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Greetings to all,

Recently retired with portfolio of 90% mutual and individual growth equities. Have 4 to 5 yrs cash on sidelines for expenses to ride market volatility. Approx. 1 yr ago began transitioning some gains from mutual funds within my Roth account into the REIT Store Capital Corp.(STOR) and re-investing 4% dividends. My objective is to build STOR stocks for future passive income stream.

My question relates to purchasing a second REIT Brookfield Infrastructure Partnership (BIP w/ 4% dividend) within the Roth or just stay with STOR and continue building the compound interest.

Thanks in advance for your assistance
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No. of Recommendations: 12
My question relates to purchasing a second REIT Brookfield Infrastructure Partnership (BIP w/ 4% dividend) within the Roth or just stay with STOR and continue building the compound interest.

Sounds like you are putting all your eggs in one basket. I am in a similar situation in that I am living off my dividends from 20 stocks. No way would I put everything into one stock. If that one stock cuts or eliminates its dividend you would be hurting big time and probably looking to get back into the work force. If one stock of 20 cuts/eliminates, might hurt some but the overall plan would survive.

If you want to stick with REITs, there are plenty more out there with 3% or higher AND growing their dividends. No need to stick only with REITs, there are plenty of stocks that do likewise. For ideas, you can go to the Dividend Growth Investors board here or check out SeekingAlpha.com and their dividend ideas. Look for the Dividend Kings, Dividend Champions, and Dividend Contenders lists.

JLC
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Yeah I’m with JLC don’t invest everything in one sector. There are high yield mutual funds like VYM or even pfitzer or Exxon match those yields.
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re: Sounds like you are putting all your eggs in one basket. I am in a similar situation in that I am living off my dividends from 20 stocks. No way would I put everything into one stock. If that one stock cuts or eliminates its dividend you would be hurting big time and probably looking to get back into the work force. If one stock of 20 cuts/eliminates, might hurt some but the overall plan would survive.

Concur. 2020 was quite <ahem> instructive.

If REITs are your thing then make it a basket of REITs.

And don't make them all the same (e.g. retail)

Diversify across industries/sectors.
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No. of Recommendations: 9
My question relates to purchasing a second REIT Brookfield Infrastructure Partnership (BIP w/ 4% dividend) within the Roth or just stay with STOR and continue building the compound interest.

BIP is an MLP. There are potentially significant tax impacts of holding an MLP, either in a tax-advantaged [tax-free (Roth) or tax-deferred (Traditional) account] as well as within a taxable account. Within a tax-advantaged account, MLPs can generate UBTI (Unrelated Business Taxable Income) and can require your IRA (Roth or Traditional) to file it's own tax return. In a taxable account, an MLP can require the owner to file multiple state tax returns, because the MLP generated enough taxable income within each particular state to trigger the non-resident tax filing requirements. Here are a couple of threads you might want read before deciding to make an investment in an MLP:
https://boards.fool.com/mlp-investment-inside-ira-33120839.a...
https://boards.fool.com/very-disturbing-thread-for-mlp-holde...

AJ
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There are potentially significant tax impacts of holding an MLP, either in a tax-advantaged [tax-free (Roth) or tax-deferred (Traditional) account] as well as within a taxable account

I had one of those. And then, after one tax season, I didn’t have one of those ever again.

Life’s too short.
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Thank you all for your thoughtful insights
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How about a Covered Call ETF like QYLD? It pays 11-12% dividends and has little volatility.

The critics correctly point out that they don't grow in value due to the inherent design of a Covered Call strategy, while they suffered from market crashes using March 2020 as example.

My reading is a bit differently. Those ETF should be evaluated based on long term performance but most of them are fairly new. QYLD came up in 2014. But the parent index upon which is based has data going back to 1995: Cboe NASDAQ-100 BuyWrite V2 Index (BXTN). Comparing the Nasdaq-100 (MNX in the CBOE site) vs BXTN starting in mid 2000, it would take MNX until 2014 to reach the same level as BXNT and only in 2017 there was clear break ahead for the equity index. No bad for an instrument that does not offer downside protection. Those annual 11-12% returns provide some cushion if time enters the equation.

https://markets.cboe.com/us/indices/dashboard/BXNT/ Hit the Performance tab to see comparison

Another consideration is why bother if the market is growing? Well the market has exhibited many years of sideway action. Using the S&P500 as reference,

https://www.macrotrends.net/2324/sp-500-historical-chart-dat...,

we can see the market going sideways from 1929 to 1954, 1968-80, 2000-13. Those were 50 years of the market going nowhere, representing ~55% of the years reviewed (2020-1929=91 years). Are we so confident that the growth trend of the last 12 years is going to continue despite all we have endured in the last 18 months?

