Monthly Income Opportunities From Equities
I like monthly income, so I keep my eyes peeled for monthly income opportunities.
In 10 Year Equity Income Returns, we discussed one of the benefits of investing in closed end funds: at times it is possible to acquire assets at a discount, 90 cents on the dollar, 80 cents on the dollar, or more! Buying at a discount saves money and can remove risk from the overall investment equation.
Today, we are looking at a closed end fund run by Nuveen:
The chart tells us that it is not a volatile investment – we would actually expect this since its focus is income. It is a good practice to take a look at the chart if for no other reason than to understand how your investment can expand and contract. Some do not care to see their hard earned money contract which is just one of the costs of investing.
We do live in a universe that pulses – we breathe in; we exhale; our muscles contract; then they relax; our heart contracts; and our heart relaxes. The market is the same – contract, expand, contract, expand…
Yahoo finance has a great database of financial information on public companies. The second screen shot is from their site.
The price of the security is labeled one.
At two, the annual dividend of 82 cents and yield is listed.
This particular security pays monthly and has a payout of 6.1%.
You can’t find that yield in a savings account.
It is important to note that for many in the United States the income is tax free. This money is just like saving money. Depending on personal tax brackets, the yield rises with each marginal change in taxes.
Three, is the NAV or net asset value of the security. If the underlying portfolio were liquidated today, the estimated
per share price is $15.37. Then point four gives the discount (negative number) or premium (positive number) to the current market price: $13.40/$15.37 = .8718. The formula says that we can buy this at 87.2 cents on the dollar.
So it appears there are many benefits to owning this security.
With every opportunity, risks exist. To the right of 4, we note that this security has traded, on average, at a discount to the market for some time. And, it may stay at a discount. However, markets do discover discounts and remove them when it believes pricing is unwarranted.
The discount is one of the variables I look at and evaluate to overall risk in light of value.
Another risk, is interest rate risk. If the Fed or market starts raising the rates, it may put pressure on the price of this security.
These and other risks must be considered in light of one’s personal situation.
In closing, volatile markets scare people. Fear creates opportunity for the prepared. If you keep your eye on a hand full of quality securities, the market will probably afford you an opportunity to acquire them at a discount – the key is knowing the asset. This is a great tool to add to your monthly income stream.
This article is for educational purposes. Each individual must research and make his own investment and business decisions.