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Investors everywhere seek opportunities that can provide stable
income while increasing the value of their initial investment.
Traditionally, these investors turn to stocks that pay dividends.
Income Deposit Securities are designed to more directly meet these
goals. Read on to learn about three such investments you should
consider now.
A money manager’s job is to help investors adjust their portfolios
to changing market conditions. In uncertain times like these, I
believe it is important to use investments that pay healthy
dividends. I’m not talking about the dividends you see in the big
well-known companies found in the Standard & Poors 500. Most of
those companies pay a paltry 2-3% in dividends.
Nor am I impressed by the dividends you can get from mutual funds.
The size of most mutual funds means that they have to search for
dividends among the large, well-established companies. As a result,
the dividends they pay don’t cut it either.
But there is another dividend option that is far better, found in an
Income Deposit Security (IDS). The Income Deposit Security was
developed in coordination with the American Stock Exchange. It is a
combination of a corporate bond and a common stock. That means it
can provide the interest certainty associated with a corporate bond,
but also the potential for long-term growth found in a common stock.
A lot of people don’t understand the two-part nature of an Income
Deposit Security so when they try to analyze it as an investment it
doesn’t appear as attractive. It’s only by breaking it down into its
components that the true valuations can be found.
One IDS that continues to work well in my client’s accounts is B&G
Foods (BGF). This company makes condiments and spreadable preserves.
It makes pickles, peppers and hot sauces under the Red Devil, B&G
and Trappey labels. B&G Foods produces the staples that people
continue to buy regardless of how fast the economy is growing. That
makes it very defensive.
It also is a company that generates a steady, consistent cash-flow.
It pays a dividend of around 7.5%. That’s very attractive compared
to the interest paid on many corporate bonds. That’s considerably
higher than the measly dividends paid by the companies in the S&P
500.
There’s more to B&G Foods than a healthy dividend. It’s generated
excellent growth as well. According to Morningstar (www.morningstar.com),
an investment in B&G Foods grew 52.3% in 2006 and is already up over
20% this year. Not bad for a defensive, dividend-oriented company!
Another example of an IDS that you might consider is Coinmach
Service Corp (DRY). This isn’t a company you will hear about from
the analysts at the big firms. You can’t even find out much about it
from Morningstar. That’s OK; I know that there is a lot of money to
be made for my clients in solid businesses such as Coinmach Service
Corp—and it’s my job to find them.
Coinmach Service Corporation is the leading owner and operator of
laundromats across the nation. It’s another boring, defensive
company whose revenues aren’t dependent on a surging economy. In
fact, the slower the economy the better this company will do because
more people will rent apartments as opposed to buying homes.
It pays a healthy dividend, too. Currently, the dividend is around
7.5%. Overall it was up over 25% in 2006 and has already increased
in my clients’ portfolios by 13% so far in 2007.
A third IDS that you should consider for your portfolio is
Centerplate (CVP). I’ve mentioned this darling in my column
before—hopefully you purchased it then. Centerplate runs the
concession stands in most major stadiums and ballparks. They’re the
ones selling those expensive hotdogs!
Centerplate has a yield of almost 9% right now. And it produced a
return of over 60% in 2006. It is down 5% this year because of an
attack by some short-sellers. If your investment time-frame is only
30 days then move on. But is you are looking for a solid, growing
company that pays an attractive dividend, consider Centerplate.
Income Deposit Securities are an investment that can help your
portfolio. But you can’t just pull one up in Morningstar and get an
accurate picture of their worth. With a little digging, though, you
may uncover a real gem.
Nationally-syndicated financial columnist and Certified Financial
Planner® Jeffrey Voudrie provides personal, in-depth money
management services and advice to select private clients throughout
the USA. He’ll answer your financial question – FREE at
www.guardingyourwealth.com. |
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