Net, I do see a role for a portion of the portfolio to provide income during those "Zombie" sideway markets.
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Phaedruz,

I've had a lot of people recently bring up QYLD to me claiming it's a great source of yield and it reduces volatility. It seems to me that it reduces volatility by selling it to produce dividends. On the other hand it appears to also be exposed to the underlying index, so the chart seems to suggest it participates in the draw-downs while lagging during the upturns.

I've not analyzed QYLD in any depth, but given the downside exposure I'm kind of disinclined to consider buying it for yield. What cinches the deal for me are total return numbers I see from https://dqydj.com/etf-return-calculator/

QYLD has a lifetime average annual rate of return of 8.54%. Respectable, but less than the fund's current yield. I suspect there are two reasons for the total return being below the current dividend yield. 1) Current volatility is high, meaning it sells for more today than it has at other times; and 2) You're basically selling off most of the upside on QQQ for those dividends.

So if I compare the performance of QQQ during the same period, I get an average annual rate of return of 22.18%. Since money is fungible, I think I'd rather have that since I'd already be mostly accepting the downside with QYLD. Actually the downside of QYLD should be reduced since a crash in price would result in high volatility that would in turn boost yield compared to QQQ. But I don't think that reduction in downside risk is worth that much loss in return. Of course we've never seen how well QYLD performs during a real recession since we've only been in a bull market since it was created in 2013.

Perhaps if we enter a sideways market like you're talking about this might become more interesting, but I don't see it right now. Even then that kind of requires someone to time the market. Historically that's not done very well either. QYLD is an interesting construct ... but I'm not sure I see it as a compelling investment.

- Joel
Recently retired...
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Joel

Thanks for your reply. Nice to engage in intelligent and respectful conversations.

We are looking the same issue just from different angles. For you, QYLD is half empty given the market performance since the 2008 debacle and the expectation it will continue so for the foreseeable future. For me, QYLD is half full because it provides a reliable high dividend in general, but especially during side markets. And, something I forgot to mention, the source of the dividend is market volatility meaning than it keep ticking during a recession, something most companies can not maintain.

You are correct is saying that QYLD is new, but the covered call strategy is not. That's why the the link to the CBOE site. Data from 1995 is good enough for me given the ups, down and lateral markets we'd encountered since then.

Reading your comments I realized that discussing one ticker in isolation is irrelevant without the context in which is used. My portfolio includes 45% of growth index/companies (VOO, QQQ, MTUM, BRK, etc), 45% Dividend providers (QYLD, REITs, MLPs, OGZPY, FlOW.AS, etc), 5% Gold/Silver and 5% in a portfolio margin account (leveraged) for Tail Hedging and Futures Commodity speculation.

So, I'm not aiming at the highest CAGR, just to capture some growth when available, live from dividends when the market goes sideways and cover my 6 when there is a heavy downturn (>20%) with Tail Hedging. Also, my tax situation is such that I don't pay for capital gains, including dividends from Covered Calls. I'd been retired since 2009 and now with only 62 springs intend to remain so until the end. Hopefully it's now easier to see that what is good for me may not be relevant for others.
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No. of Recommendations: 10
I've had a lot of people recently bring up QYLD to me claiming it's a great source of yield and it reduces volatility. It seems to me that it reduces volatility by selling it to produce dividends. On the other hand it appears to also be exposed to the underlying index, so the chart seems to suggest it participates in the draw-downs while lagging during the upturns.
...
2) You're basically selling off most of the upside on QQQ for those dividends.


That's the problem with covered calls in a nutshell. You are selling off most of the upside but fully participating in the downside.

$10,000 invested in QYLD at inception (Jan 2014) is now worth only $8,800, exhibiting how the dividends are not free.



I wanted to check to see the exact strategy of QYLD, so I just put it into google. That usually brings up a few links to financial sites which have that information.

One of the links was https://www.optimizedportfolio.com/qyld/ "Is QYLD a Good Investment? Probably Not."


QYLD holds stocks in the NASDAQ 100 and writes 1-month at-the-money calls on them. It’s pretty simple; nothing proprietary going on. QYLD charges a fairly hefty 0.60% for this strategy.

