Despite conventional wisdom that investors should be wary of going long in the stock market in August, the markets all notching almost daily record highs as un-invested capital continues to flow into US stocks, asserts Bryan Perry, income specialist and editor of Cash Machine.
A key reason for the ascent is the perception of a rebound in GDP growth and expectations of rising earnings in the second half of the year.
The simple notion is that dividend-paying stocks, both defensive and cyclical, have become proxies for bonds.
At present, 40% of S&P 500 stocks yield more than the 30-year Treasury Bond and 60% of S&P 500 stocks yield more than the 10-year Treasury Note.
Until those yields for equities come down to trade more in parity with bonds, fund managers will maintain a strong bid under the market.
Meanwhile, with all of the chatter about presidential promises to spend heavily on infrastructure to address aging US roads and municipal systems, I wanted to have at least one holding that would benefit from this forthcoming wave of government spending that is popular on both sides of the aisle.
To provide some exposure to this sector, I advise taking a position in the Cohen & Steers Infrastructure Fund (UTF) for the Conservative High-Yield Portfolio.
As a closed-end fund, UTF boasts wide diversification, a management team with an excellent track record and a fund that trades at a 13.3% discount to net asset value.
The fund also has a distribution rate, or yield, of 7.50% that pays quarterly. In addition, the fund uses 31% leverage to help generate a healthy income stream.
UTF owns blue-chip utilities, railroads, pipelines, cell towers, engineering construction firms and transmission companies, including 53% that are US-based.
If there is a rebound in the global economy, we can start here and take a more conservative approach to overseas investing on a limited basis. Buy UTF under $22.
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By Bryan Perry, Editor of Cash Machine
