UTF - 2 Magnificent Dividends To Generate Passive Income For Life

2023-09-20 07:35:00 ET

Summary

• Financial independence is a prerequisite for a happy and healthy retirement.
• Capitalize on Corporate America's pursuit of profit to boost your financial well-being.
• Explore two 9% yielding superstars to make your money work for you.

Co-authored with “Hidden Opportunities.”

According to data from the U.S. Census Bureau, about 650,000 Americans older than 80 were in employment in 2022. This was an 18% increase compared to a decade ago. Notably, ~50% of them maintained a full-time job.

Americans aren’t able to save enough through their younger years to support a comfortable retirement. As such, continuing to work often becomes less of a choice and more of a necessity. Financial independence is often considered to be a prerequisite to retirement. Passive income is one of the proven ways to achieve financial freedom, and there are many ways to generate this. You can spend a finite amount of time each day on work. Why not consider increasing your sources of income through means that don’t require additional time commitment?

You could write a book, pursue affiliate marketing, or invest in stocks or rental properties. Investing in dividend-paying stocks is the most passive of them all, as those payments keep coming in as clockwork with no effort needed on my part. Here are two attractively discounted dividend payers you can add to your portfolio to augment your income and bolster your retirement.

Pick #1: UTF – Yield 8.9%

The Biden Administration’s IIJA (Infrastructure Investment and Jobs Act) aims at modernizing and improving various aspects of American infrastructure, from roads and bridges to broadband and clean water. Following this was the IRA (Inflation Reduction Act), which aimed to improve the stability and efficiency of the power grid and increase access and affordability of home energy efficiency and electrification projects. These historic legislations will continue to bring hundreds of billions of dollars over the next 5-10 years into critical sectors of the American economy where participating companies are well-established and competition is slim. Source .

The biggest beneficiaries of the IIJA are companies that build and maintain roads and railways, with hundreds of billions to be spent on improving roads and building new bridges. The energy sector is the IRA’s biggest beneficiary, with over $276 billion potentially flowing over the next ten years.

While monetary policy continues to be restrictive, the American infrastructure sector is uniquely positioned to win massive Federal funding to expand its moat and asset durability. And Cohen & Steers Infrastructure Fund ( UTF ) is uniquely positioned to benefit from the inflows to this critical sector.

UTF ’s top holdings are prominent firms providing essential services for our everyday lives, with the highest exposure (~33%) to electric utility firms that spend billions of tax-credit-eligible dollars on clean grid projects. These firms will subsequently obtain regulatory support to raise prices to customers, making them well-positioned to maintain profitability (and our dividend payability) through market gyrations. Source .

UTF operates with around 30% leverage, with a weighted average cost of all financing calculating to an impressive 2.5%. This is a solid bargain that retail investors cannot imagine in the current interest-rate economy. 85% of UTF’s leverage is fixed at 1.8% for a 3-year term. The remainder carries a 6% weighted average rate.

UTF pays monthly distributions in the amount of $0.155/share, an 8.9% annualized yield, and a steady track record since its inception in 2004.

Infrastructure firms are typically those that operate with debt on the higher side when compared with other industry sectors. The uncertainties over the Fed’s course of action with interest rates have created a sell-off in this essential sector. However, several segments of this sector are flush with capital to pursue capital projects, and many others are actively seeking acquisitions to bolster their portfolios at cheap prices. UTF itself trades at a 5% discount to NAV, presenting a bargain to add to this critical sector.

Pick #2: USA – Yield 10.1%

America’s financial markets are a highly sought-after institution by international investors, with the United States remaining the top destination for FDI (Foreign Direct Investment) inflows worldwide in 2022. As the home to some of the largest, most prominent, and highly innovative companies and top talent, the U.S. markets offer some of the most lucrative wealth-generating opportunities.

Liberty All-Star Equity Fund ( USA ) is a CEF (Closed-End Fund) that combines three value-style and two growth-style investment strategies into a reliable dividend-paying machine. Source .

Currently, the most significant portion of the fund’s assets are invested in the beaten-up financial services sector and the dominant and powerful technology industry. USA has 147 holdings, with Microsoft ( MSFT ), Google ( GOOG ), Amazon ( AMZN ), and Nvidia ( NVDA ) being the top four, representing 11% of the fund. Source .

The CEF has a distribution policy aiming to pay out 10% of the NAV per annum. As such, when USA’s NAV experiences negative pressure in bear markets, investors will see the distribution amounts decline. This prevents the fund from cannibalizing itself to sustain a fixed payment. On the plus side, investors will automatically see growing distributions as markets recover and experience a bullish run. There is no hope and prayer involved; the predictability and calculability of the subsequent distributions are relatively straightforward (each quarterly payment is 2.5% of the fund’s NAV at market close on the Friday before each quarterly declaration date).

USA does not use leverage in its investment strategy, making it more correlated with broad market movement than an acceleration/ deceleration towards interest rate decisions. For FY 2022, 55.2% of the distribution was long-term capital gains, 40.11% ROC, with 4.69% as qualified dividend income, making it efficient from a taxation standpoint.

USA’s portfolio maintains a 60% value and 40% growth composition, making it suitable for investors seeking a highly diversified income investment. Source .

This CEF trades at a 4% discount to NAV, presenting a bargain to lock a 10% yield from this well-diversified fund built with some of the biggest and most prominent U.S. firms run by some of the most highly skilled leaders globally.

Conclusion

Passive income for life is the financial Holy Grail that many aspire to achieve. It is a state where your investments generate consistent and sustainable income without requiring you to work for it actively. Our Investing Group utilizes a well-thought-out combination of sustainably profitable corporations and safer and dividend-focused CEFs, ETFs, BDCs, REITs, preferred stock, and bonds to generate a lifestyle-supporting income stream for the foreseeable future.

We maintain a comprehensive portfolio of +45 securities, and our techniques heavily focus on maintaining and growing our passive income stream over time. We collect our dividends, invest a healthy chunk into attractive opportunities as they present themselves, and beat inflation to empower a retirement paid for by the hard work of Corporate America’s finest leaders.

This article discusses two of our picks that will propel your retirement ship towards its ultimate objective: reach a point where your passive income streams cover all your living expenses and allow you to pursue your passions, spend time with your loved ones, or travel the world. You deserve to enjoy these golden years stress-free, knowing that your financial well-being is secure. These 9% yields can get you started.

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