The Most Profitable Trend Of 2022 (And We’ll Ride It To 7%+ Dividends)
Contrarian Outlook | Jan 06, 2022 04:21AM ET
Here’s my best advice as 2022 dawns: ignore the media’s constant bleating about inflation and supply-chain issues—these two boogeymen are nowhere near the threats everyone thinks they are!
In fact, terror-ridden headlines about either mark an opportunity for us contrarian income-seekers. So let’s go ahead and tap these investor fears for dividends yielding up to 10%, plus market-crushing returns as the crowd (inevitably!) comes around to our view.
h2 Hints Of A Supply-Chain Revival/h2More data will come in over the next few weeks to make things clearer, but so far there is one strong hint that the business press’s doomsday scenario—surging inflation, a stock-market correction and tighter corporate profits—just isn’t on.
That’s because the pundits are overlooking the fact that the supply chain is in the earliest stages of healing. The proof is in a little-noticed report from Mastercard (NYSE:MA) on holiday-season spending.
There’s a lot to unpack in this chart, but the total retail numbers are the key here. Compared to the end of 2020, shoppers increased their spending by 8.5%. More importantly, they increased their spending by 10.7% compared to the pre-pandemic year of 2019.
The key takeaway is that supply-chain issues are clearly not stopping consumers from buying goods. Despite seemingly endless stories of empty shelves, shoppers had no problem finding what they wanted to buy—in abundance!
So who benefits from easing supply-chain worries? Easy: big US retailers such as Home Depot (NYSE:HD), Best Buy (NYSE:BBY), and Walmart (NYSE:WMT). In other words, the same large cap stocks that gave investors great returns in 2021.
Most folks would look to play an emerging trend like this by purchasing these stocks directly or through an ETF like the Consumer Discretionary Select Sector SPDR® Fund (NYSE:XLY). But we’re closed-end fund (CEF) buyers first and foremost, and for a very good reason: CEFs pay huge dividends! The average yield across all CEFs is hovering around 7% as I write this.
That’s why we’re going to skip XLY and its 0.5% yield and look to a CEF like the Liberty All Star Equity Closed Fund (NYSE:USA), which holds a number of stocks poised to profit from the freer flow of goods, including Amazon.com (NASDAQ:AMZN), PayPal Holdings (NASDAQ:PYPL), and Visa (NYSE:V).
Get The News You Want
It’s a solid performer, too, topping both XLY (in blue below) and the major SPDR® S&P 500 (NYSE:SPY) (in purple) by total return last year. And USA did so while paying an almost-unheard-of 10% yield! In other words, about a third of the return you see from this fund below was in safe dividend cash.
h2 “All-Star” CEF Routs Its Benchmarks—While Yielding 10%/h2There’s a flipside to those gains, though: with both funds beating the S&P 500, you may think the trend toward higher consumer spending in 2022 is already priced in.
I don’t agree with that take, but if this is your view, you could consider the ultra-diversified Nuveen S&P 500 Dynamic Overwrite Fund (NYSE:SPXX), which holds the entirety of the S&P 500, so you get access to consumer stocks and the index’s other sectors, too, such as Financial Services healthcare, technology, real estate, and industrials.
The twist here is that SPXX sells call options on its holdings, a savvy move that boosts your income and helps hedge your investment against a downturn.
Here’s how it works: the call options SPXX sells are contracts, under which the fund sells the right to buy its stocks to another investor at a fixed share price in exchange for a cash payment, known as a premium. This gives the seller protection from a downturn, since they get to keep the premium no matter what happens, and the option expires if the stock does go down.
This means SPXX carries less risk than an index fund or individual stocks while providing an additional income stream the fund can pass on to you. This is why SPXX’s dividend yields 5.3%, more than four times the S&P 500’s average yield of 1.3%.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement ."
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.