The Impact of Brexit on U.S. Dividends
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The European Union (EU) is the only economic block larger than the United States, but it is not as stable, based on yesterday’s vote by the British people to leave the EU. With the eventual pull out of a key contributor to the EU such as the United Kingdom, it evokes thoughts of whether there is any major impact on the well-being of one’s income portfolio on this side of the pond.
I’ve been staying on point for the entire year about maintaining a primary weighting in U.S. dividend-paying assets that are sensitive to a strong U.S. dollar. With the “Brexit” vote now a done deal, it opens the door to other exit movements by other disgruntled EU member nations that harbor similar feelings.
Markets hate uncertainty and last week’s “leave” vote unleashed a number of possible and probable headwinds regarding trade, currency, tariffs and regulation. When the resignation of Prime Minister David Cameron is considered, it leaves open the question of who is going to lead Britain in a post-EU world.
Japan’s Nikkei cratered by 7.92% and spot gold climbed to $1,319/oz. in a flight to safe-haven assets. The yield on the U.S. 10-year Treasury Note tumbled to 1.47%, hitting a new 150-year low before stabilizing back above 1.50%. The U.S. major stock averages traded down by 3.0% in the initial sell-off.
The oasis within the whirlwind of global equity market upheaval is none other than American dividend-paying stocks that reside in the utility, telecom, specialty REIT and consumer staples. While the Dow was trading down almost 500 points at mid-session on Friday, shares of Duke Energy (DUK), Southern Company (SO), AT&T (T), LTC Properties (LTC), Realty Income (O), Crown Castle International (CCI), Annaly Capital (NLY), Reynolds America (RAI), Clorox (CLX), General Mills (GIS) and WalMart Stores (WMT) all were trading up on the day.
Money has to go somewhere when fear enters the investment mindset. Aside from cash and bonds, which are natural havens in the short term that offer little to no yield or income, the clear winner during dramatic sector rotation is the domestic non-cyclical space where essential and basic goods and services are rewarded with massive capital inflows seeking 3-5% or higher yields through periods of uncertainty that provide a low risk of losing principle. The old saying of “money goes where it is best served” is central to today’s market landscape and has been a focus of large institutional fund activity for most of 2016.
While the Brits might have voted to “leave” the EU, investors that are long in the all-weather sectors listed above have chosen to “remain” in these sectors, now that roiling global equity markets have all but put to rest the notion of a Fed rate hike in July or maybe even September or the rest of 2016. If a U.K. political referendum caused the shedding of almost 9.0% off the Euro Stoxx 50 Index that seeks to provide a blue-chip representation of super-sector leaders in the euro zone, then an untimely rate-hike by the Fed could unglue U.S. markets in similar fashion when recent data, such as a May Durable Goods falling 2.2% versus an expected drop of 0.6%, suggest a rate hike.
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This week, I’m going to take the opportunity to beat the covered-call drum again for my Quick Income Trader service. When the June options expired earlier this month, no less than three positions had been called away for an average one-month gain of 5.5%. While the rest of the market is still dealing with the sell-off from the “Brexit” vote, I remain firmly convinced that collecting call option premium against great growth stocks is still one of the best strategies investors can employ. Do yourself a favor in these uncertain times and check out my high-powered covered-call service by clicking here.
We went right back into these same names on pullbacks and now have orders placed to sell the July call options against these positions. It is a scenario we keep playing over and over, month after month, and the best part, subscribers never get tired of doing the same thing time and time again when it’s making consistent money for them. I find the right stocks trading under $60 to trade, the right call options to sell for immediate cash and spell it all out every Wednesday in explicit trading instructions that an investor with an eighth-grade education could manage with ease.
The market is stuck in a range. With the Brexit vote, the market will remain stuck for some time to come. But that’s no reason not to keep your money working overtime for you with Quick Income Trader. There is always a system to put in place in difficult markets, but it has to be the right system that is proving itself on a steady basis. A covered-call strategy that targets the highest quality U.S. growth stocks is an excellent one-two punch for any investor to consider at a time when buy-and-hold growth investing on a broad basis through exchange-traded funds and mutual funds is under-performing diligent covered-call strategy by a country mile.
In case you missed it, I encourage you to read my e-letter column from last week about how investors’ perception often differs from the truth. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.
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