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Income investing is for wimps, right?
Wrong.
A portfolio of solid, dividend-paying securities
might seems more suitable for widows and orphans, but there are
plenty of reasons why an income strategy is beneficial to all
investors -- especially in a difficult market like this.
And there are two main reasons why you should consider
income producing investments, right now.
Reason No. 1: Income Investing
Protects Wealth
You've worked hard to build your portfolio, and whether
it's $10,000 or $10 million, it's something to be proud of.
It's also something you should be very protective of. You
want to shelter your nest egg from the strong winds of a
turbulent market.
We all saw what the market can do to even the strongest
companies in down years. In 2008, for example, Microsoft
(Nasdaq: MSFT) and
GE (NYSE: GE) lost -45.4% and -56.3%, respectively. Few companies were
immune from the blood-letting. Even Warren Buffett's
Berkshire Hathaway (NYSE: BRK-B), the revered company run by the most
successful investor in the world, lost -31.8%. Few could
escape what was going on in the market.
But some people actually saw their investment grow. The
price of a certain preferred issue opened the year
at $12.96 and ended it at $13.02. That may not seem like
rock-star performance, but you see, this company also paid
out $1.26 in dividends. That amounted to a +9.7% return --
or 48.2 percentage points ahead of the S&P 500 Index!
If you had 100 Berkshire "B" shares, your position was
worth $473,600 at the beginning of 2008. When the bell rang
on the final trading day of the year, owning Berkshire would
have cost you $152,000.
Had you owned $473,600 worth of this preferred stock,
you would have experienced absolutely NO losses. In fact the
value of your investment would have grown by more than
$2,000 and you'd
have received a nice dividend check for $46,044.18.
That's the portfolio-protection power of a strong
income stock.
Reason No. 2: Generate a rich income stream (with low
risk)
Take a look around: There are a lot of head-turning
dividends. But in this market, you sometimes need to take a
second look. For instance, CBS's (NYSE: CBS) yield was
sitting at a tempting 20%. It
was paying $0.27 per quarter and trading at about 5.15. Then
came the news: CBS's profit fell -52% and the company said
it would prune the payout back to a nickel. The new annual
dividend would be less than the previous quarterly dividend
-- and trimmed the new yield to a paltry 3.9%
CBS investors who bought for the dividend were sorely
disappointed. That's because the dividend is discretionary.
It has to be voted on each quarter by the board. When the
board saw CBS's results, they axed the dividend. With such a
drop-off in profits, who can blame them?
But the preferred shares I mentioned above can't do
that. Preferred shareholders always get paid. And if the
company directors decide that's not possible in the
short-term, then common
stockholders can't be paid anything until the preferred
shareholders have received any missed and current
dividends owed.
Smart picks like this preferred not only protect your
investment, they keep the cash flowing. They have to. Their
payout is as close to guaranteed as an equity investor can
get.
Oh, yeah -- I forgot about risk. In the past 52 weeks,
CBS shares have lost -79.7% of their value. But our
preferred? It has lost nothing. In fact, it's in the plus
column even before factoring in dividends.
But when you add that rich payout into the mix, great
things happen. You see, that river of revenue, if
reinvested, will double an investor's position in about
seven and a half years.
To prove the point about what a strong return that is,
let's look back seven and a half years. The three "strong"
companies didn't come anywhere near doubling. Microsoft lost
-38.3% in that period; GE plummeted -72.0%. Even Berkshire
Hathaway only managed to gain +27.4% during that time -- a
meager +3.3% a year on an annualized basis.
Bottom line: This preferred outperformed
Warren Buffett's returns by a factor of three!
Clearly, income investing is a compellingly effective
strategy in all sorts of markets -- for a little or a lot of
your portfolio. The fact is, you just can't argue with cash.
Buffett himself doubtlessly would agree.
There's a problem with this strategy, though. You have to be able to find great
picks like our preferred stock, as the evidence
unequivocally shows that even the bluest of the blue chips
can't match its performance.
Happily, there's a solution. You see, readers of Carla
Pasternak's newsletter
High-Yield Investing have known about this
preferred for years. It's just one of many ultra-safe,
super-secure picks she recommends every month, year in and year out.
Many Happy Returns --
--Andy Obermueller
Co-Editor
Global Dividend Opportunities
GlobalDividends.com
839-K Quince Orchard Blvd.
Gaithersburg, MD 20878-1614
P.S.
-- Please don't miss your chance to review Carla's Special
2009 Wealth and Income Report. Her recommendations have helped tens of thousands
of her subscribers avoid losses and rake in millions in
dividends. To read her report,
visit this link.
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