One Top Strategist's Favorite Income Play Right Now

Amy, what do you see as promising areas for income investors in 2010?

Despite this rally, I'm happy to say there are still plenty of chances to lock in strong -- and frequent -- dividends.

One area I like is master limited partnerships (MLPs). This sector provided steady income through the worst of the recession, even when oil fell to $40 per barrel. Now oil prices have rebounded and look to be stable above $70. Meanwhile, demand has also stabilized. I think this will lead to above-average income and dividend increases for the sector in the coming year.

I'm also finding gems in some beaten-down sectors. Shippers are a good example. Yes, rates for shipping have dropped, but some companies lock in their business with long-term contracts that don't depend on current rates -- allowing the strong yields to continue.

Is there anywhere you suggest income investors avoid?

I'm steering clear of any yields powered by precious and industrial metals. I think the sector has probably seen its run. As well, I think bonds might be a little tricky going forward. On one hand, the Fed has said they don't plan on raising interest rates anytime soon. On the other, rates have nowhere to go but up -- which would hurt the bond market.

That said, I wouldn't totally steer clear of bonds. I have a feeling that income taxes are going to rise. It may not be in the immediate future, but rising taxes could crimp your dividends. That's why I'm interested in tax-free municipal bonds and funds to help shelter income.

Your "daily paycheck" strategy toward income investing is a bit different than what most income investors have seen. Why are you so confident in its ability to profit?

There is no safer profit that one that is in your hand. Each dividend payment is concrete -- it can't be taken away by the market. It's yours to keep. And if you can have a stream of these payments coming in every day, it just adds to those concrete profits.

Apart from that, readers will likely know that dividend reinvestment is a major part of my strategy. Reinvesting dividends might be "old school," but there's a reason it's still around -- because it works.

It's also simple as can be. I really like that it's simple. There aren't complex derivatives, you don't have to trade in and out of stocks. Simply buy a security, reinvest the dividends and watch your account grow. I think this simplicity means even novice investors can follow along with my real-money portfolio without being overwhelmed.

What's the response been like for The Daily Paycheck?

To be honest, I've been surprised! While I knew the strategy behind the newsletter was sound, that's sometimes lost on some readers... but not in the case of The Daily Paycheck!

I've been especially surprised by the cross-section of investors who've joined me. It's not just retirees looking for income -- it's also baby-boomers, younger investors, and even those who haven't focused on income investing in the past.

I think with the trouble in the markets over the past two years many people are just looking for a strategy that doesn't make them as vulnerable to the market's mood swings. Going after frequent income payers and reinvesting dividends is just that type of strategy.

Finally, do you have a single favorite income play right now?

Aside from MLPs, I think telecoms are one of the most attractive plays for income. Yes, many people think of them as "boring old telecoms," but they may not realize how interesting they've become as dividend plays.

While fixed-line services are declining, most telecoms are gaining in the use of wireless smartphones like Apple's iPhone. And each of these smartphones comes with a hefty data plan and long-term contract. That's one reason why I'm interested in AT&T (NYSE: T). I think it's a strong dividend play that's hidden in plain sight.

If we're in for a rocky ride in the market, cash-rich telecoms that have customers locked into contracts look to be a good place to ride out the storm. And if we see a recovery, the growth engine of smartphone adoption will be attractive.

Plus, this same phenomenon is going on around the world. There are a number of funds that not only tap into global telecoms, but also pay you monthly. In fact, I added one such fund to my portfolio in the inaugural Daily Paycheck issue a few days ago.

Amy Calistri
Chief Investment Strategist -- The Daily Paycheck

P.S. -- You can join Amy today as she puts her "daily paycheck" strategy to work in a $200,000 real-money portfolio! Simply visit this link to see how daily income can help your portfolio starting this month and join The Daily Paycheck.

AT&T Inc. (NYSE: T) raised its quarterly dividend a penny to $0.42, marking the 26th consecutive annual increase for the telecommunications giant.

Based on AT&T's roughly 5.9 billion shares outstanding, the +2.4% increase will boost annual payouts by $236 million.

-- Wall Street Journal

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