My Investing Journey with Passive Income and Stock Market investing

Month: January 2020 Page 1 of 2

closed end fund

Putnam Municipal Income CEF

PMM, or Putnam Managed Muni Income, has been a nice little addition to my portfolio. I bought starting on May 20th, 2019. My total return has been around 8% over the last 8 months, this is due to buying at a variety of times throughout the year ( a few times rather high). While it did underperform the market; from a risk-adjusted basis I don’t think it’s too bad. It functions as diversification, income and risk management.

This is a MONTHLY dividend payer, so you’ll get income in your account every month.

What is the yield currently?

Current Distribution Rate is 4.71%. If you are in the 22% tax bracket, this is the equivalent of a 6.04% yield!

What are the expenses?

Expense Ratio is 1.01% total. While this number is certainly high overall, especially in the world of Fidelity/Vanguard ETFs and Mutal Funds. For a Closed-End Fund, it isn’t bad. It has one of lower expense ratios of it’s peers. Bond funds are the one place I don’t mind using an active manager. For example, my Long-term bond mutual fund always outperformed TLT because of active management.

Tax Advantages:

The best thing about this is the municipal bond income is exempt from Federal Taxes. I hold this in my taxable brokerage account so that comes in handy. A municipal bond is only state exempt if you hold one from the particular state you live in.

Risks?

Even though it is a BOND FUND, it carries risk somewhat similar to stocks. Mainly, the price could go down because a closed-end fund is traded like a stock.

For comparison, during the great recession, while stocks went down over 30%, a municipal bond CEF fell somewhere around 20%. Of course, they recovered faster than stocks. So this does carry risks with it.

Why did it fall 20% and not less like your typical Government bond? Because Closed-End Bond Funds are usually leveraged. This particular CEF is leveraged around 20%, that is how they get such high yields. This adds risk but also adds returns. I personally do not believe it is a good idea to buy CEF’s with a high percentage of leverage, say 30%, this could be disastrous to your portfolio.

Secondly, the bonds within the vehicle could default. On the other hand, once you get above BBB grade muni bonds, the chances of default are INCREDIBLE slim. Just be careful what type of bonds you are getting in the fund. This particular CEF carries about 60% of its bonds above the BBB rating. 27% of its bonds haven’t been rated, that’s not necessarily a bad thing, some are not bad, they just haven’t been rated. Around 14% are BB or B rated, this is where you are getting into riskier bonds. Once again, yields are pumped due to a small portion of poorer bonds.

Lastly, the MAIN RISK is a rise in interest rates. While the sentiment at the moment is they will not raise interest rates any time soon, this cannot be removed from the land of possibility. I’m honestly not 100% convinced we won’t see an unexpected rise in the 10 yr treasury yield this year. So even if we don’t get an interest rate increase we could still see a rise in bond yields.

Is now a good time to buy?

I think now is not a good time to start a new position. I think the prices SHOULD come down here over the next few months. Why? The price to nav is only trading at a discount of 1.1%. This is close to its 52 week high. The spread between the NAV and Share price is too close, you are not getting much of a discount. At the same time, there IS a shortage of municipal bond issuance at the moment, too much demand and not enough bonds. So, we COULD also see the price continue to go up for another two months or more. We will just have to see, I am no fortune teller.

In closing, I would just like to say, don’t cross Closed-End Funds off of your list just because they are an older investment vehicle. One website I used to find my fund is located at CEFCONNECT.COM:

https://www.cefconnect.com

Here, you can screen for funds based on NAV-Price discounts, expense ratios, leverage percentage and more. A GREAT resource for Closed-End Funds.

Netflix

Personally, I’m pleased with the new NFLX report. I don’t think NFLX was as affected by the other streaming services as they thought they would be. I also think it shows the possibilities of international growth for Netflix in the future. Just today, we got an announcement that there is going to be a Witcher anime series.

The report overall was extremely good:

Quarter to Quarter growth is 333%! Wow, an incredible number there. Revenue is also up 30%. EPS 1.30 vs. .30 last year quarter over quarter. All of those look great. They also had a 24% reduction in their cash flow burn, while negative cash flow is not a great thing, at least seeing a reduction in it is. 8.8 million new subscribers vs. 7.9 expected. 167 million paid subscribers worldwide.

However, let’s look at the weak spots of the earnings report:

1)Changing the way they count viewership-It’s kind of lame they are counting anything more than 2 minutes as a view of that show. Now I don’t think this creates a hazard for NFLX but it’s just kind of lame to change it. Let’s be consistent here guys

2)Domestic Subscribers are forecasted to be down. 550K vs 589K expected this quarter. I’m not THAT surprised. There are already so many people with NFLX, you can only add so much of the population before it starts to slow down. This is why they are concentrating on INTERNATIONAL GROWTH and this is why I’m still bullish on NFLX.

The stock finished down 4% at one point, that’s when I took the opportunity to buy a little more. I look forward to owning this one for many years.

