Wealth Systems: Dividend A Day, Part IV

Building the Ultimate Income Portfolio

Welcome to Part IV.

This is the big day — we start making investments and building our empire!

Before we dive in, make sure you’ve enjoyed Parts I, II & II (links below).

Part I here:

Enjoy Part II here:

…and here’s Part III:

Dividend a Day: The Ultimate Wealth Engine

This is the first Wealth Engine we’re profiling in Wealth Systems because it is the most effective, efficient and consistent of all the engines.

Others engines have the potential for greater bursts of power (making money)… but capital loss is also more likely with those wealth engines.

Dividends are a great start.

Purchase 5 different stocks every time you buy, make monthly purchases to phase into the market and spend time learning your portfolio.

Carefully over 18-months you amass a portfolio of 90 different companies:

• Oil & Gas MLPs

• Commercial Office REITs

• Apartment building mREITS

• Consumer Goods Common Stocks

• Financial Services Preferred Stocks

• … and 12 to 15 other mixes of security type & industry

Now you are receiving on average a dividend payment each day.

Every day.

Some weeks I receive 20.

I maintain a global database of 17,000 securities with almost 2,500 of them bearing a dividend or some other form of current income.

The US-only universe is approximately 1,500 companies.

I started building it up in 2009/2010 on Wall Street and have constantly worked on it.

Wealth Systems members will get access to the entire database, along with real-time alerts and other resources.

Even if you don’t have an incredible database, there are no shortage of stock screeners and research repositories:

1. Dividend.com

2. Sure Dividend

3. MarketBeat

4. Zero Hedge

We covered stock selection / securities analysis in Part II at a very high level. It discusses the differences between REITs and MLPs, and other classes and types of income-paying securities.

Let’s explore these further prior to making the first 5 purchases.

Real Estate Investment Trusts (REITs)

1. Types

   1. Equity REITs: These own and operate income-generating real estate. Revenue primarily comes from leasing space (apartments, offices, or malls) and the appreciation of these properties.

   2. Mortgage REITs (mREITs): These provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities. They earn income from the interest on these financial assets. The best yields among REITs. The biggest interest rate and other risk exposure.

   3. Hybrid REITs: Combining the strategies of equity REITs and mREITs, hybrids own properties and provide real estate financing.

2. Classes

   1. Publicly Traded REITs: These are listed on major stock exchanges and are accessible to individual investors. They offer high liquidity but can be more volatile.

   2. Public Non-Traded REITs: Not traded on stock exchanges, they are less liquid but might offer less volatility and correlation to the broader market.

   3. Private REITs: These are only available to accredited investors and offer limited liquidity. They are not subject to the same regulations as publicly traded or non-traded REITs.

Master Limited Partnerships (MLPs)

1. Pipeline MLPs: They transport oil, gas, and other substances. Their income is typically more stable, as it's based on volume moved, not commodity prices.

2. Exploration & Production MLPs: Engaged in the discovery, extraction, and production of natural resources. These are more sensitive to commodity price fluctuations.

3. Downstream MLPs: Involved in post-production processes like refining and marketing.

4. Marine Transportation MLPs: Specialize in transporting oil and gas products via tankers.

5. Processing MLPs: Involved in the processing and purification of natural resources.

Other Income-Paying Securities

1. Preferred Stocks: A hybrid between stocks and bonds, offering fixed dividends and higher claim on assets than common stockholders in case of liquidation. Preferred dividends are typically cumulative.

2. Convertible Bonds: These can be converted into a predetermined number of common stock, combining debt security with an option to participate in equity appreciation.

3. Senior Loans (Floating Rate Loans): Loans made to businesses with variable interest rates. They are senior in the payment hierarchy, offering some security in case of bankruptcy.

4. Business Development Companies (BDCs): These firms invest in small and mid-sized businesses and are required to distribute 90% of their profits as dividends.

5. Utility Stocks: Known for stable dividend payments, as their business models generate consistent revenue.

I’m going to build the Wealth Systems Portfolio throughout the course of this seven-part series.

Tactically.

Piece by piece with live examples and real data.

Purchase #1

Decide your total portfolio size at launch and divide by 5, we’re going to buy 5 securities at a time.

If you have $350,000 to invest initially, we’re selecting 5 stocks and investing $70,000 each.

You can “yield balance” and buy less of risky stocks with higher yields.

This is also greatly reduces the yield.

REITs have great yield, mREITs better still… but the debt burden and interest rate exposure is significant.

In our first purchase we’re going to mix REITs with other classes and types of income security - here are the tickers in our first purchase:

1. Verizon Communications Inc. (VZ)

2. Cheniere Energy Partners LP (CQP)

3. Universal Health Realty Income Trust (UHT)

4. Altria Group Inc. (MO)

5. Arbor Realty Trust Inc. (ABR)

I'll go through a few key aspects of this portfolio. Keep in mind that this is a general analysis and not a personalized investment advice.

1. Diversification: This portfolio includes companies from different sectors: telecommunications (VZ), energy (CQP), healthcare real estate (UHT), tobacco (MO), and real estate investment trust (REIT) focusing on loans and investments (ABR). This diversity across sectors can be beneficial for risk management, as it reduces the impact of sector-specific downturns.

2. Dividend Yield: One notable feature is the high dividend yield of these stocks. MO, ABR, UHT, and CQP are known for their higher-than-average dividend yields. High yields can also indicate potential risks or a lack of opportunities for the company to reinvest earnings for growth.

3. Market Performance and Risks: It's important to analyze how these stocks have performed in the past, both individually and collectively, and how they are expected to perform. Factors like market volatility, regulatory changes, and economic cycles can significantly impact these sectors.

4. Company-Specific Risks:

   • VZ (Verizon Communications Inc.): As a major player in telecommunications, it faces stiff competition and must continually invest in technology upgrades (like 5G).

   • CQP (Cheniere Energy Partners LP): Involvement in LNG (liquefied natural gas) suggests exposure to energy market volatility and regulatory changes.

   • UHT (Universal Health Realty Income Trust): As a healthcare REIT, it's impacted by the healthcare industry's regulatory environment and demand for healthcare facilities.

   • MO (Altria Group Inc.): The tobacco industry faces regulatory challenges, health concerns, and declining smoking rates in many regions.

   • ABR (Arbor Realty Trust Inc.): As a REIT, its performance is tied to the real estate market's dynamics, interest rate changes, and loan performance.

5. Economic Sensitivity: Some of these sectors are more sensitive to economic cycles. For example, real estate and energy can be heavily influenced by economic growth, interest rates, and geopolitical events.

In summary, this portfolio offers a mix of high-dividend, value-oriented stocks spread across different sectors, which can be good for diversification and income generation.

However, it's also crucial to be aware of the sector-specific risks and the overall market conditions. Regularly reviewing and adjusting your portfolio in response to changing market conditions and your personal financial goals is a key part of sound investment management.

So is diversification. Our portfolio has more work to be done!

Closing Thoughts and Next Steps

This week we placed $350,000 of bets.

$70,000 x 5 stocks.

Next week we’re going to open up 10 more positions and discuss them in detail.

We’re live building the ultimate tool… the Dividend a Day: Ultimate Income Portfolio

By the end of Part VII we’ll have the entire 90 stock portfolio written-up.

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