Even with the minor dip in the market in July’s final week, the Dow is still flying high, so it hasn’t been easy finding bargains or even semi-bargains right now. Note that “not easy” doesn’t mean “impossible.” After using Google Finance and CEFConnect.com to research what’s out there and sifting through potential buys, I ordered 100 shares of H & Q Life Sciences Investors (NYSE:HQL) at $20.78 per share. With HQL being my 13th position (including my employer’s stock grants), my portfolio is one step closer to my diversification goal of having 20-25 positions.
Why HQL? I picked it for the following reasons:
Age. HQL has been around since 1992, so it has experienced four recessions (the early 90’s recession, the dot-com crash, post-9/11 recession, and the Great Recession). I’m more confident in a company or fund that has been around for such a long time. Longevity is a good (albeit imperfect) indicator of competent management when a company or fund can make it through the tough times.
Yield. At 45 cents per share dividend and $20.78 per share purchase price, the HQL purchase has an annual yield of 8.66%, which is a very good (but not insanely high) dividend yield. Also, HQL’s dividend distribution is 100% income, so there is no ROC (Return of Capital) issue to worry about.
Increasing dividends. HQL has a history of increasing its dividend (of course, that could change at any time…) so that’s certainly a positive trait.
Large payout ratio. With an EPS of $6.16, HQL should be able to maintain its current dividend and not need to cut dividend payouts.
Leverage. HQL is not leveraged, unlike nearly all my other ETF holdings (OIA comes a close second, with a leverage of approximately 6%).
HQL isn’t without its downsides, and here are some reasons that also gave me pause:
Niche sector. Over 87% of HQL’s assets are in 89 biotech companies, so HQL is a highly focused ETF. All industries have their ups and downs (i.e. business cycles), so HQL could suffer severely if the entire biotech industry goes into a downturn.
Quarterly. This isn’t so much a negative against HQL per se, it’s just that I prefer dividend payouts on a monthly, not quarterly, basis. Of my 13 positions, only three (BGY, HQL, and my employer’s stock) pay quarterly dividends and the other 10 pay monthly.
No stock purchase is without risk, but I feel HQL’s positives outweigh its potential negatives enough to justify adding it to my portfolio.
Finally, with this stock acquisition, my projected annual dividend income is $6009.90 or, dividing by 12, a projected average monthly dividend income of $500.83! YEAH!! Time to break out the champagne and party hats!! I’ve achieved my 2014 goal of $500.00/month (projected), which is an important milestone. However, I knew it was achievable (my conservative estimate was that it would reached by October) as long as I invested regularly.
Wow. $500 per month (or $1500 per quarter). Sweeeeeet… 🙂