Doing Well and Staying Worried. In This Issue. August 2017 Vol. 4 Issue 3

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Jessica Simon
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Doing Well and Staying Worried O verall, the 2017 results from the Dividend Hunter recommended stocks have been positive. There have been a lot of bumps along the way.

1 Doing Well and Staying Worried O verall, the 2017 results from the Dividend Hunter recommended stocks have been positive. There have been a lot of bumps along the way. REITs fall out of favor, and then recover. Crude oil and our energy infrastructure stocks took a pretty hard tumble, but now are on the way back up. A roughly equal weight portfolio of Dividend Hunter recommended stocks is up about 2% over the last month, 4% over the last 6 months and 10% for the last 12 months. These numbers include the dividends earned, but without any reinvestment. In This Issue Thoughts on the InfraCap MLP ETF 3 Your Returns May Not Be Accurate 4 New Residential Investment Corp 5 Portfolio Update 7 Current Portfolio 8 My worries are several. I find the actions of market players to be too much driven by short term news. And often that news is closer to fake news than reality. Sudden drops in share prices are usually not warranted, but they are hard on investor nerves. I think computerized program trading pushes share and market values too far in one direction. It seems all of the computers run the same program and jump on and off the same stocks. I also worry that a large portion of the recent stock market gains and record highs are driven by a handful of stocks, the FAANGs: Facebook, Amazon, Apple, Netflix and Google. These stocks drive the major stock market indexes. Index funds continue to grow and now account for 37% of all fund assets. I envision a scenario where something happens with one of these stocks, it starts to fall, the indexes start to decline, and investors bail out of their index funds, giving us a real bear market. Just because I have these worries, doesn t mean I expect or forecast a steep drop in the stock market. My concerns are directed to keep me focused on what is happening in the overall stock market. This allows me to provide the best advice I can to you. The different forms of crazy in the market also reinforce my belief that owning dividend stocks and focusing on building a dividend stream remains one of the best strategies for generating positive investment results. The companies behind our dividend paying stocks remain solid. If you have been with me for a while you know that I view share price declines as buying opportunities to purchase shares of quality companies at a lower price and boost our dividend income earnings. I have two strong recommendations that will help you with your dividend stock investing results. First, reinvest at least a portion of your dividend earnings into more shares of stock. The average yield of the stocks in the Dividend Hunter recommendations list is over 8%. Even if you invest for your retirement income you should consider reinvesting one-quarter (2% of the 8%) of those dividends. That way you 1

2 have a well above average 6% income which will grow by at least 2% each year. Of course, your circumstances are unique so be sure to check with your financial planner as well. The other recommendation is to set up a system to track your dividend earnings. I use a spreadsheet, but a notebook will work fine too. Make a note of the stock and dividends paid and total those amounts each quarter. If you own some stocks that are growing dividends, such as MAIN, MGP and DEA and you are reinvesting some dividends you will see your quarterly income grow steadily over time. This is actual wealth building that is not dependent on share prices. I do this with my personal stock investments. My primary goal is to have the amount of dividends I earn grow each quarter. I have very little focus on what the share prices in my portfolio are doing from day to day. I can t do anything about what the market is doing to my share prices. I have almost complete control of how I invest my free cash to grow my dividend income. The Dividend Hunter method is different from what most people learn about stock market investing. It has proven to be successful for many investors. It is a strategy of investing in high-yield stocks with secure dividends. It is also a mindset that we are investing for that income stream. History shows that the share prices of dividend paying stocks will recover after a decline. Share price declines are not permanent and should not scare you into selling your shares. I hope that we don t experience a market correction anytime soon, but I want you to work on your mindset that corrections are not to be feared and that you can build wealth by growing your dividend income without spending a lot of time watching share prices. We have updated the Monthly Dividend Paycheck Calendar for August. You can access the updated calendar immediately by clicking the link below: Click here to see the updated Monthly Dividend Paycheck Calendar. Land, Fly or Die, Tim Plaehn Editor The Dividend Hunter 2

Thoughts on the InfraCap MLP ETF Over the last couple of weeks there were a pair of articles and lots of opinions flying around the Internet about Dividend Hunter recommendation the InfraCap MLP ETF

