The New Year is underway, and I am in a giving mood.
I write a lot about income investments and for a good reason. I think that the search for income-producing investments is one of the most important topics in the investing world right now.
If you read the projections the Fed uses every month, it is clear that rates will stay low until at least 2024.
Yes, its possible we could see a healthier bit of growth in a post-vaccine world push 10-year Treasury rates to 1.5 or even 2% by the end of 2022. That would scare the hell out of the stock market, but it won’t do much for those trying to get a stream of cash out of their investment portfolio to supplement their retirement check.
So, today I am going to give you the two stocks that are my “off the top of my head buy these two stocks first” stocks when I am asked about income investing.
Buying these two stocks and selling calls during rallies and then buying them back during pullbacks could easily create a double-digit income stream for you.
Just buying them and doing nothing still gets you a stream of cash that is almost five times what you can get from owning long term government bonds.
Owning just these two stocks produces a stream of cash that is 82% higher than you can get by owning junk bonds right now.
As a bonus, unlike bonds, which have a fixed coupon, both companies have long histories of raising their dividend every year. Over time your cash flow should go higher every year.
These two stocks will also be significant beneficiaries of two of the U.S. economy’s biggest trends in 2021 and beyond.
An Income Play to Bet on the Rollout of 5G
5G is world-changing technology. We will be able to access and process data faster than ever before. Bandwidth will be drastically higher. 5G will take the internet of things into a whole new world of possibilities. Smart homes and connected cars are just the beginning of what 5G will make possible.
The industrial internet of things will change manufacturing and supply chain logistics thanks to 5g technology.
Who is one of the biggest beneficiaries of 5g? AT&T (T).
AT&T is the largest wireless company in the United States. They are an early leader in 5G Rollout with coverage to 225 million Americans in more than 14,000 cities and towns.
Cord-cutting is another hot trend right now, and AT&T suddenly finds itself at the forefront of that new trend as well. Their HBO Max is one of the hottest services with a massive increase of activations in 2020. They are ahead of schedule with their plan to achieve 50 million U.S. subscribers and 75 million to 90 million globally by 2025.
AT&T is not suddenly going to become a supercharged growth stock. This is one of the bluest of blue-chip stocks with revenues of $172 billion. These trends will allow them to keep producing enormous amounts of cash that can be paid out to you as dividends.
AT&T shares yield 7.1% right now.
The dividend has been raised every year for 37 years. The payout has gone up in spite of the internet crash, the great financial crisis, and the recent COVID collapse in stock prices. The dividend has risen during booms and busts and has been increased regardless of who sat in the White House.
Making Income With Cannabis
The Blue Wave in Washington is a massive boon for the cannabis industry.
The new Vice President was a sponsor of a bill that attempted to legalize Marijuana in 2019. Given that the Senate was solidly red, it was mostly showboating, but it’s a different story in 2021.
Almost 70% of Americans support the legalization of marijuana.
The Democrats could easily push legal marijuana through Congress, and Joe Biden would sign it.
That would be huge for some of the existing cannabis companies.
It’s going to be big for community banks that are dying to work with the cannabis industry.
Who will be the biggest winner of legalized cannabis? Altria (MO).
The largest cigarette company in the United States has had plans ready for the full legalization of cannabis for some time. Altria owns 45% of Cronos (CRON) with warrants that would allow them to take control with 55% ownership.
Altria has the manufacturing, production, and distribution network already in place.
Altria will be a huge, if not the biggest, player in the cannabis industry when weed is legalized at the federal level.
Investors are still pricing Altria as a company in a declining business. While the company’s main line of business remains cigarettes, it is crucial to understand that they dominate the industry and have impressive pricing power. The cigarette business will produce billions in cash flow for decades.
They also own more than 10% of Anheuser-Busch InBev SA/NV (BUD), worth more than $12 billion. This investment by itself produces around $250 million in dividends every year.
InBev also owns St. Michelle Wineries, a leading producer with more than $100 in annual cash flows.
Altria is one of the best dividend stocks in the world today. The shares yield 8.27%, and the payout has been increased every year for 50 years.
How to Supercharge Your Income
If you have experience selling covered calls, you could sell calls a few months out on these stocks to increase your yield.
Pay attention to the ex-date when selling calls (if you don’t know what that means, don’t sell covered calls until you do). Always sell the calls that expire the month AFTER the stock goes ex-dividend.
If the stock gets called away, buy it back asap.
Selling calls and buying them back or letting them expire can have tax consequences, so a covered call strategy is best done in an IRA or other deferred account.
If you don’t plan to sell covered calls, just forget you own the stocks. Collect the dividends, enjoy the rising payouts every year, and ignore short term price movements.
Check the price in a decade. I will be shocked if it is not a lot higher than you pay today.
There is my first gift of the New Year for you.
Stay Tuned. There will be more.