In Defense of ARR

A recent article in Motley Fool questioned whether ARR is a good investment.

“Though ARMOUR Residential presently exhibits a dividend yield of nearly 14%, investors should be carefully watching ARMOUR Residential's book value in the coming quarters. This should yield a clue as to whether further dividend cuts are looming down the road."

There are two points I would make about this article: first ARR has declared their dividend through the end of 2014 so the dividend won't change either way until then, second the real estate market is at its lowest point so the price is not going to get any lower.

Some would say that ARR went down 43% last year but I would contend that that's the time to buy.  “Buy low, sell high” is the basic law of investing.  If you buy high then you won't make any money.

Here's the thing about ARR:  it's a numbers game.  In my humble opinion it's the best stock out there to make the most monthly income off dividend payments.  Because of its low price and consistent high yield you can buy more of it and make more each month.  Most dividend stocks cost too much to buy in bulk and make a decent monthly income.  I did a lot of research to find this stock and that's the reason why I've been in it so long.

If you were to put $100,000 in ARR since the dividend is declared till the end of the year, you would make $7000 by the end of the year just off dividends. That's 7 percent for 6 months not including the possible equity gain. If there is an equity loss it most likely won't be any larger than 7 percent.

For the general investor I would agree that a more conservative strategy is better.  It also depends on how old you are and how long you have to invest.  Investing in ARR is definitely an aggressive strategy and if you are risk averse, it would be prudent to balance things out with other stocks and maybe some ETFs.

Indeed, not one of us knows what's going to happen tomorrow.  If an investor says they do they're lying. We're all just making the best educated guesses we can.

We all have our strategies so you got to trust your gut. I could come up with a ton of articles to support buying ARR and just as many not to support buying ARR.  At the end of the day you got to call a play and hope your team wins.

Real Estate versus the Stock Market

I was recently in a debate about which investment vehicle is the best one to invest in.  More specifically I made the comment that real estate is the "fastest" way for people to become wealthy.  I said this because no bank will ever give you a loan to buy stocks, however they will gladly give you a loan to buy a property.  This key difference is why you are able to make money faster through real estate, you are leveraging the bank's money to get more valuable assets.  Buying stocks overtime will make you wealthy but buying a valuable property at a low price gives you instant equity. 

There are ways of building your wealth through dollar cost averaging and buying stocks over time, but real estate in my opinion is the fastest way to wealth.  There is one caveat here, buying stock options might be a faster way to gaining wealth.  I however don't recommend everyone buy options and try to build wealth that way.  There is more risk in buying options because you are not buying the underlying asset.  You are buying an opportunity to buy something.  You can however leverage your money in a greater way through options trading which will generate larger amounts faster.  That said I do not think the everyone should use this as a vehicle.  I think if you are dedicated to learning about it and doing the research then by all means see if you can master it, but it takes skill and a lot of research.

In essence buying properties at a discount, fixing them up to gain equity and renting them out, is a great way to build wealth quickly, and if you supplement it with buying dividend paying stocks using dollar cost averaging then you are well on your way to financial freedom.

Diversifying Your Portfolio and Dividend Yields

To start building your portfolio you should keep in mind that you must diversify. Tempting as it may be to put all your money into that one stock that is paying big dividends, you have to be smart and spread your money around to protect your investment

It's a good idea to put your money into different industries i.e. manufacturing, retail, technology, financial, minerals and entertainment.  This will keep you from being hurt too much when various sectors of the market are experiencing trouble.

I created a list of stocks that I am watching I chose to invest in several of these stocks because of how they look in my technical analysis. Many of them are oversold and are in a good position to rebound.

• Retail – TGT, WMT, DG
• Housing/REITs– ARR, CYS
• Technology – MSFT, ORCL, CSCO
• Manufacturing/Automotive – TSLA, F
• Financial – JPM, WFC, BAC, PNC, UBS, RLI
• Entertainment – SNE, TWX, LGF, DIS
• Communications – VZ, T
• Minerals – GLD

I especially like buying retail stocks right before the holidays they may take a downturn after their earnings report in the new year but at least you have an option to sell before then.

I mostly buy stocks with a high dividend yield however I will buy stocks that don't pay a dividend only if it’s a break out company, Tesla fits that criteria.

I recently read a couple of articles about diving deeper into analyzing stocks for dividend yields.  They talked about inadequate assessment in many of the current stock analyzers.  In order to get the true dividend yield you have to look at when a company distributes their dividend. Go back and look over the whole year to see if extra dividend payments were distributed.  If a company only declares a quarterly dividend then only the distributions over the quarter will be factored into the dividend yield calculation.  This however excludes additional one-time distributions which will sometimes dramatically increase the dividend yield calculation.

In short it pays to do your research.