My #1 Monthly Dividend Payer
The ‘Preferred’ Way to Collect a 10-11% Yield
The Virtus InfraCap U.S. Preferred Stock ETF (NYSE: PFFA) is a $206 million exchange-traded fund (ETF) that seeks current income and capital appreciation.
This fund, which was created in May 2018, will normally invest at least 80% of its net assets in U.S. preferred stock.
Here’s what I had to say about PFFA when I first recommended it to my Cash Machine subscribers:
PFFA is an exchange-traded fund, or ETF, that provides active management from a highly experienced team while offering excellent diversification.
PFFA seeks current income and, secondarily, capital appreciation through a portfolio of over 100 preferred securities issued by U.S. companies with market capitalizations of over $100 million.
To gain the kind of yield I’m seeking for Cash Machine subscribers, PFFA utilizes modest leverage (typically 2-30%) to enhance portfolio beta, and options strategies also are used to enhance current income.
It has everything I’m looking for in the bond equivalent space — preferred stocks with some sizzle. The stock went public in May 2018 at $25 per share, started paying a monthly dividend of $0.19 per month in July and hasn’t missed a beat since.
The price fell to the low $23 when the 10-year Treasury hit 3.25% recently but just in the past three weeks the 10-year T-Note yield has rallied to 2.88%, which has put a floor under the preferred market — and in my view signaled a buying opportunity.
The top 10 holdings within PFFA make up 46.4% of the total portfolio and most of the top holdings are familiar names that have strong underlying fundamentals.
Shares of PFFA pay a current annual dividend of $2.28 per share, again paid out on a monthly basis, which translates to a current yield of 9.91%.
PFFA seeks current income and, secondarily, capital appreciation through a portfolio of over 150 preferred securities issued by U.S. companies with market capitalizations of over $100 million.
The fund focuses on income, offering the potential for attractive yields, while also pursuing compelling total return results.
The benchmark index, the S&P U.S. Preferred Stock Index (SPPREF), has recurring structural inefficiencies that leave it vulnerable to downsides.
However, PFFA is actively managed, so investing in it removes those risks. PFFA’s security selection and weightings are based on a variety of quantitative, qualitative and relative valuation factors, which are all overseen by top-notch management.
PFFA’s portfolio deviates from SPPREF’s index as potential investments are evaluated on a variety of key variables, including the competitive position of a company; the perceived ability of the company to earn a high return on capital; the historical and projected stability and reliability of the profits of the company; the anticipated ability of the company to generate cash in excess of its growth needs; and the company’s access to additional capital.
The Virtus InfraCap fund also generally underweights or eliminates callable preferred securities exhibiting a low or negative yield-to-call ratio and applies leverage to potentially enhance portfolio exposure.
The fund is well diversified with no specific industry representing more than 25% of the portfolio.
Almost all issuers of preferred securities in PFFA maintained preferred stock dividends and, in many cases, cut or eliminated common dividends while keeping up with preferred dividends. The fundamentals of the issuers remained strong throughout the pandemic.
Many preferred stocks continue to trade well below par value, despite the imminent distribution of vaccines and the continued rapid recovery of the economy.
We continue to believe that preferred securities have excellent total return potential in this market.
Although PFFA experienced a downturn in March, its share price has recovered steadily as you can see below in the chart.
With a whopping 10.53% yield, PFFA is my #1 monthly dividend payer for 2021.
Recommendation: Purchase shares of Virtus InfraCap U.S. Preferred Stock ETF (PFFA) at market price.
Consult the most recent issue of Cash Machine, or your most recent email alert update, for the recommended sell price and the latest advice on this recommendation. One final note: If you're looking for which dividend stocks to buy -- and which to avoid -- click here for my latest research.
About Bryan Perry
For over a decade, Bryan Perry has brought his expertise on high-yielding investments to his Cash Machine subscribers. Before launching the Cash Machine advisory service, Bryan spent more than 20 years working as a financial adviser for major Wall Street firms, including Bear Stearns, Paine Webber and Lehman Brothers.
Bryan co-hosted weekly financial news shows on the Bloomberg affiliate radio network from 1997 to 1999, and he’s frequently quoted by Forbes, Business Week and CBS’ MarketWatch. He often participates as a guest speaker on numerous investment forums and at investment conferences around the nation. With over three decades of experience inside Wall Street, Bryan has proved himself to be an asset to subscribers looking to collect juicy dividend payouts each month, quarter or year.
Bryan’s experience has given him a unique approach to high-yield investing. He combines his insights into dividend-paying investments with in-depth fundamental research in order to pick stocks with high dividend yields and potential capital appreciation.
In addition to Cash Machine, Bryan provides a supplemental trading service called Premium Income, which gives subscribers a unique way to generate additional income on the Cash Machine stocks using covered call options. He also offers several other trading services designed to maximize income generation while playing a variety of market trends: Quick Income Trader, Breakout Profits Alert, and Hi-Tech Trader.