Why not do it yourself and save the 0.60% fee? Buy & hold RUT and sell the call option each month.

In another board, somebody suggested investing in BRK.B and selling some shares periodically for your income. You can model this at PortfolioVisualizer and compare with QYLD. For the same monthly income (4% annual, or $333 on a $100K starting portfolio) the BRK strategy has twice the gain as QYLD. https://www.portfoliovisualizer.com/backtest-portfolio?s=y&a...
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"$10,000 invested in QYLD at inception (Jan 2014) is now worth only $8,800, exhibiting how the dividends are not free."

Or $13,000 if one was lucky enough to buy it on March 16, 2020. But that is timing the market. So, a more valid comparison would include de dividends. Using the CBOE link above the actual value of those $10,000 invested on Jan 2014 would be more like $20,509 last week, minus the 0.60% fee. 12% add up when time enters the equation.


"QYLD holds stocks in the NASDAQ 100 and writes 1-month at-the-money calls on them. It’s pretty simple; nothing proprietary going on. QYLD charges a fairly hefty 0.60% for this strategy.

Why not do it yourself and save the 0.60% fee? Buy & hold RUT and sell the call option each month."

It's a bit more complicated than that because they buy the 100 stocks of the Nasdaq 100, but your idea of buying the QQQ and selling their options is still a valid approach and relatively simple. Why not? The hassle of being on top of it EVERY SINGLE MONTH, outweighs the 0.6% fee, at least for me. I like money to work for me, not the other way around.


"In another board, somebody suggested investing in BRK.B and selling some shares periodically for your income. You can model this at PortfolioVisualizer and compare with QYLD. For the same monthly income (4% annual, or $333 on a $100K starting portfolio) the BRK strategy has twice the gain as QYLD. https://www.portfoliovisualizer.com/backtest-portfolio?s=y&a...

As I mentioned above, during 50 years of the last 90 the market display sideway action. What if we hit the doldrums for a period of 10 years, Japanese style? Can anyone unequivocally defends the thesis that Mr. Market will continue to grow and that there is not possibility of prolonged sideway action in the next 30 years? I'd prefer to be ready for it.


I'd stop here. I'm not trying to sell QYLD, just to show that it may be relevant for certain portfolios, specially in the context of people looking for passive income just as this thread calls for.
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As I mentioned above, during 50 years of the last 90 the market display sideway action. What if we hit the doldrums for a period of 10 years, Japanese style? Can anyone unequivocally defends the thesis that Mr. Market will continue to grow and that there is not possibility of prolonged sideway action in the next 30 years? I'd prefer to be ready for it.

Just because the begin and end points are the same doesn't mean the journey from point A to point B was flat. Yes the Japanese market did not gain for 30 years but it was a wild ride (see below). The type of roller coaster that puts the hurt on a premium selling strategy. Say you get 2% per month selling covered calls. One month is down 10% so you lose 8%. Next month is up 10% and you gain 2%. Now you are down 6.6% while the market was "sideways."


Year Nikkei Close Annual % Change
1990 23848.71 -38.72%
1991 22983.77 -3.63%
1992 16924.95 -26.36%
1993 17417.24 2.91%
1994 19723.06 13.24%
1995 19868.15 0.74%
1996 19361.35 -2.55%
1997 15258.74 -21.19%
1998 13842.17 -9.28%
1999 18934.34 36.79%
2000 13785.69 -27.19%
2001 10542.62 -23.52%
2002 8578.95 -18.63%
2003 10676.64 24.45%
2004 11488.76 7.61%
2005 16111.43 40.24%
2006 17225.83 6.92%
2007 15307.78 -11.13%
2008 8859.56 -42.12%
2009 10546.44 19.04%
2010 10228.92 -3.01%
2011 8455.35 -17.34%
2012 10395.18 22.94%
2013 16291.31 56.72%
2014 17450.77 7.12%
2015 19033.71 9.07%
2016 19114.37 0.42%
2017 22764.94 19.10%
2018 20014.77 -12.08%
2019 23656.62 18.20%
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Have you looked at selling credit spreads on SPX?

Using an expiration of 3 to 4 weeks out you can generate 5% to 6% income from premiums per month. Works well in sideways markets and in trending markets if you are careful about the type of credit spreads (for example avoid Call credit spreads during strong uptrends) and the strikes you select. Can usually exit the trade before expiration if needed due to unexpected moves in the wrong direction, which happens occasionally.
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