Month: October 2013

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Building a High Yielding Retirement Portfolio – Part 4 REIT’s

In my previous posting I discussed the need to include high-yielding securities in a retirement portfolio, in Part 2 I reviewed Preferred Stocks, in Part 3 BDC’s. In this article we’ll discuss REIT’s (Real Estate Investment Trusts).

A REIT is a company that owns and operates income generating real estate. REITs can own commercial properties from office and apartment buildings to hospitals, retirement homes, warehouses, hotels, shopping centers, hotels and timberlands. REITs are also a major factor in financing housing. REIT, similar to BDC’s pay little or no corporate income tax and must distribute at least 90 percent of taxable income as dividends to investors. This results in many cases in both capital growth and high-yields.

There are a lot of different types of REIT’s, agency and non-agency etc., I won’t get into all of these here. I’ll also warn you that like all other high-yielding investments that are subject to the volatility of changing interest rates. Many of these were heavily sold earlier this year as the talk of Fed tapering surfaced and the 10 year bond yield jumped overnight. Once interest rates calm down these can be great investments.

Here are some of my favorite REIT’s you might consider:

  • W P Carey (WPC)  5% yield
  • Hospitality Properties Trust (HPT)   6.50% yield
  • American Capital Agency (AGNC)   13% yield

Check out the performance of W.P. Carey in the past year. Not only has it out performed the S&P 500 index, but it also delivered > 5% dividend yield.

REIT-1

By allocating a portion of your portfolio to some of these ultra-high-yielding investments you’ll be able to improve your cash flow while waiting for the next Facebook or Apple investment to come along. In future posts we’ll discuss the pros and cons of these investments and some helpful tips.

 

 

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Building a High Yielding Retirement Portfolio – Part 3 BDC’s

In my previous posting I discussed the need to include high-yielding securities in a retirement portfolio, in Part 2 I reviewed Preferred Stocks. In this article we’ll discuss BDC’s (Business Development Company).

BDC’s are companies that function like Venture Capital or Private Equity funds however they allow smaller investors like you and me to invest in their companies. VC and PE funds are often closed to all but wealthy investors. BDCs, on the other hand, allow anyone who purchases a share to participate in the open market.

BDCs have become popular since they pay little or no corporate income tax and must distribute at least 90 percent of taxable income as dividends to investors. Many BDC’s distribute 98 percent of their taxable income to avoid all corporate taxation. This results in many cases in both capital growth and high-yields. Returns to the stock holder matches the on the type of income earned by the BDC. Ordinary income to the BDC is taxable to us as ordinary income and their capital gains is generally taxable to us as capital gains.

Here are some of my favorite BDC’s you should consider:

  • Prospect Capital Corp (PSEC)  11.50% yield
  • Ares Capital Corp. (ARCC ) 8.41% yield
  • Hercules Technology Growth Capital (HTGC) 7.03% yield

Check out the performance of Hercules Technology Growth Capital in the past year. Not only has it out performed the S&P 500 index, but it also delivered > 7% dividend yield.

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By allocating a portion of your portfolio to some of these ultra-high-yielding investments you’ll be able to improve your cash flow while waiting for the next Facebook or Apple investment to come along. In future posts we’ll discuss the pros and cons of these investments and some helpful tips.

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Building a High Yielding Retirement Portfolio – Part 2 Preferred Stocks

In my previous posting I discussed the need include high-yielding securities in a retirement portfolio. In this article we’ll discuss Preferred Stocks.

Preferred stocks are positioned between common stocks and bonds. Most commonly preferred shares carry no voting rights but have a higher claim to earnings than common share and are usually less volatile than common. When the S&P 500 fell 37% in 2008, for example, the iShares preferred fund fell only 24%. Preferred shares are next in line to bond holders in the capital chain of any company. Investors can easily choose from preferred stock ETF’s or individual stocks. Investors should also understand that most high-yield stocks are affected by rising interest rates, similar to bonds.

Here are some examples of ETF’s you should consider:

  • iShares U.S. Preferred Stock ETF (PFF) 5.6% yield
  • PowerShares Preferred Portfolio (PGX) 6.8% yield
  • SPDR Wells Fargo Preferred Stock (PSK) 6.7% yield

Many of the high-yield preferred stocks are in the financial sector, including REIT’s.  Here are a few that I either currently own or have owned in the past:

  • Privatebancorp Capital Trust IV (PVTBP) 9.7% yield
  • Magnum Hunter Resources Corp (MHR/PC) 10.1% yield
  • SandRidge Energy (SDRXP) 8.2% yield

If you are a first time investor you should research a little more on how preferred stocks are priced before adding them to your portfolio. For example, SandRidge Energy (SDRXP) has a Face Value of $100, its original selling price when issues. Today it is selling for $103.75, a slight premium. The preferred pays an 8.50% “coupon rate”, however since the stock sells at a premium, you will only get paid the current 8.2%. In addition this preferred stock is “callable” at the option of the company. I wouldn’t worry too much about this, the fact is you will earn a nice yield on your investment.

By allocating a portion of your portfolio to some of these ultra-high-yielding investments you’ll be able to improve your cash flow while
waiting for the next Facebook or Apple investment to come along. In future posts we’ll discuss the pros and cons of these investments and some helpful tips.

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Building a High Yielding Retirement Portfolio – Part 1

It’s never too early to start planning for your retirement. Many of us who are just beginning our retirement need to plan on having enough cash flow to cover our living needs for the next 20 – 30 years. We will have Social Security and possibly a pension to help us along; however a substantial portion of our retirement income may need to come from the investments we’ve made over our lifetime.

One issue many face is how to generate retirement income from dividends. Today’s ultra-safe investments like Treasury Bonds pay a paltry 2-3%, Money Market accounts and CD’s are paying 1% or less. We might need investments that pay a lot more than this to be able to withdraw say 4% per year while still maintaining a substantial nest-egg for our loved ones.

Wise investors will have an allocation strategy in their portfolio that includes both high-yielding stocks and other investment to help cover any shortfall.

Here are some choices for investments and a sample range of yields:

  • Preferred Stocks – 4% to 10% Yields
  • Business Development Company (BDC) – 6% to 10% Yields
  • Real-estate Investment Trusts (REIT’s) – 5% to 13% Yields
  • Master Limited Partnerships (MLP) – 5% to 15% Yields

By allocating a portion of your portfolio to some of these ultra-high-yielding investments you’ll be able to improve your cash flow while waiting for the next Facebook or Apple investment to come along. In future posts we’ll discuss the pros and cons of these investments and some helpful tips.