What’s the objective of the Cabot Dividend Investor?
Cabot Dividend Investor has three related objectives: safety, dividend growth, and current income. Subscribers are guided in how to mix and match our recommendations to meet whichever of these objectives is most important to them personally. Some may choose to pursue only one or two while some may mix investments to secure all three.
Who is Cabot Dividend Investor for? Is Cabot Dividend Investor for me?
Cabot Dividend Investor is for anyone who wants to receive income from their investment portfolio, now or in the future. If you need income now, you’ll focus on our current income recommendations from the safety and high-yield tiers of the portfolio.
If you don’t need income now but anticipate wanting it in the future (or just want to put the power of dividend growth to work for you), you’ll focus on our dividend growth portfolio tier, and may choose to reinvest your dividends for now.
How does the system work?
IRIS (the Individualized Retirement Income System) rates our universe of income-generating investments on (1) the safety of their dividend and (2) the likelihood of future dividend growth. We then choose the best investments for our portfolio based on a variety of quantitative and qualitative factors including yield, technical action, industry strength, portfolio diversification, valuation, and more.
Can you give me an example of a Cabot Dividend Investor recommendation?
The safe income tier of our portfolio includes low-volatility common stocks with a long history of paying dividends, like DuPont (DD) and Aflac (AFL), and may also recommend low-volatility ETFs, CEFs (closed-end funds) and fixed-income issues like preferred stocks.
The dividend growth tier includes common stocks with a history of dividend growth, like Target (TGT), and common stocks with good potential for future dividend growth. It also considers other vehicles with a dedication to dividend growth, including REITs (real estate investment trusts), BDCs (business development corporations) and ETFs and CEFs.
The high-yield tier of our portfolio focuses on investments that are paying a high dividend right now, including common stocks, CEFs, MLPs (master limited partnerships), REITs and BDCs.
Can I use Cabot Dividend Investor to make investments in my IRA/Roth IRA/other tax-advantaged retirement account?
You’re probably only going to run into any issues investing through an IRA when I recommend MLPs, because although they can be held in IRAs, they can leave the IRA on the hook for some extra taxes at the end of the year.
But I’m aware that many of our subscribers invest through IRAs or other tax advantaged accounts, so I’ve taken pains to make sure our high-yield portfolio isn’t all MLPs (that would have other downsides anyway). I’ll also make sure to give fair warning when investments have unusual tax consequences (related to IRAs or not) so you should be able to make informed decisions about which are appropriate for your portfolio.
In short, Cabot Dividend Investor can definitely be used by investors who invest through IRAs.
It was my intention to subscribe myself to IRIS (Cabot’s Individualized Retirement Income System), but now it seems that I just bought myself a subscription to Cabot Dividend Investor. Are these subscriptions the same, or not?
IRIS is the investment-picking system behind Cabot Dividend Investor, and the source of the quantitative ratings used to select investments for the publication’s portfolio. Cabot Dividend Investor is the name of the publication, which, in addition to IRIS rankings, includes qualitative analysis of the investment recommendations, portfolio allocation advice and educational articles.
What is yield on cost?
Yield on Cost is the yield you’re receiving from your income generating investments. It’s equal to the annual dividend per share divided by your average cost basis per share.
I live comfortably on my pension income so I’m more interested in growth than current income for my investment portfolio. But I subscribed to Cabot Dividend Investor because I like dividend paying stocks. I would definitely reinvest the dividends rather than use them for current expenses. For example, I have a pretty large stake in Monsanto (MON). I’ve held it forever and it has appreciated constantly and has been paying good (and increasing) dividends throughout. In your recommendations, will you be recommending stocks similar to Monsanto for people like me who are more interested in growth than current income?
Cabot Dividend Investor is focused on income, however, one of the types of income I’ll target is what I call “future income.” This is for investors who don’t need or want income from their portfolios right now, but anticipate wanting it sometime in the future. These recommendations are mostly dividend growth stocks: stocks with small or average dividends that have potential to be much higher-yielders in the future. Investors with no current income needs can buy these now, reinvest the dividends if they so choose, and plan on taking the dividends and capital gains later.
That being said, they are still long-term recommendations, which the investor will ideally hold for many years.
I do a significant amount of options, how can someone doing options benefit from this subscription?
I think it depends on what type of options trades you’re making.
If you like selling covered calls, there will be plenty of stocks recommended in Cabot Dividend Investor that would work with that strategy.
I’m not sure how our recommendations would work with other options strategies. I’ll mostly be recommending stocks for some combination of long-term capital appreciation, dividend growth, and income.
Are there elements within the Cabot Dividend Investor investment system that are designed to take advantage of specific U.S. tax benefits (like aimed at supporting retirement funds)? I’m a nonresident, so while most “standard” investments in the U.S. have exactly the same tax implications in my tax residence, that could change if a big proportion of investments are selected because of special tax benefits/circumstances. Please let me know how much your system is influenced by tax related considerations.
Because Cabot Dividend Investor recommends a variety of different investment types, including “tax advantaged” investments like MLPs, I will consider and sometimes discuss the tax implications of various investments before adding them to the portfolio. For example, when recommending a CEF, I will consider what percentage of investors’ income is likely to be considered “qualified dividends” and taxed at a lower rate than “non-qualified” distributions. A CEF with a higher effective (after-tax) yield will be preferred over one with a lower effective yield.
That being said, I would not say that a big proportion of investments are selected because of special tax benefits/circumstances. I won’t be recommending investments like muni bonds simply because of advantageous tax treatment. I expect our subscribers to be in a wide enough variety of tax situations that making recommendations based primarily on tax consequences would not be widely beneficial.
I would recommend being aware of if or how your situation affects taxes on distributions when all or a portion of the distribution is considered return of capital, as that will come up fairly frequently (it’s pretty common when investing in MLPs, CEFs, BDCs and some REITs).
What is the Cabot Dividend Investor schedule?
Cabot Dividend Investor is published by PDF on the last Wednesday of the month, with weekly email updates every Wednesday in between.
How often do you make new recommendations?
Each issue will take a more in-depth look at one stock (like Cabot China & Emerging Markets and Cabot Stock of the Month) that is either a new buy or, if there are no new buys that month, a current portfolio holding that’s a good buy that month. We’re not starting with a completely full portfolio, so charter subscribers will get new buys for at least the first few months (and probably longer, but I don’t want to make a firm commitment in case market conditions make it hard to add new holdings to the portfolio for some reason).
Is there a model portfolio?
Yes, there is a model portfolio with three tiers: Safe Income, Dividend Growth and High-Yield. Most subscribers won’t hold all the positions in the portfolio, they’ll choose group of holdings that best fits their goals. For our part, we’ll track the performance of the total portfolio as well as a more “aggressive” allocation and a more “conservative” one.
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