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Retirees have two major investment
goals. They want income to provide for their living expenses today,
and they need growth so they can maintain their standard of living
in the future. This week I’ll focus on effective ways to manage your
portfolio that may dramatically increase your income. Next week I’ll
share growth-oriented strategies.
My clients expect me to find opportunities to increase their income
and grow their money. That’s why I’ve developed specific strategies
using high-yielding securities--strategies my clients can’t get
elsewhere. Understanding the investments used may help you develop
your own strategy.
High-Dividend Paying and Preferred Stocks: The days of being able to
buy a dominant company like AT&T, hold it for life and live off the
dividends are over. A great company today can be a has-been
tomorrow. If managed correctly, though, a basket of high-dividend
paying stocks can be a great addition to a senior’s portfolio.
There are many quality companies that pay dividends of 6-9% per
year. These are often the companies ignored by Wall Street and other
advisors because they have little growth potential. Instead, they
have stable cash flows and pay healthy dividends.
For instance, Citizens Communications (CZN) is a rural telephone
company. Rural doesn’t mean small. They operate in 24 states and are
one of the nations’ largest independent telecommunications
providers. Boring. Yet it pays out a dividend of over 9%! I’m not
saying you should rush out and buy Citizens, but this is just one of
many such over-looked companies.
Canadian Income Trusts (CITs) are another example of securities that
can provide an income stream of 5-8% per year. CITs are foreign
securities that trade on the Pink Sheets in the U.S. Don’t think
that they are risky companies because they trade on the Pink Sheets.
They aren’t. In fact, many are some of the largest and most stable
businesses in Canada.
For instance, Yellow Pages Income Fund provides online and offline
telephone directories across much of Canada. Its business is stable
and doesn’t grow by leaps and bounds, yet it pays a dependable
dividend over 5% in U.S. dollars. Moreover, it has steadily
increased it.
Closed-End Funds (CEF): These are similar to the open-end mutual
funds we are all familiar with. The difference is that they act more
like a stock. Money is initially raised in a public offering. The
money manager then oversees that pool of money. The size of the pool
isn’t determined by investors putting money in or taking it out.
Just like a stock, investors buying and selling shares in the CEF
determine its share price, not the underlying value of its
investments.
This presents opportunity. First, the manager has the ability to buy
investments for the long-term. Unlike the open-end fund manager, the
CEF manager doesn’t have to sell investments to fund shareholder
withdrawals. Secondly, assets can be purchased for a discount to
their market value.
Morgan Stanley Global Opportunity Bond Fund (MGB) is an example of a
closed-end fund that has done well. Its current yield is over 8%.
Typically, I only recommend buying CEFs trading at a discount, but
this one may be worth its premium.
High-yielding investments have up and down cycles so you have to be
disciplined and patient. These cycles don’t affect the dividend, but
you should only buy when the investment is at or below an
established target price.
The problem with these investments is that they require work. They
are not investments the average investor should own unless that
investor is willing to commit several hours a week to research and
monitor each one. You will also have to make adjustments from time
to time.
On the other hand, isn’t that what people should expect from their
advisor? Aren’t you paying them to manage your money? Yet few
advisors use these gems. Most advisors don’t even understand these
investments nor do they have effective strategies that leverage
their benefits. Instead, they focus on selling you, then moving on
to the next person.
You deserve better. If you aren’t able to invest the time and energy
into managing investments like these you should find a professional
that will. There’s no reason you should have to settle for
low-yielding investments.
Have a financial question? Send me an email and I’ll personally
respond, free of charge. Go to www.guardingyourwealth.com and click
on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide. |
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