U.S.

Dividend Stock Investing for Canadian Investors

5 Monthly Dividend Stocks

1
 5 Monthly Dividend Stocks

A quarterly dividend payment is the standard practice for U.S. dividend paying
companies. However, most of us have bills and expenses that like to be paid every
month.

This fact of life makes the possibility of monthly dividends appealing. There are stocks
and other publicly traded investments that do have monthly dividend payment
schedules.

My long experience with dividend paying stocks has shown that a long of monthly
dividend payers use that fact to hide substandard performance.

I evaluate every dividend stock using my strict criteria for performance and dividend
paying ability. When I find a monthly pay stock that meets my standards, I am doubly
happy to recommend it to Dividend Hunter subscribers.

Here are five stocks out of the Dividend Hunter recommendations list that pay monthly
dividends.

• Reaves Utility Income Fund (UTG)

• Main Street Capital Corporation (MAIN)

• The InfraCap MLP ETF (AMZA)

• Virtus InfraCap U.S. Preferred Stock ETF (PFFA)

• Global X Nasdaq 100 Covered Call ETF (QYLD)

1
 5 Monthly Dividend Stocks

Reaves Utility Income Fund (UTG)

Reaves Utility Income Fund (UTG) is the Dividend Hunter recommended investment for
exposure to the utility company sector. This closed-end fund has been a steady income
producer. In fact, UTG has managed to boost the dividend 11 times since its inception in
2003.

The UTG dividend was recently increased for the third time since I added it to my
recommendations list.

Utility companies have long been viewed as haven dividend stocks. These are the highly-
regulated companies that provide electric power, natural gas, and water to homes and
commercial customers.

Reaves Utility Income Fund (UTG) is the Dividend Hunter recommended investment for
exposure to the utility company sector. This closed-end fund has been a steady income
producer.

The UTG dividend was recently increased for the third time since I added it to my
recommendations list. In fact, UTG has managed to boost the dividend 11 times since its
inception in 2003.

Utility companies have long been viewed as haven dividend stocks. These are the highly-
regulated companies that provide electric power, natural gas, and water to homes and
commercial customers.

The regulatory agencies approve the rates of utility charges. Rates are set so that the
utility can cover the infrastructure spending to maintain and upgrade its assets and then
earn a fixed rate of return above the necessary capital spending.

The locked in regulated profit margins gives a high level of cash flow predictability. As a
result, utility stocks are favored as steady and moderate dividend growth payers.

I do not include any individual utility companies in The Dividend Hunter

recommendations list because yields have been low compared to stocks in the other
income-focused sectors.

2
 5 Monthly Dividend Stocks

For example, the Utilities Select Sector SPDR ETF (XLU) yields about 3.14%, well below my
Dividend Hunter usual minimum of 5%.

So, I was pleased to discover the Reaves Utility Income Fund (UTG), which gives utility
sector exposure and a current 6.6% yield with a $0.18 payout every month. The fund is
sizeable at over $2 billion in assets.

As of August 2020, UTG held positions in 40 different stocks. About 60% of the portfolio is
traditional electricity, gas, water utilities and telecom stocks. The fund also owns media
companies like Time Warner cable, and energy and utility infrastructure companies as
smaller percentages of the portfolio. The fund has been diversifying lately, with fully 25%
of current holdings invested in international markets.

As is typical for a closed-end fund, UTG uses a moderate amount of leverage to increase
its dividend cash flow. Currently leverage is at 20.3%, which reflects a reduction of $100
million of debt in fiscal 2020.

Closed-end funds like UTG can trade at a premium or discount to NAV.

Over the last year, the share price has ranged from a 12.7% premium to a 14.6%
discount. The shares normally trade close to NAV. UTG is currently trading at a slight
premium of 0.66%, which makes them attractive right now.

The fact that UTG has been able to survive two major market crashes while maintaining
and raising the shareholder payout qualifies the shares as a solid holding for us as income
investors.

3
 5 Monthly Dividend Stocks

Main Street Capital Corporation (MAIN)

This business development company has been a tremendous stock for income focused
investors. Since my first recommendation, the monthly dividend paid by MAIN has been
increased eight times, and the company has paid two special dividends per year.

