Sick of stocks? You’re not the only one. But just because you want to veer away from equities doesn’t mean that you have to eschew income – or even capital gains. In fact, some of the most lucrative plays on the market now exist in the fixed income world. I’ve already recommended two of them to my Lifetime Income Reportreaders…
The two income payers I’m talking about are Public Storage Inc. 6.625% Cumulative Preferred Stock, Series M (PSA-M) and Westar Energy 6.1% First Mortgage Bonds (WRS, Financial).
Fixed income is a type of investment used as protection. It is riskier than CDs at your local bank, but far less risky than regular stocks. Of course, without the proper insight, you can find yourself in equally troublesome situations.
For instance, say you wanted to buy bonds on a seemingly stable company like Tribune Co. For decades, this has been one of the largest players in the media world. The owner of the L.A. Times and Chicago Tribune, Tribune Co. grew revenues to over $5 billion as recently as 2002. Unfortunately, this media empire completely collapsed as the entire newspaper industry fell on its face…leading to the eventual bankruptcy of Tribune Co., leaving its bondholders without a penny.
General Motors was another giant once upon a time. And anyone that bought its bonds just 10 years ago would have looked like a conservative investor. GM, of course, unraveled in the most recent recession, and only an enormous government takeover gave its bondholders a fraction of their initial investment back.
So to say bonds are always safe would be inaccurate. There are plenty of losses in the bond market. And today, that’s even more of a possibility.
I’ve noted several before that there are risks facing the stock market and overall economy. Even a small portion of these risks could play a major role in the bond market, which, in turn, would affect preferred stocks.
But in my opinion, both PSA-M and WRS are among the upper echelon of debt investments. I believe that we have little to worry about with them. Each one is investment grade, which may not be as meaningful as it once was with all three ratings agencies under fire these days. Nonetheless, a credit rating is still the most important statistic for fixed-income investors.
PSA-M and WRS are also plays on incredibly lucrative industries. PSA-M is a debt instrument on storage facility giant, Public Storage. WRS is a play on Westar Energy, a $2.5 billion utility company.
Both of these underlying companies increased dividends on their own ordinary stocks in the past several months. The only time we’d have something to worry about is when these two companies announced a significantly poor outlook or reduced their dividends.
Both plays have done quite well for us since we bought them last year. We’ve held PSA-M since May of last year. In the past 15 months, the preferred shares have increased in value from $19.72 to around $25 today. We’ve also quietly collected more than $2 in dividend payments.
WRS has been almost as beneficial for us. We are sitting on a nice 4.5% capital gain over the last 11 months and another $1.52 in interest distributions.
Both are seeing double-digit gains right now and I expect this to hold up no matter what the market does from here.
Investors typically pull out of their riskiest plays during bear markets. Those would include smaller companies and certain foreign investments. The last place a smart investor takes money from is his fixed investment portfolio.
Both of our debt investments are above our buy-up-to prices. So at this point in time, I don’t recommend you buy more shares/bonds. But if you happen already hold them, don’t sell anytime soon.
That said, there are income plays that are worth getting into right now – many in the preferred share and bond categories… The key to finding the best plays is deep due diligence. If you’re interested in expanding – or starting – your fixed income portfolio, consider logging onto a major ratings site like Morningstar.com; the company offers readily accessible debt ratings and bond data.
In the next few weeks, I’m going to continue looking into these types of ideas to protect your wealth during this turbulent market. It’s important to diversify your income portfolio between growth and safety. These kinds of plays make up the backbone of your income holdings.
Sincerely,
Jim Nelson
Penny Sleuth
August 26, 2010
Fix Your Downside with Debt Instruments was originally featured in the Penny Sleuth. Check out Wall Street's 5 Most Profitable Penny Stock Patterns Report.
The two income payers I’m talking about are Public Storage Inc. 6.625% Cumulative Preferred Stock, Series M (PSA-M) and Westar Energy 6.1% First Mortgage Bonds (WRS, Financial).
Fixed income is a type of investment used as protection. It is riskier than CDs at your local bank, but far less risky than regular stocks. Of course, without the proper insight, you can find yourself in equally troublesome situations.
For instance, say you wanted to buy bonds on a seemingly stable company like Tribune Co. For decades, this has been one of the largest players in the media world. The owner of the L.A. Times and Chicago Tribune, Tribune Co. grew revenues to over $5 billion as recently as 2002. Unfortunately, this media empire completely collapsed as the entire newspaper industry fell on its face…leading to the eventual bankruptcy of Tribune Co., leaving its bondholders without a penny.
General Motors was another giant once upon a time. And anyone that bought its bonds just 10 years ago would have looked like a conservative investor. GM, of course, unraveled in the most recent recession, and only an enormous government takeover gave its bondholders a fraction of their initial investment back.
So to say bonds are always safe would be inaccurate. There are plenty of losses in the bond market. And today, that’s even more of a possibility.
I’ve noted several before that there are risks facing the stock market and overall economy. Even a small portion of these risks could play a major role in the bond market, which, in turn, would affect preferred stocks.
But in my opinion, both PSA-M and WRS are among the upper echelon of debt investments. I believe that we have little to worry about with them. Each one is investment grade, which may not be as meaningful as it once was with all three ratings agencies under fire these days. Nonetheless, a credit rating is still the most important statistic for fixed-income investors.
PSA-M and WRS are also plays on incredibly lucrative industries. PSA-M is a debt instrument on storage facility giant, Public Storage. WRS is a play on Westar Energy, a $2.5 billion utility company.
Both of these underlying companies increased dividends on their own ordinary stocks in the past several months. The only time we’d have something to worry about is when these two companies announced a significantly poor outlook or reduced their dividends.
Both plays have done quite well for us since we bought them last year. We’ve held PSA-M since May of last year. In the past 15 months, the preferred shares have increased in value from $19.72 to around $25 today. We’ve also quietly collected more than $2 in dividend payments.
WRS has been almost as beneficial for us. We are sitting on a nice 4.5% capital gain over the last 11 months and another $1.52 in interest distributions.
Both are seeing double-digit gains right now and I expect this to hold up no matter what the market does from here.
Investors typically pull out of their riskiest plays during bear markets. Those would include smaller companies and certain foreign investments. The last place a smart investor takes money from is his fixed investment portfolio.
Both of our debt investments are above our buy-up-to prices. So at this point in time, I don’t recommend you buy more shares/bonds. But if you happen already hold them, don’t sell anytime soon.
That said, there are income plays that are worth getting into right now – many in the preferred share and bond categories… The key to finding the best plays is deep due diligence. If you’re interested in expanding – or starting – your fixed income portfolio, consider logging onto a major ratings site like Morningstar.com; the company offers readily accessible debt ratings and bond data.
In the next few weeks, I’m going to continue looking into these types of ideas to protect your wealth during this turbulent market. It’s important to diversify your income portfolio between growth and safety. These kinds of plays make up the backbone of your income holdings.
Sincerely,
Jim Nelson
Penny Sleuth
August 26, 2010
Fix Your Downside with Debt Instruments was originally featured in the Penny Sleuth. Check out Wall Street's 5 Most Profitable Penny Stock Patterns Report.