3 Thoughts on the InfraCap MLP ETF Over the last couple of weeks there were a pair of articles and lots of opinions flying around the Internet about Dividend Hunter recommendation the InfraCap MLP ETF (NYSE: AMZA). I have also received several questions from Dividend Hunter subscribers about the dividend support for the 21% yield. To start, as near as I can tell, I am the only analyst writing about AMZA that actually talks to the portfolio managers. I have ongoing communication with Jay Hatfield and Ed Ryan, who are the founders, corporate officers and managers of the fund. They will quickly answer any question I pose. We also recently had Jay and Ed on a live online session for Dividend Hunter subscribers, where they discussed the fund and answered a large number of questions. I do not depend on stale, semi-annual financial reports to understand what is going on with the fund. This is an important point. AMZA is an exchange-traded fund (ETF). It is a fund that owns a portfolio of securities and not a company that has business operations. As a fund, the securities owned can change every day and do so. That is true and shares are being issued. The managers know that they need to pay dividends on the new shares, so they c set aside the cash to pay the dividend and invest the rest into the portfolio holdings. An investor who buys shares just before the ex-dividend is receiving true return of capital, but the fund is not selling assets to raise the cash. Jay and Ed told us that the money to pay the current dividend comes about 50% from the distributions paid by the MLPs owned by the fund and the other half from sold option premiums. They noted the dividend is being covered by these cash sources. If the dividend was not being earned, the dividend would be reduced. It would not affect the share net asset value. There is no reason for the managers to pay destructive return of capital to maintain the dividend. After two years of flat distribution payments from some of the larger MLPs, those distributions are again starting to grow. This means AMZA will need less options premium On our call, Jay noted that he spends the first part of everyday looking at options pricing to make the best trades to generate the option premium cash flow that makes up part of the dividend payment. AMZA is a fund that is growing its assets under management. This means new shares will be issued as investors put more money into the fund. It has been noted that a lot of new money is coming in just before the ex-dividend dates. 3

4 income to support the dividend. Put another way, every quarter it becomes easier for the AMZA managers to earn and cover the dividend. Growing distributions from the holdings will eventually lead to share price appreciation for AMZA. The previous chart is the top holdings of the fund as of July 28, Now the recent distribution announcements from these energy infrastructure companies: Energy Transfer Partners LP (NYSE: ETP) just increased its distribution by 2.8%. The ETP distribution has grown by 10% over the last year. Current yield: 10.7% Williams Partners LP (NYSE: WPZ) announced the same dividend as last quarter. Yield: 5.8% Buckeye Partners, L.P. (NYSE: BPL) increased its distribution by 1.0%. The payout is up 4.0% over the last year. Yield: 7.9% Energy Transfer Equity LP (NYSE: ETE) paid the same distribution as it has for the last seven quarters. Yield: 6.4% Tesoro Logistics LP (NYSE: TLLP) increased its distribution by 3.3% this quarter and the payout is up 15.3% over the last year. Yield: 7.5% Your Data Account Returns Data May Not Be Accurate I am not sure why the brokerage firms do this, but none that I have found include the dividend earnings in the stock results on the account summary screen. As high-yield stock investors, we generate a significant part of our returns as dividends. I want you to realize that what you see when you log into your brokerage account is not an accurate view of your investment results. For example, here is a partial screen shot from a brokerage account. Note the highlighted stock in the chart on the preceding page, which shows a negative 5.02% return. Those are shares of Ship Finance ONEOK, Inc. (NYSE: OKE) just announced a 21% dividend increase. This was the first increase since Yield: 5.3% MPLX LP (NYSE: MPLX) just announced a 4.2% distribution increase. The payout is up 10% over the last year. MPLX yields 6.3% Enbridge Energy Partners, L.P. (NYSE: EEP) will pay the same distribution this quarter as last. The EEP distribution was reduced two quarters ago by 40%. Current yield: 8.8%. EnLink Midstream Partners LP (NYSE: ENLK) has paid the same distribution rate for the last eight quarters. Yield: 9.4% 4

