ETFs Of The Month: QYLD, RYLD, XYLD

I have sold all of my previous holdings in the iShares Core U.S. Aggregate Bond ETF (AGG) at a slight loss.  The proceeds from this sale, plus some of my existing cash reserves, were used to:

• add the usual monthly purchases of HYLB, QQQJ, QQQM, and USHY;
• add a large "catch-up" purchase to PFFD; and
• initiate purchases in three "Covered Call" ETFs:  QYLD (NASDAQ 100), RYLD (Russell 2000), and XYLD (S&P 500).

These covered call ETFs are an idea I've been looking for ever since I started investing - I've just discovered that they actually exist.  Everybody knows that on average over the long term, the market goes up 8 to 12 percent per year...just not in a straight line.  Covered call ETFs approximate these long term returns by owning the underlying assets (in these cases, stock indices) and selling calls (in these cases, stock index options) against those assets, turning capital gains into monthly dividend payments.  The prices of these ETFs follow the overall performance of the assets, with dampened volatility:  investors are forgoing the potential of excess total returns (and paying an expense ratio of 0.6%) for more immediate cash flows.

Boilerplate time...

As a stretch goal: for dividend income purposes, I'd like this portfolio to eventually be as much as a 50/50 split between stocks and bonds. As seen below, it is currently 53/47.

I am in no rush to flip into bonds. I would rather let my winners run forever. However, if in any given month I see no stocks that present themselves as especially good buying opportunities, I have no reservations in simply adding to my bond and/or preferred stock ETFs. It is truly a month-to-month situation (as it has always been!).

For the foreseeable future, I want to track my Big Five Two every month, whether I buy them or not.

Amazon (AMZN)

• $1.54T market cap
• no dividend
• $386.1B revenue
• 44% revenue growth
• $84.4B cash
• $101.2B debt
• $66.1B operating cash flow
• $36.6B free cash flow

Microsoft (MSFT)

• $1.77T market cap
• 1.0% dividend yield
• $153.3B revenue
• 17% revenue growth
• $132.0B cash
• $82.9B debt
• $68.0B operating cash flow
• $34.8B free cash flow

Here's my current portfolio (buy and hold). As always, I believe in all of these stocks/ETFs - until I sell them.

Microsoft (MSFT) 12.91%

iShares Broad USD High Yield Corporate Bond ETF (USHY) 12.89%

Global X U.S. Preferred ETF (PFFD) 12.89%
Xtrackers USD High Yield Corporate Bond ETF (HYLB) 12.84%
Amazon (AMZN) 12.49%
Invesco NASDAQ 100 ETF (QQQM) 6.11%
Alphabet (GOOGL) 4.63%

Global X NASDAQ 100 Covered Call ETF (QYLD) 3.50%

Facebook (FB) 2.86%
Invesco NASDAQ Next Gen 100 ETF (QQQJ) 2.80%
Intuitive Surgical (ISRG) 2.28%

Global X Russell 2000 Covered Call ETF (RYLD) 2.20%

Global X S&P 500 Covered Call ETF (XYLD) 2.17%
UnitedHealth Group (UNH) 1.40%

Verizon (VZ) 1.39%
AT&T (T) 1.38%
Visa (V) 1.27%
Costco Wholesale (COST) 1.25%

Stocks Of The Month: T, VZ

Going forward:  I will only be posting about stock purchases outside of the regularly-scheduled monthly purchases of HYLB, PFFD, QQQJ, QQQM, and USHY.  (It's going to get really, really boring.)

First...two triggered sales!  I've always thought of Adobe (ADBE) and Autodesk (ADSK) as a pair; they entered my portfolio together in January 2016, and now they have exited together.  Both stocks were similarly outstanding investments as well.  Adobe increased 337% (34% annualized), and Autodesk returned 325% (32% annualized).

This month's stocks are AT&T (T) and Verizon (VZ).  I believe both of these companies are fundamentally undervalued; if each of them were to be built from scratch, the cost would substantially exceed their current enterprise values.  They both generate large cash flows which easily fund generous dividends.  Their telecommunications duopoly represents the level of incumbency that makes for confident investments.  And finally:  the 5G revolution has just begun (i.e. revenues will be growing again soon).

AT&T (T)

• $204.8B market cap
• 7.2% dividend yield
• $171.8B revenue
• -2% revenue growth
• $9.8B cash
• $183.0B debt
• $43.1B operating cash flow
• $36.4B free cash flow

Verizon (VZ)

• $231.8B market cap
• 4.5% dividend yield
• $128.3B revenue
• 0% revenue growth
• $22.2B cash
• $151.2B debt
• $41.8B operating cash flow
• $16.1B free cash flow

Boilerplate time...

As a stretch goal: for dividend income purposes, I'd like this portfolio to eventually be as much as a 50/50 split between stocks and bonds. As seen below, it is currently 55/45.

I am in no rush to flip into bonds. I would rather let my winners run forever. However, if in any given month I see no stocks that present themselves as especially good buying opportunities, I have no reservations in simply adding to my bond and/or preferred stock ETFs. It is truly a month-to-month situation (as it has always been!).

For the foreseeable future, I want to track my Big Five Two every month, whether I buy them or not.

Amazon (AMZN)

• $1.51T market cap
• no dividend
• $386.1B revenue
• 44% revenue growth
• $84.4B cash
• $101.2B debt
• $66.1B operating cash flow
• $36.6B free cash flow

Microsoft (MSFT)

• $1.75T market cap
• 1.0% dividend yield
• $153.3B revenue
• 17% revenue growth
• $132.0B cash
• $82.9B debt
• $68.0B operating cash flow
• $34.8B free cash flow

Here's my current portfolio (buy and hold). As always, I believe in all of these stocks/ETFs - until I sell them.

Microsoft (MSFT) 13.02%
iShares Broad USD High Yield Corporate Bond ETF (USHY) 12.83%
Xtrackers USD High Yield Corporate Bond ETF (HYLB) 12.76%
Amazon (AMZN) 12.39%
iShares Core U.S. Aggregate Bond ETF (AGG) 11.00%
Global X U.S. Preferred ETF (PFFD) 8.50%
Invesco NASDAQ 100 ETF (QQQM) 5.89%
Alphabet (GOOGL) 4.79%
Invesco NASDAQ Next Gen 100 ETF (QQQJ) 2.68%
Facebook (FB) 2.65%
Intuitive Surgical (ISRG) 2.26%
Verizon (VZ) 1.34%
AT&T (T) 1.34%
UnitedHealth Group (UNH) 1.31%
Visa (V) 1.31%
Costco Wholesale (COST) 1.14%