photo credit: todbaker
The stock market has been brutal the past several months. With the current economic crisis and credit crunch, it doesn’t look like things will get much better in the coming year. That is why it is so important to diversify your income streams. In the event that you or your spouse is laid off from work, having a diversified portfolio of residual income is extremely important. One of my income streams that I have setup is purchasing stocks that pay monthly and quarterly dividends. These dividends are then reinvested back into the stock by using DRIP. One such dividend producing stock that I own is Harvest Trust Energy (HTE), which specializes in natural gas. Part of my holdings in the company were acquired with assets taken from a loan I took out recently from Prosper.com.
I took out a $1,000 Prosper Loan eight months ago in an effort to increase my family’s monthly cash flow. The strategy in taking out this loan is to borrow money at a low interest rate in order to purchase higher yielding investments so they can be added to my portfolio of passive income streams. These passive income streams will allow my family to reach our long-term goal of financial freedom. If my family can become financially independent, that allows us to spend more time together doing the things we enjoy, which is most important to me!
Every month, I provide a status on my Prosper loan that I took out earlier this spring. When I last posted the status of my investments using this $1,000 Prosper loan, I had accumulated the following assets -
- Stock – I purchased 46 shares of HTE (Harvest Energy Trust).
- Cash Generated – As a result of selling Covered Call Options against my HTE position, I have generated $58.68 in positive cash flow. It is important to note that selling a Covered Call Option contract requires 100 shares. I have combined my $1,000 Prosper loan with additional funds to meet the 100 share requirement.
- Remaining Cash – I had $14.55 remaining in leftover cash after making the purchase of HTE.
- Dividend Shares – I have received 3.803 shares of HTE stock through dividend DRIP payments. The total number of shares owned as of October was 49.803.
Current Status
Earlier this week, I received the November monthly dividend payment, which was reinvested back into the stock using DRIP (Dividend Reinvestment Plan) -
- November Dividend Payment – I received approximately 1.191 shares of HTE as a result of the November (2008) DRIP payment. This brings the total number of shares owned up to 50.995.
As of the close of the market yesterday (December 16, 2008), I estimate that value of the assets listed above at -
- Shares – 50.995 @ $9.05 per shares = ~$461.50
- Cash – $73.23
- GRAND TOTAL – ~$534.73
Over the past several months, my position in HTE has seen a lot of fluctuation. Natural Gas and commodity stocks are getting beat up just like the rest of the market. The value of my assets from my loan has decreased by (14%) compared with last month. The total payments required over the course of the 36-month (3-year) loan are $1,095.07, so I am now ($560.34) in the hole. There are 27 months remaining on my loan, so I will need to make up an average of ~ 20.75 per month over the course of the remaining months. Understanding the fluctuations in the market, the struggling economy, and a drop in Oil & Natural Gas prices, I am planning to stick with my investment. As long as HTE continues to pay the monthly dividend, I will remain in this stock.
Concern
I always like to address the concern of others when they raise a very valid point. Last month, Dividend Growth Investor questioned why people would purchase Canroys (Canadian Royalty Trusts) given that in 2011 they may go away? Parts of these comments are below –
…The oil and gas trusts do yield juicy yields right now, but if these dividends are cut ( which they could be as they are paid out of operating earnings) then you are hit twice: lower divs and lower prices..
I acknowledge and agree with some of the concerns raised by Dividend Growth Investor. In 2011, these companies will not be able to sustain their yields due to a change in tax policies. Combining that with the plunge in Oil & Natural Gas prices has gotten the attention of many investors’ of these assets. I will admit that when I started making purchases of HTE earlier this year, the dividend yield is what got my attention. At the time, the yield was in the upper teens and appeared to be very attractive. Now, the current yield on HTE is over 31%, which is very skewed. For the short-term (2009), I will probably remain in this stock but will be keeping very close tabs on it and will provide updates on my status.
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Reasons why I invest in CanRoys:
Investing in CanRoys is investing in $45 oil now whereas I believe it will be $100 in 2 years.
High Dividend which even if cut in half will result in over 10% return.
Future of CanRoys can also be positively affected by Canadian politics.
Getting out of U.S. Dollars into Canadian Dollars where they are trading at a discount.
The Canadian tax law may take effect in 2011 but if the CanRoys remain as a MLP they will still be required to return a very high % of income.
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S. Marx – Thanks for visiting PFI! I appreciate your comments about investing in CanRoys.
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