5 International (NYSE: SFL) accumulated with purchases spread over the last few years. If you include dividends in the return, these SFL shares have produced a 20% total return over the accumulation period. Those shares now pay a $990 dividend every quarter, which represent additional return on investment that will never show up on the brokerage account summary screen. The longer you own dividend paying stocks, the more dividends you will earn. Yet these earnings sort of disappear when you look at your brokerage values. It is a point to always keep in mind, especially when you look at your brokerage values and see red numbers. The cash dividends are deposited in the cash balance of your brokerage account. If you don t withdraw the dividends you will see them accumulate into the cash and total account value. If you reinvest dividend earnings, it can be difficult to see how the dividend earnings have helped your investment returns. This is another reason to follow my recommendation at the beginning of this Dividend Hunter issue to set up a system to track your dividend earnings. Consider this. From the date each stock was first recommended, the average total return for the stocks on the Dividend Hunter recommendations list is 18.1%. Some stocks have been on the list for a few months, some for several years. Out of that 18.1% of total return, 14.4% is the dividend payments from the stocks. To date, the best performer has been New Residential Investment Corp (NYSE: NRZ), which was first recommended in August Since then NRZ has paid 43.6% in dividends and produced a 77% total return. As dividend focused investors, we are out of the stock market mainstream. Even the brokerage firms do not provide information on how the dividends provide the bulk of our returns. Brokers want investors and traders to buy and sell to generate commissions. We like to buy and hold to generate dividends that are to our benefit. Keep in mind that when you look at your brokerage account, you are doing much better than the numbers you see indicate. New Residential Investment Corp. On Monday, July 31, Dividend Hunter recommended stock New Residential Investment Corp (NYSE: NRZ) reported 2017 second quarter results with a shockingly good quarter for earnings. Core earnings for Q2 of $1.03 per share were almost double the $0.54 reported for the 2017 first quarter and handily covered the new, higher $0.50 per share dividend. I listened to the conference call by management with the goal of discovering the reasons for the very large increase in profits and what could happen with earnings and dividends going forward. From Q1 to Q2, NRZ s core earnings increased from $155 million to $318 million. A large portion of the increase was due to a $156 million jump in net interest income. This specific gain was due to the acquisition of $110 billion in mortgage servicing rights from Ocwen Financial Corp (NYSE: OCN). New Residential is purchasing the MSRs for $400 million. With the deal, Ocwen signed a 5-year subservicing contract. The servicing contract reduces Ocwen s fee on the MSRs by 50%, to 13 basis points, down from 26 basis points. 5

6 Accounting rules forced New Residential to immediately book much of the lower future servicing fees as interest income in the second quarter. Management noted that the MSRs are being transferred to NRZ as regulatory approvals allow, so there will be a similar large income boost compared to previous quarters when the third quarter results are announced. After Q3, net income will fall back to whatever is the sustainable run rate. So, do not expect the NRZ dividend to be increased to $0.90 or $1.00. Here is my read on the future of NRZ as a highyield stock. CEO Michael Nierenberg emphasized that management believes the current $0.50 dividend is secure. He also noted that with the Ocwen deal the company will have $90 million per quarter in free cash flow above the dividend payment, which now totals $154 million per quarter. Nierenberg has always avoided talking about future dividend increases, but I am confident that we will see future increases in the payout. profitable investments. A size of $24 trillion for the housing market means there will always be strategic investments that NRZ can make for mid-teens target returns. My advice is to not worry about the noise and fake news that seems to swirl around this stock. NRZ has produced an 80% total return for investor since I first made it a Dividend Hunter recommendation in I expect to continue to earn total returns well above the 12% dividend yield. New Residential Investment has been very successful at generating mid-teen and better returns by digging into the dusty and scary corners of the mortgage market. Currently the company owns total or excess MSRs on $55 billion of residential mortgages. The portfolio includes call rights on $160 billion of mortgage backed securities. NRZ owns residential loans with $2.3 billion of unpaid balance. These are significant investments which are generating annual returns of 12% to 25%. The SpringCastle consumer loans investment made in 2013 has produced a 90% internal rate of return. The market wants to put NRZ into some sort of box it can parse apart by the numbers. It s not a by-the-numbers company. It s an opportunistic business that is very good at making very 6

