Not Banks and Not Insurance Companies
If I told you I had more exposure to the financial sector than any other sector, I suspect you might think I was talking about banks and insurance companies. That would be a wrong conclusion.
Today our combined investment accounts hold MAIN, ARCC, GAIN, ABR and CSWC as our top five financial investments. This doesn’t mean I don’t own any banks. Three of my banking sector investments are Canadian banks: Bank of Nova Scotia (100 shares of BNS), Canadian Imperial Bank of Commerce (CM 400 shares), and Toronto Dominion Bank Ontario (700 shares of TD.)
The top five are different. CSWC is a BDC (Business Development Company) in the industry called Asset Management and Custody Banks. ABR is focused on Mortgage REITs. GAIN, like CSWC is a BDC focused on Asset Management and Custody Banks, as are ARCC and MAIN. As you can probably see, I favor BDC’s in the financial sector.
Dividends and Growth
The top five financial investments also vary by dividend profile. BDCs tend to have a higher dividend yield and don’t necessarily have increasing dividends. They also are unlikely to grow quickly. Some, like MAIN, however, have an impressive track record for growth over time.
All five have a current yield above five percent. Two of them pay a monthly dividend: MAIN and GAIN. I do not have automatic dividend reinvestment on for any of our holdings.
Top Five Ranking by Total Gain
It is hard to do a good comparison of these from an investment gain perspective. Dividends are the primary focus. GAIN, however, has been very good to me. I have 2,000 shares of GAIN in my traditional IRA with a cost basis of $9.03. Therefore, I am currently up about 64% on my purchase price. This doesn’t include the dividends. My shares of ARCC, ABR, and CSWC have far less gain, but still are positive and provide a healthy dividend stream.
2021 Options Income for the Top Five
I generally don’t trade any of these using covered calls. I will sometimes enter a cash covered put to get more shares of CSWC or GAIN.
Good News from CSWC
The next dividend payments from CSWC in December are nothing to ignore. In addition to increasing their quarterly dividend by almost 7%, they are paying an additional supplemental dividend of $0.50 per share. That works out to a dividend of $0.97 per share. Therefore, in December we will receive combined dividends of $2,328. Let’s call that a nice Christmas bonus!
ETF Investments in Financial Sector Companies
Although the focus of an ETF like VYM (Vanguard High Dividend Yield ETF) is not financials, 21.6% of the 400 companies in this ETF are in the financial sector. VYM does have banks in the top ten. ETF SCHD is currently holding 21.97% in financials, and we own shares of SCHD. Even DGRO is 18.9% financials.
A recent ETF addition to my investment mix is QYLD (Global X Funds – Global X NASDAQ 100 Covered Call ETF). QYLD is only 2.4% financials, but it has a covered call options strategy.
Because of these broad ETF’s, our total exposure to financials is about 30% of our total investments. You cannot get this mix by investing in the S&P 500 index. For example, SPY (SPDR S&P 500 Trust ETF) is only 13.9% financials.