My “Sleeper” Pick for 8.7% Dividends and Big Upside in 2019

Michael Foster, Investment Strategist
Updated: December 17, 2018

Today I’m going to show you why this market isn’t as spooked as you might think. Then I’m going to reveal the 1 sector (and 1 fund boasting an incredible 8.7% dividend yield) that’s a screaming bargain now.

Let’s start with the state of play as I write this.

Here’s a question: of the 11 sectors that make up the S&P 500, how many do you think are negative for 2018?

If you said more than 5, the pessimism of the financial press has tainted your worldview. Take a look at this table:

5 in the Red, 5 in the Green

A close look at the 11 sectors of the S&P 500 is crucial, because we quickly see that 5 sectors are green, 5 are down and 1 is flat for 2018. While the red sectors are down big (financials energy, and materials have all dropped more than 10%), solid returns in tech, healthcare and utilities tell us most regular investors haven’t hit the panic button.

Let me explain.

Remember that there are “risk-on” and “risk-off” sectors. If investors are really worried about a big downturn, they go head-first into the “safe” and usually countercyclical consumer-staples sector—but the Consumer Staples SPDR ETF (XLP) is down 3.8% on the year, and the cyclical Consumer Discretionary SPDR ETF (XLY) is up 4.8%.

There’s a simple reason for that: everyday Americans are buying more because they’re earning more and getting jobs more easily. Therefore, it makes no sense in such an environment to run away from so-called risky assets, because those assets are the ones bagging higher revenues and earnings.

Likewise, tech and healthcare are typically high-risk sectors, with higher P/E ratios, that get sold off when a major market downturn is supposedly around the corner. But the Health Care SPDR ETF (XLV) is up nearly 10%, and tech’s 2.4% gain is after the heavy selloff of Apple (AAPL), on trade-war fears.

The lesson is obvious: while some sectors are suffering a short-term downturn, others are fine, thanks to economic growth of 3% and earnings growth of more than 20%. But the big financial media’s cavalier attitude toward the details has resulted in a lot of news about a market panic that simply isn’t there.

What About the Losers?

Before we get to one of my favorite sectors for 2019 (and that 8.7% yielder I mentioned earlier), let me quickly touch on a couple particularly beaten-down corners of the market. No, we’re not going to bottom-fish here—but these sectors’ misery has a key role to play in the nice price pop (and income) our pick is poised to hand us in the months ahead.

The first is materials, which saw earnings growth fall sharply, to 10%, in the third quarter, largely due to sluggish commodity prices across the sector, which lowers their pricing power because materials companies can’t increase prices of the commodities they sell to factories and property developers. That’s weighed down materials stocks—but it’s been a boon to the sector (and fund) we’ll discuss in a moment.

The other is energy, which has has been hit hard by the fall in oil. Just look at the price action with the Energy Select Sector SPDR (XLE) and WTI oil futures:

Low Oil and Lower Energy Stocks

While that’s bruising for the sector, it’s great for an economy like America’s, where energy demand from consumers and manufacturers is the main engine of growth. So XLE’s 12.7% loss should be seen as the rest of the economy’s gain.

What to Buy Now

That brings me to the sector I want to dive into today: real estate.

It’s a direct beneficiary of lower costs for energy and materials, because both lower property builders’ expenses, resulting in greater inventories for real estate investors and higher profits for real estate developers.

Secondly, the real estate sector has been brutalized because of fears of higher interest rates—fears that are proving to be wrong.

Rate Burden Gets Lighter

Over the last 3 years, the return on the Real Estate Select Sector SPDR (XLRE) has been less than half that of the broader market, for one reason: higher interest rates. Almost 3 years ago to the day, the Federal Reserve kicked off the current rate-hike cycle, and the real estate market freaked out (see the dip in the orange line in early 2016). It has only slightly recovered since—with several “mini-freakouts” along the way.

On Sale Now: An 8.7% Dividend With Upside

Now that rates are set to rise more slowly than previously expected, real estate is a particularly appealing “sleeper” sector, because the market still hasn’t gotten the message. You can compound your returns through a closed-end fund (CEF) like the Nuveen Real Estate Income Fund (JRS).

JRS invests in many companies that make up XLRE, but there’s one huge difference: JRS trades at a 10.2% discount to the market value of the companies it owns, while XLRE trades at the whole market value of its portfolio. So you can get this already very cheap sector at a discount!

Another great thing about JRS? Its income. With an 8.7% dividend yield, this fund trounces the still-impressive 3.6% dividend XLRE provides. So you’ll be pocketing a hefty income stream while you wait for the real estate market to come to its senses.

5 More “Must-Buy” 8%+ Dividends for 2019

Here’s the thing about 8.7% payouts like these: the pundits will tell you they’re unsafe, but that’s nonsense!

The truth is, dividends like these are absolutely necessary if you want to achieve the “retirement holy grail”: clocking out and living on dividends alone. Because when your dividends cover your bills (and then some!) and roll in like clockwork, who cares what Mr. Market gets up to on a day-to-day basis?

This is how everyone should approach retirement investing. And the good news is that there are plenty of CEFs—like JRS—throwing off rock-solid 8%+ payouts that will get you there.

But where do you start? Easy: with the 5 hidden gems (including one CEF paying an incredible 9% dividend) I’ll reveal when you click right here.

And before you ask, no, you won’t give up a cent of upside to get your hands on the 8% average payouts these 5 funds deliver. Take a look at how one of these buys—pick No. 3, to be exact—has manhandled the market since inception:

Market-Crushing Gains and 8.7% Dividends—in 1 Buy!

My paying subscribers already have insider access to this exclusive top-5 list, and now I want to let YOU in on it, too. Simply click here and I’ll give you everything I have on these 5 high-yield CEFs: names, ticker symbols, buy-under prices, current dividend yields and more!