Prior to the market crash in spring 2020 MAIN had been hinting at discontinuing the
special dividend payouts and just increasing the regular monthly dividends by the amount
they would have paid in the special dividends. Shortly after the crash MAIN suspended
the special dividend. Nonetheless MAIN is a powerful dividend income stock and it is time
to re-review this best in class business development company (BDC).

It is also one of the most popular holdings among Dividend Hunter subscribers.

Legally, a BDC is a closed-end investment company, like closed-end mutual funds (CEF).
The difference is that a CEF owns stock shares and bonds, while a BDC makes direct
investments into its client companies.

A BDC will have up to hundreds of outstanding investments to spread the risk across
many small companies. The client companies of a BDC will be corporations that are too
small or too new to be able to issue stock or bonds into the publicly traded markets.

As a risk control factor, BDCs are limited to no more than two times its equity in leverage.

This means that if a BDC has $500 million of equity raised from selling shares, it can
borrow $1 billion. The company can then make $1.5 billion of loans or equity
investments.

Main Street Capital Corp. is really quite different from the rest of the BDC crowd. Since its
2007 IPO, MAIN has tripled the total return average of its BDC peers.

Here are some of the reasons why this company stands apart from its peers:

• MAIN is internally managed with insiders owning over 2.8 million shares.
Cofounder and Chairman Vince Foster is the single largest individual shareholder.
The company has a long-term focus on delivering shareholders sustainable growth
in net asset value and recurring dividends per share.
4
 5 Monthly Dividend Stocks

• MAIN is the most conservatively managed BDC in the industry and holds an
investment grade BBB credit rating. Investment grade is rare among the BDC crowd
and allows Main Street to borrow at a much lower cost of capital compared to
most other BDCs.

• Operating, admin, and management costs are 1.3% of assets compared to over 3%
for the average BDC and 2.5% for commercial banks. The company has over $4.3
billion in capital under management, with over $3.1 billion internally and over $1.1
billion as a sub-adviser to a third party.

• The share price is about 1.5 times the book or Net Asset Value (NAV).

• Efficient operating structure provides operating leverage to grow distributable net

investment income, and dividends paid, as investment portfolio and total
investment income grow.

• MAIN has delivered an 86% increase in monthly dividends since its IPO in Q4 2007,
jumping from $0.33 to $0.615 per share in the first quarter of fiscal 2021. The
company has never decreased its regular monthly dividends. Based upon the
current annualized monthly dividends for the first quarter of 2021, the annual
effective yield on MAIN’s stock is 8.6%.

• MAIN uses a three-tier approach to its portfolio. This unique strategy allows Main
Street to generate a high level of interest income and capital gains from equity
investments.

Houston-based Main Street Capital has helped over 200 private companies grow or
transition by providing flexible private equity and debt capital solutions.

The company provides “one-stop” capital solutions (private debt and private equity
capital) to lower middle market companies and debt capital to middle market companies.
Main Street's lower middle market (LMM) companies generally have annual revenues
between $10 million and $150 million. While Main Street's middle market debt
investments are made in businesses that are generally larger in size.

5
 5 Monthly Dividend Stocks

The company’s investment portfolio consists of approximately 47% LMM, 29% private
loan, 17% middle market and 7% other portfolio investments.

On December 31, 2020, Main Street Capital had 42 middle market clients with an average
loan amount of $12.3 million. The loans total over $441.3 million or about 17% of MAIN's
total portfolio. Middle market loans are floating rate and match with MAIN's floating rate
debt facility. The average 7.9% yield on this group of loans is 4.25% higher than Main
Street's debt used to fund the loans to clients. The 4.25% interest margin is almost pure
cash flow that can be used to help pay dividends on MAIN's stock shares.

The largest portion of the portfolio is lower middle market (LMM), where the company
takes equity stakes along with providing debt financing. The equity provides a significant
boost to the total returns generated. Lower middle market companies are smaller than
the typical BDC client and have annual revenues between $10 and $150 million. There
are over 175,000 companies in this revenue bracket in the U.S., and MAIN has 70 lower
middle market clients with loans and equity investments worth $1.228 billion. The loans
to the companies in this part of the portfolio have an average yield of 11.6%.

The equity position gives an average 41% ownership of the client companies. The equity
stakes are what have allowed MAIN’s net asset value (NAV) to increase from $12.85 in
2007 to $21.52 on September 30, 2020 – 67% growth.

