Wow! We are now finished with 3/4 of the year and we are heading into a presidential election that is causing the stock market to be significantly volatile. Stimulus packages are on hold until the debate is over and our current President states one will be released, indefinitely. The stock market has pummeled downward and then upward. Talk about unpredictable. Dividend income, though, continues to be a very hot topic, as investors await announcements, fearing the potential dividend cut.

In September, we set another record for dividend earnings and it shows proof that dividend income is one of the best passive income streams. Time to dive into my September 2020 dividend income results.

Dividend Income

Dividend income is the fruit from the labor of investing your money in the stock market. Further, dividend income is my primary vehicle on the road to financial freedom, which you can see through my Dividend Portfolio.

How do I research and screen for dividend stocks prior to making a purchase? I use our Dividend Diplomat Stock Screener and trade on Ally’s investment platform (one of our Financial Freedom products) – commission free.

I also automatically invest and max out, pre-tax, my 401k through work and my Health Savings Account. This allows me to save a TON of money on taxes (aka thousands), which allows me to invest even more. In addition, all dividends I receive are automatically being reinvested back into the company that paid the dividend. This takes the emotion out of timing the market.

Growing your dividend income takes time and consistency. Investing as often, and early, as you can allows compound interest (aka dividends) to work its magic. I have gone from making $2.70 in a single month in dividend income to well over $3,500+ in a single month. That dividend

There has been a record number of dividend cuts during the ongoing coronavirus crisis, particularly in the energy sector, which is one of the most severely beaten sectors. A bright exception has been the group of U.S. refiners, which have defended its dividends so far. However, as Valero (VLO) is poised to post material losses this year, it is likely to cut its dividend, given also the uncertainty arising from the pandemic. On the other hand, the stock has been beaten to the extreme and thus it has collapsed at its 7-year lows. In this article, I will analyze why Valero has become a conviction buy around its current price.

The effect of the pandemic

The pandemic has caused an unprecedented collapse in the demand for refined products this year. According to the Energy Information Administration [EIA], the global demand for refined products is expected to slump by 8.3 million barrels per day on average this year, from 101.4 to 93.1 million barrels per day. This will mark the steepest decline in the global oil consumption in at least three decades.

In its last conference call, at the end of July, Valero stated that the demand for gasoline and diesel had recovered to 85%-90% of normal, after bottoming at 50% and 70%, respectively, in April. However, the demand for jet fuel remained 50% lower than normal. As a result, Valero planned to ran its refineries at an approximate 79% utilization rate in the third quarter. This is a daunting utilization rate, particularly for the third quarter, which is the strongest quarter for refiners in normal years.

It is also important to note that Valero generates the vast majority of its earnings from its refining business. In addition, most of its refineries are coastal and thus they lack the benefit of

Asset managers are hot properties at the moment. Activist investor Nelson Peltz has taken stakes in

Invesco

and

Janus Henderson Group,

pushing them to merge, while

Morgan Stanley

has agreed to pay $7 billion for

Eaton Vance.

One of the hottest in the industry should be AllianceBernstein. It offers a growth story and a nearly 9% yield.

“This is a unique company in the asset management industry,” says Alexander Blostein, an analyst at Goldman Sachs. “Not many companies are growing in the actively managed space.”

Yet AllianceBernstein generates little attention because of its partnership structure and thin public float. The public portion of the company,

AllianceBernstein Holding

(ticker: AB), owns 35%, while

Equitable Holdings

(EQH), the life insurer, holds the other 65%. The partnership units, now around $30, trade inexpensively at 11 times projected 2020 earnings of $2.67 a unit and 10 times estimated 2021 profits of $3.01.

Blostein, who has a Buy rating and $32 price target, says the distribution (the partnership equivalent of a dividend) offers “compelling income with some embedded growth.”

He sees 10% to 15% annual growth in earnings per unit in the coming years, after a mid-single gain in 2020, driven by organic growth and cost-cutting. Given the company’s structure, any earnings gains can be expected to flow through to investors in added distributions.

AllianceBernstein aims to save a projected $75 million to $80 million a year by 2025 by moving its headquarters to Nashville from Manhattan. (Its investment professionals can stay in New York.) That 2018 decision looks smart, given New York’s economic woes stemming from the pandemic.

Formed in 2000 from the merger of the growth-oriented

Alliance Capital Management

with the value-oriented Sanford Bernstein, AllianceBernstein runs $643 billion in institutional, retail, and high net-worth accounts. Nearly half, or $313 billion, is

Co-produced with Beyond Saving

The pullback we saw during March as a result of the pandemic turned out to be one of the best opportunities that the markets has offered investors. When prices were falling at the time, we were encouraging buying the dip through a series of articles. Unfortunately, some were met with hundreds of comments to the effect that the impact of COVID-19 was going to be far worse and that investors should “sit on the sidelines” to wait and see how bad it would be. Some were even saying everything should be sold because it would certainly get much worse.

Unfortunately again, many investors were doing just that. Share prices go down precisely because more people are trying to sell than are trying to buy. We get the temptation, when you are down 20%-30% or even more, it’s very easy to “cut your losses” and sell “before I lose more.” That’s a very natural response. And if you sell, and then manage to buy back at a lower price, that works. This is why we encourage investors to keep a long-term view.

In many cases, that isn’t what happens. Investors sell out of fear and then when the price bounces back up they have one of two options, try to buy back in, or sit on the sidelines. As a result, they sit on the sidelines and miss the most profitable part of a bear market – the recovery.

Going back to history, following each bear market there was a strong recovery, and this year was no different. At HDO, instead of trying to catch the peaks and valleys, we buy in small bites. With dividend income streaming into our accounts several times a month, we always have access to at least a little bit of

The market’s fall pullback is starting to reverse itself, but don’t worry: there are still bargain dividend payers yielding 7.4%+ dividends to be had out there.

But investing (along with everything in our lives!) has changed. You simply won’t get safe, high payouts by clutching to old habits and buying big-name, high-yielding S&P 500 stocks. The real dividend bargains are in closed-end funds (CEFs), which give you higher payouts, greater safety and often better returns over the long haul.

To show you what I mean, let’s line up three S&P 500 “dividend darlings” against the CEF competition and see how they compare. (Spoiler: it’s a blowout win for CEFs!)

AT&T: Big Dividend Lousy Return

AT&T (T) is a stock so old my grandmother has had it in her portfolio since before my mother was born. Ma Bell has been known as a huge income producer, with enticing 5%+ yields; today the stock’s yield is above 7%.

Such a big payout sounds like a slam dunk, so why not pick it up? To be honest, there are many reasons why this would be a bad move.

For one, AT&T’s net income fell 25% in 2019 from the prior year and has so far fallen 31.1% in 2020. As well, the company’s assets are barely growing as fast as its debts. Even if we ignored all of that, AT&T has badly underperformed the market over the long haul, even when you include its dividend!

The stock has done much worse than the alternative I’d suggest: the Liberty All-Star Growth Fund (ASG), which is full of companies that have beaten AT&T over the long haul, like Amazon.com (AMZN), Microsoft (MSFT) and Alphabet (GOOG). 

Plus, ASG gives you much more diversification than buying