7 Portfolio Update: This month there are no additions or subtractions in the Dividend Hunter recommendations list. I am quite happy with the current list. I do not have a newsletter service that makes numerous, always changing stock recommendations. I want subscribers to own great, high-yield, dividend paying stocks. I add a new stock when it brings great potential to the table. Most of the stocks on the recommendations list will report earnings in the first week of August. I will read all the press releases and listen to the earnings conference calls. As noted earlier, New Residential Investment Corp. has gotten us off to a great start for this earnings season. In July, three portfolio stocks announced dividends. All three were at the same rate as previous. Here are those stocks, the dividend amounts and payment dates. Outfront Media (NYSE: OUT) $0.36 per share dividend. Ex-dividend on September 6 and payment on September 29. Current yield: 6.4% Plains GP Holdings (NYSE: PAGP) declared a $0.55 per share quarterly dividend. Ex-dividend on July 27 and payment on August 14. Current yield: 8.2%. In early July, the InfraCap MLP ETF (NYSE: AMZA) declared and paid a $0.52 per share dividend. In this issue of the Dividend Hunter I discussed what is going on with the AMZA dividend. 7

8 Current Portfolio: Buy / Accumulate Stock Entry Date Entry Price Recent Price Div. Earned Current Yield Cash Return Infracap REIT Preferred ETF (PFFR) 06/30/17 $26.27 $26.16 $ % 0.00% Outfront Media Inc. (OUT) 05/01/17 $26.04 $22.75 $ % 0.00% Nuveen NASDAQ 100 Dynamic (QQQX) 03/31/17 $20.52 $22.27 $ % 0.00% Gramercy Property Trust (GPT) 01/31/17 $26.34 $30.18 $ % 1.42% Plains GP Holdings LP (PAGP) 12/01/16 $35.00 $27.36 $ % 3.16% LTC Properties Inc. (LTC) 09/28/16 $52.61 $51.21 $ % 2.92% Golar LNG Partners LP (GMLP) 09/01/16 $19.29 $22.39 $ % 8.98% MGM Growth Properties LLC (MGP) 07/01/16 $26.43 $29.55 $ % 4.40% Uniti Group Inc. (UNIT) 05/31/16 $24.98 $26.26 $ % 9.61% Chatham Lodging Trust (CLDT) 03/31/16 $20.62 $20.65 $ % 7.47% Easterly Government Properties (DEA) 03/01/16 $17.50 $19.89 $ % 6.69% Reaves Utility Income Fund (UTG) 11/02/15 $29.95 $35.30 $ % 12.89% Aircastle Limited (AYR) 09/30/15 $20.61 $23.24 $ % 8.44% Hercules Tech. Growth Capital (HTGC) 04/30/15 $13.90 $13.30 $ % 20.07% InfraCap MLP ETF (AMZA) 03/31/15 $21.51 $9.70 $ % 21.57% Blackstone Mortgage Trust (BXMT) 01/31/15 $41.05 $30.61 $ % 18.42% EPR Properties (EPR) 10/30/14 $55.64 $71.79 $ % 17.51% New Residential Investment (NRZ)** 07/30/14 $12.16 $16.04 $ % 39.47% Main Street Capital (MAIN) 06/27/14 $32.51 $38.69 $ % 23.38% Starwood Property Trust (STWD) 05/30/14 $24.39 $21.91 $ % 23.62% Ship Finance International (SFL) 05/30/14 $18.52 $13.40 $ % 28.19% Macquarie Infras. Company (MIC) 05/30/14 $61.48 $75.72 $ % 22.41% Recent price is determined by the last "Ask" price at the closing of the market on the day before publication; most recent update 07/31/17. 8

9 Notes: Entry price is determined by the last "Ask" price at the closing of the market on the day before publication. Recent price is determined by the last "Ask" price at the closing of the market on the day before publication. Status denotes whether you should continue to accumulate shares, listed as Buy or should hold but not accumulated any more shares, listed as Hold. Annual Div is the dividend payment as declared by the company and made publicly available. It is as of the closing of the market on the day before publication. Current yield reflects the yield of the regular annual dividend payments (monthly or quarterly depending on the stock) in relation to its share price at the time of publication. We make no guarantee that any company in the portfolio will continue dividend payments. For a more detailed look at the portfolio, log on at ** NRZ entry price adjusted for 1 for 2 split on 10/20/14. Original entry price on 07/30/14 was $ Investors Alley Corp. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Investors Alley Corp., 41 Madison Avenue, 31 st Floor, New York, NY or For complete terms and conditions governing the use of this publication please visit 9

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