The equity investments are what set MAIN apart from most other BDCs. The rules under
which these companies operate prevent them from setting aside loan loss reserves.
Because a BDC makes higher risk loans, there will be loan losses. These losses have a
direct negative effect on a BDC's book or net asset value. That is why most BDCs struggle
to maintain their book values compared to the growing value built by Main Street Capital.

In recent years, Main Street has been growing what it calls its Private Loan Portfolio.
These are loans originated through strategic relationships with other investment funds
on a collaborative basis and are often referred to in the debt markets as “club deals”. The
private loan portfolio makes up 29% (68 loans for $743 million) of the overall MAIN
portfolio and carries and average yield of 8.6%. The loans have floating interest rates and
benefit from lower overhead costs.

6
 5 Monthly Dividend Stocks

This three-tier investment portfolio is what sets MAIN apart from the rest of the BDC
crowd, and what makes it an income stock for all seasons. The lower middle market
client, middle market client, and private loans mix provides a combination of net interest
income to support MAIN's very excellent history of dividend payments. The result has
been a BDC that has generated both regular dividend growth for investors and special
dividends to pay out capital gains.

As an additional bonus, MAIN pays monthly dividends, smoothing out the cash flow into
your brokerage account. MAIN should be a core holding for any income focused investor.

7
 5 Monthly Dividend Stocks

InfraCap MLT ETF (AMZA)

The InfraCap MLP ETF (AMZA) provides very high yield exposure to the energy
midstream, master limited partnership (MLP) sector. MLPs own and operate the
backbone of the U.S. energy sector operations.

These include pipelines, processing plants, storage facilities and loading/unloading

terminals. The companies in the sector are organized as publicly traded limited
partnerships and are intended to pay out the majority of free cash flow as distributions to
limited partner unit holders.

Being a MLP investor is tax advantaged, but also entails additional reporting work at tax
time.

The energy sector crash of 2015 into early 2016 was very hard on many MLPs and market
values went into a deep, extended bear market. Many companies were forced to
restructure their finances to lower debt loads and pay a smaller portion of free cash flow
to investors.

The fundamentals for the sector started to improve in late 2017, and in the latter days of
2019 MLP market values had started a meaningful recovery.

The COVID outbreak was devastating to MLP share values, but it seems that the
devastation of the energy fields is slowly passing away. Positive vaccine news has
boosted the global markets as well as brightened the demand outlook of the energy
sector.

The stronger fundamentals point to an eventual strong bull market for MLPs.

AMZA owns a portfolio of MLPs. The fund is actively managed.

It will own the largest 25 infrastructure services MLPs but can weight the holdings
different from what the market-cap indexes track. The fund managers can also use a
modest amount of leverage.

8
 5 Monthly Dividend Stocks

The factor that sets AMZA apart from the MLP fund pack is the use of call option selling
to boost portfolio income. This covered call strategy allows AMZA to have a double-digit
yield in the form of monthly dividends.

With AMZA it is important to understand that the value will track the MLP sector. That
group is overdue for its next bull market. The large monthly dividends mean you get paid
handsomely even as share prices start to rally.

So, sit back and let AMZA’s whopping 13% current monthly dividend continue to reward
our patience as income investors.

9
 5 Monthly Dividend Stocks

Virtus InfraCap U.S. Preferred Stock ETF (PFFA)

The Virtus InfraCap U.S. Preferred Stock ETF (PFFA) offers and attractive monthly yield
from a very safe asset category.

Preferred stock is issued by corporations as a form of capital that fits in between debt
and common stock. The issuer does not have to pay the preferred dividends, but it
cannot pay a common stock dividend if the preferred dividend payments are suspended.
As a result, the preferred dividends from quality dividend paying companies are very
secure. Unlike bonds, preferred shares do not usually have a maturity date. This fact
makes them a long term income vehicle. However, many preferred issues are callable,
which can be a danger to investors who are counting on high yield preferred stock
dividend payments.

