else is to buy when everybody is fearful and stay in the market.
Don’t defy this tested method, and let’s become prosperous together. Read this authentic book: How to Retire on Dividends: Earn a Safe 8%, Leave Your Principal Intact to understand why I’m not concerned with the recent market antics.
Thank you for reading my article and don’t forget to leave a comment.