It’s September—traditionally the weakest month for stocks—and we contrarians are responding.
We’ve got the (ugh!) midterms coming up. Tariff unpredictability has returned. And scorching long-term bond yields have (so far) resisted Treasury Secretary Bessent’s efforts to rein them in.
Let’s be honest: Things are going to get volatile.
Our plan? Go on offense and defense at the same time.
Of course, income is at the center of our strategy. We’re tapping market choppiness with an 8.8%-paying fund that loves volatility and sports a payout that gets stronger the longer the chaos lasts.
In fact, this fund—the Nuveen S&P 500 Dynamic Overwrite Fund (SPXX)—is already hiking payouts, to the tune of 25% with the July payment.
Source: Income Calendar
SPXX, which we’ll get back to in a second, is our defensive play here, though with the discount it’s sporting (more on that in a sec), I see upside to go along with that high payout.
But our real offensive play begins if, as history suggests, the market throws a fit in the coming weeks. That’ll put some of our favorite dividends on sale, including a pipeline that’s gushing cash (sorry, couldn’t resist!), thanks to AI’s bottomless power demand.
Before we get to that, let’s rewind for a second.
September the Cruelest Month? Not for Contrarians!
Back to September. For whatever reason, stock markets tend to wobble during the month, with a negative 1.1% return on average since 1890, according to numbers from Morningstar.
But of course, there are exceptions: The last two Septembers, for example, were strong, up 3.6% last year and 2.1% in 2024.
This is why we never sell solely on seasonal indicators like this: We don’t want to be caught out in an outlier year! And, of course, we do not want to cut off our dividends.
Which brings me back to SPXX.
Step 1: Grab 8.8% Dividends From This “Volatility-Loving” SPY Clone
You don’t have to spend much time looking at SPXX to see that it holds mostly the same stocks as the popular S&P 500 index fund, the State Street SPDR S&P 500 ETF Trust (SPY).
That’s by design: Nuveen has set up SPXX—a closed-end fund (CEF), to be specific—so investors can buy in essentially without having to sell the blue chips they already own.
That matters because of three other things that set SPXX apart.
The first is that the fund sells call options; these give the buyer the right to buy SPXX’s stocks at a fixed future price and date. No matter what happens with these trades, the fund keeps the fee it books for setting them up.
This strategy does best in volatile markets, but there is a drawback: It can cap returns when stocks rise (which is why I don’t recommend holding SPXX for the long term). But that’s something we’re willing to trade off right now.
SPXX’s option fees help fuel that 8.8% payout—the second key difference from SPY, which pays a sad 1%.
And here’s the third thing: Unlike ETFs, CEFs can (and often do) trade at different prices in relation to their portfolio value. When the price is below that value, it’s called a discount to net asset value (NAV).
SPXX Sells Cheap, Gets Set for the Next Market Storm
Look at this chart for a moment: You can see that the fund’s discount has narrowed, and even flipped to a premium, every time volatility has flared in recent years, as it did in the 2018 rate panic, the late-2021 pullback, the 2022 dumpster fire and the “tariff tantrum” early last year.
Now, we can see that the discount—a deep 8.8% as I write this—has stopped widening and is starting to narrow again as September dawns. Perfect!
Step 2: Put This Pipeline at the Top of Your Buy List
Which brings me to the second part of our strategy: Get set to buy our favorite dividends on the dip. At the top of our list? Pipelines.
Kinder Morgan (KMI) is one of the largest energy infrastructure companies in North America, with over 80,000 miles of pipelines and 140 terminals.
The company moves 40% of the natural gas produced in the US, and it gets paid no matter the price. That puts it in the “sweet spot” for fueling (literally!) data centers’ bottomless power demand.
It’s showing up in KMI’s financials: In the second quarter, net income hit $867 million, an all-time high for Q2. Adjusted EPS soared 32%. No wonder the company is doubling down on its business: It currently sports a $9.6-billion project backlog, with nearly all of that going to natural-gas infrastructure.
Management, for its part, is hurriedly shoveling these “tolls” over to investors as dividends. That move is likely made easier by the fact that the C-suite owns 13% of the company (with Executive Chairman Richard Kinder owning the bulk of that)—and human nature being what it is.
We’re okay with that, and are more than happy to see management’s interests aligned with ours.
As I write this, the stock yields 3.7%, which is a good start. Then there’s the dividend-growth story, which has gotten a lot happier in recent years.
Kinder, you might recall, was in the “dividend doghouse” for years following a 75% payout cut in 2015. Investors were slow to forgive, but management kept trying, quietly rebuilding the payout. It’s now up 138% from right after the cut.
KMI’s Dividend Reignites
As I write this, the stock trades at 20-times earnings, around its five-year average. That’s a good multiple for a firm with lots of strengths, including that hefty backlog.
The dividend? It’s well covered at 72% of free cash flow. That is above the 50% level I look for in stocks, but a pipeline like KMI is different, as its “tolls” roll in predictably, letting management pass more of them to us.
The bottom line? KMI is attractive now, and a “September dip” would make it more so. That leaves us with a nice setup: Buy some KMI now, and some on the next dip—and “pair” it with our volatility-fueled 8.8% SPXX dividend as you do.
Urgent: These Surging Dividends MUST Be Your Next 5 Buys
KMI isn’t the only play on AI’s power demand. It’s one of 5 stocks in our “AI power pack.” I want to give them to you now, whether you choose to buy them today or in a “September swoon.”
Gas producers, oil producers, pipelines. We have them all—and they’re all cashing in as AI data centers drive up power demand.
These 5 stocks (including KMI) are in the Energy bucket of my Hidden Yields service’s portfolio, and I urge you to take a close look at them now.
Here’s how to get access: Click here for an exclusive private briefing with all the details on my Hidden Yields strategy, including an invitation to try the service 100% risk free for 60 days.
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Don’t miss your chance to get in on these 5 red-hot (yet still undervalued) dividend growers. Click here and you’re on your way.