I’ll finish by saying this-the P/E ratio came down a little bit today 😉

JANUARY DIVIDEND REPORT

Okay, it’s that time again. My January Dividend Report along with some notes on Dividends:

Brokerage Account

AEO $22.96

PMM (Putnam Municipal CEF) $7.36

SNDR $3.30

Macy’s $4.53

Eastman Chemicals $33

Quest Diagnostics $4.08

Leggett and Platt $14

Total = $89.23. If we look at three months back ago (same companies last report) we see a total of $84.31. This is an increase of about 5.84%


In my IRA:

RHP $28.80

MWP $23.14

XHP $1.65

Total = $53.59. This compares to these companies last report of $46.54. An increase of 15.15%. This makes sense too because I have bought more MPW and I believe RHP as well. Please notice that these are ALL REITS, all paying over 4%. I normally don’t go for high yielders but these REITS are good for supercharging my IRA with extra “contributions.”

As you can see, my IRA dividends are growing just a bit faster than my brokerage account at the moment. I haven’t made a whole bunch of new dollar investments into my brokerage account in about a month so percent increase has slowed a bit.

Overall I am happy with my dividend return here but also please note I did sell some of my Leggett & Platt, a little SNDR and even sold a small portion of my AEO at a small loss. So this, of course, will hurt some of my dividend returns.

Why did I do this?

I took some LEGG off the table because it had run up almost 40%, that is me playing it safe and locking in some profits. My plan is to buy back again around the $46 mark, which I do believe we will see again shortly. The stock is currently overvalued.

AEO I just had to get out of a bit, I was tired of watching it go down and feel like I could take the money and make my losses back quickly with a better opportunity.

There is a good chance I will be selling all of my SNDR and DGX positions very soon. SNDR has not been a great performer and is in an earnings recessions. DGX seems to be going sideways again and I think the future is a bit bleak unless we see great earnings. I won’t be holding SNDR through earnings, DGX I will.

Here is the graph of dividends over time:

Is Apple a buy at these levels?

As you can see above, the price has run away from the earnings. Oddly enough, back in Q1 of 2019 we saw the opposite, EPS ran away from the share price. It’s like Apple stock is lagging it’s earnings a couple of quarters. Q1 it was undervalued and now overvalued on an earnings perspective.

4.14% EPS growth quarter to quarter, 10.55% yoy EPS growth. Quickly-you are overpaying for what you are getting here. You are paying too much for too little growth and you are also not getting that great of a dividend either. I think apple is a little overvalued, not incredibly but a little. Maybe $310 would be a better entry price.

I realize regardless of this assessment Apple had an incredible run last year, no denying that. However, does this continue for buy and hold investors in Q1? I don’t think so.

Prediction-The Apple falls from here. If they don’t have a perfect report this is not going to end well.

The EPS has been greater than the price in each of the past Q1 reports. The only way this works out is if the EPS is a grand slam, otherwise, my prediction is, it falls next week.

This is of course not to discourage anyone from buying Apple long-term, I just think better prices are on their way.

We shall see, maybe I’m wrong, maybe I’m right. I don’t own APPL either way but I do enjoy looking at disconnects between share price and growth and in this case, it’s clear there is one.

My best guess is around the $315 mark is where we end up soon. I personally fear we are seeing a bit of FOMO on the Apple Stock here. Lots of people are now going after Apple because they sense it’s too good to fall.

I’ll report back.

Side Hustle

It’s been a bit since I reported on my side hustle, how is it going?

Well, I’m still selling off some of the toys and board games I bought over a month ago. The thing with inventory is you don’t know when it will move necessarily.

However, this week started off good, I did manage to sell two toys on Ebay in one day.

I’m basically just going to thrift stores on my way to work or whenever I’m out and about and looking around. I had to take some stuff to donate the other day and went in and found a big box of Pokemon cards, paid $2.00. Inside was a $20 special edition card, three $10 ones and a whole bunch more I’ll sell as lots. I’m amazed at what people will give away.

My other find of the week-My local thrift store bags up loose toys and sells them for $3. One had a couple of airplanes, space shuttle and more in it. I figured out I gave 0.79 cents for each one and today I sold one for $4.50, so decent return. I know this doesn’t seem like much but if you invest small amounts and keep getting more it does eventually add up over the course of a month. The great thing about some of these toys is they are VERY easy to mail, just throw them in a bubble mailer and off you go.

Although it wasn’t a thrift store purchase, I also sold some old books I had on my bookshelf. The great thing about books is you can buy them, read, get what you need out of them, take notes and re-sell and make some of your money back. Talk about a great “investment.”

I will probably do a QUARTER report with my profits because I think that makes more sense than a weekly or even monthly report. The returns are not like with dividend stocks, you invest and you don’t know when you will see that cash flow back, some items will take months to sell, some sell immediately.

Anyways, that is all for today. More to come later!

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