Studies indicate that younger generations are less devoted to their employers, which makes it challenging for firms to keep dedicated employees in today's unstable economic environment. Employers have difficulties as well; many anticipate hiring freezes and layoffs in the upcoming year.
In this situation, it is essential for both employees and business owners to look for reliable strategies to expand their revenue streams and safeguard their financial future. A tried-and-tested method of achieving this stability in investing is through dividends. At High Dividend Investing (‘HDI’), we empower you to generate a secure and dependable passive income by leveraging the stock market with our exclusive Income Method.
Pick #1: RVT - Yield 7.5%*
The current market is characterized by a significant valuation gap between mega-caps, large-caps, and small to mid-cap stocks. Mega-caps are trading at over 30x price/earnings, large-caps at nearly 20x, while small and mid-caps are closer to 14x. This is the largest gap between small-cap and large-cap stocks since early 2000. From 2004 through 2019, small-caps traded at a higher valuation than large-caps.
To benefit from this situation, we suggest investing in Royce Value Trust (RVT), a Closed-End Fund that focuses on small-cap companies. RVT has outperformed its benchmark index, the Russell 2000, since 1986. This is an achievement that few funds have matched. RVT's distribution calculation is based on NAV, not the market price that shares are trading at. Currently trading at a 12% discount to NAV, RVT offers the potential for higher yield and capital appreciation. With the massive valuation gap between small-cap and large-cap stocks unlikely to persist, we believe RVT provides an excellent opportunity to benefit from investing in small-cap stocks while receiving a healthy dividend.
*RVT pays out a variable distribution, which is based on an annual rate of 7% of the rolling average of the NAV of the prior four quarter-end. As a result, RVT's distribution varies, but it tends to shift slowly with the long-term trend.
Pick #2: UTG – Yield 8.4%
Utilities may not be the most exciting sector, but they are a valuable option for income investors. These companies provide essential services that are fundamental to our daily lives and business activities, and their demand remains stable through economic cycles.
The Reaves Utility Income Trust (UTG) is a suitable way to benefit from this sector while earning a sizable monthly income. UTG is a Closed-End Fund that offers diversification across 44 companies, primarily in the U.S. and Canada, with modest exposure to Germany and Italy. The CEF is built primarily with companies that are the largest and most prominent in their field, with utility and communication services and modest exposure to infrastructure REITs.
UTG offers a solid 8.4% yield with a track record of distribution raises and special payments since its inception in 2004. The fund is modestly leveraged and has actively managed its allocations to generate cash returns for shareholders. Current price levels provide a sizable annualized yield from a robust and resilient sector to brace yourself for the upcoming recession. UTG's distribution sustainability is well positioned for the foreseeable future, with 69% capital gains and 31% net investment income. With a clear distribution formula based on NAV, not the market price, UTG is an excellent opportunity to benefit from investing in utilities while receiving a healthy dividend.
Job security is not guaranteed; a recent study showed that over 50% of American workers over 50 lost their jobs involuntarily. As such, however old you may be, planning for retirement is crucial.
At HDI, we target a diversified portfolio of over 45 securities with a +9% overall yield. Diversification protects our income stream from economic changes and closed-door boardroom decisions. Dividends offer a consistent stream of passive income that can multiply over time. This article discusses two discounted picks to kick-start your journey toward financial independence.