With PFFA the fund managers at InfraCap use the iShares U.S. Preferred Stock ETF (PFF)
as their benchmark and starting point from which to differentiate PFFA as a better way to
invest in preferred stocks. As a traditional ETF, PFF must contain preferred stock holdings
to match the S&P U.S. Preferred Stock Index. There is a wide range of quality and risk in
the preferred stock universe. An index-tracking ETF like PFF will own a lot of bad along
with the average and the good.

This opens an opportunity for an actively managed fund like PFFA to provide superior
performance.

PFFA holds a portfolio of over 100 preferred securities issued by U.S. companies with
market capitalizations of over $100 million.

Here are the added attributes of PFFA compared to PFF:

• Active investment selection, which includes evaluating potential investments on a

variety of key variables, including the competitive position of a company; the
perceived ability of the company to earn a high return on capital; the historical and
projected stability and reliability of the profits of the company; and the anticipated
ability of the company to generate cash in excess of its growth needs.

10
 5 Monthly Dividend Stocks

• Underweight or eliminate callable preferred securities exhibiting a low or negative

yield-to-call ratio. This is a big deal when owning preferred shares. Many investors
have been shocked to see negative returns when preferred stocks with prices over
par have been called in by the issuer.

• Employ option overlay strategies primarily to seek to provide additional current

income; opportunistic short positions may be employed to hedge interest rate risk.
This is primarily covered call writing for the extra income. PFFA pays a stable
monthly dividend of $.016 and currently yields 8.58%, with $236.27 million under
management.

In the current low interest environment, investors are being forced into thinking more
about alternative income strategies. Preferred stocks, offer a higher yield profile with
relatively lower risk profiles.

PFFA’s proven track record actively managing preferred stocks and delivering reliable,
monthly dividends makes it an ideal fit for us as income investors.

11
 5 Monthly Dividend Stocks

Global X Nasdaq 100 Covered Call ETF (QYLD)

The Global X Nasdaq 100 Covered Call ETF (QYLD) uses a covered call strategy to generate
monthly income, which is paid out as monthly dividends. The fund holdings consist of
owning stocks to match the Nasdaq 100 Index. This is a tech stock heavy index.

The QYLD fund strategy is to sell one-month index options that expire at the end of each
month. Here are some features of the options used:

• Unlike single stock options that can be exercised at any time, index options cannot
be called/exercised early.

• Settle in cash, not in delivering the underlying index holdings.

• Higher index volatility can lead to larger premiums.

• If there are gains from writing calls, they are taxed at 60% long term capital gains
rates and 40% short term capital gains.

• Since the index options cannot be called early, it only matters where the index
finishes for the month.

• Prior to expiration, all market swings that take place throughout the month don’t
matter.

Currently, QYLD has assets of $1.6 billion. The net expense ratio is 0.60%. While the fund
portfolio is tech stock heavy, do not expect tremendous capital gains. Selling call options
puts a limit on the upside share appreciation potential for each month.

It is apparent from the high dividend yield that the fund is managed to maximize the
option income, which leaves little room for share price appreciation.

The good news is that the dividend yield is very attractive, paying around 11% at the time
of this writing. Monthly dividends have been paid since January 2014.

12
 5 Monthly Dividend Stocks

The monthly dividends are variable, so they will change each month. For the past 12
months, the dividend has ranged from $0.1806 per share up to $0.2377. The average is
around 21 cents per share.

Land, Fly or Die,

Tim Plaehn
Editor
The Dividend Hunter

© 2021 Investors Alley Corp. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written
permission from Investors Alley Corp., 555 W 5th St, Floor 35, Los Angeles, CA 90013 or www.investorsalley.com.

The information in this email and corresponding websites are neither an offer nor a recommendation to buy or sell any security, options on equities, or
cryptocurrency. Investors Alley Corp. and its affiliates may hold a position in any of the companies mentioned. Investors Alley Corp. is neither a registered
investment adviser nor a broker-dealer and does not provide customized or personalized recommendations. Past performance is not necessarily indicative
of future results. No trading strategy is risk free. Trading and investing involve substantial risk, and you may lose the entire amount of your principal
investment or more. You should trade or invest only “risk capital” – money you can afford to lose. Trading and investing is not appropriate for everyone. We
urge you to conduct your own research and due diligence and obtain professional advice from your personal financial adviser or investment broker before
making any investment decision.

For complete terms and conditions governing the use of this publication please visit www.investorsalley.com.

13