Investors who want income don’t have to settle for the negative real yields (after inflation and taxes) available in traditional retirement income investments, explains Bob Carlson, editor of Retirement Watch.
In my Retirement Paycheck portfolio, we consider additional investments, such as closed-end funds, preferred securities, high-dividend stocks, high-yield bonds, energy service companies and more.
We also don’t use buy-and-hold strategies. They are more volatile than traditional income investments. But over time, we’ve delivered a current yield of 5% to 7%, plus some capital gains.
We have two positions in emerging markets within this portfolio. Emerging market bonds offer higher yields and better values than U.S. bonds. I believe they were neglected by investors over the last few years and will receive more investment flows as the emerging economies recover from the pandemic.
We own them through DoubleLine Emerging Markets Fixed Income (DBLEX). The fund invests in the countries the managers believe are the most attractive, ignoring the country allocations and bonds that index funds are required to hold.
DBLEX invests primarily in corporate bonds but also owns sovereign and quasi-sovereign bonds when they’re attractive. The fund is up 2.39% for the year to date and 7.38% over 12 months. The yield recently was 4.07%.
High-yielding emerging market stocks are owned through the ETF Cambria Emerging Shareholder Yield (EYLD). Cambria developed a unique system that ranks dividend-paying companies using dividend payments, net share repurchases and net debt reduction.
It considers only stocks that pay cash dividends and have low leverage and several other characterstics. Cambria's managers seek to use their system to identify high-dividend payers likely to sustain such dividend payments.
After ranking the emerging market companies, the fund buys the 100 top-ranked stocks. EYLD is up 7.81% for the year to date and 27.86% over 12 months. EYLD’s yield recently was 5.83%.
The portfolio owns a combination of REITs and preferred securities through the closed-end fund Cohen & Steer REIT & Preferred Income (RNP).
The fund is about evenly split between the two types of investments and chooses securities using the same methods as the funds dedicated to those investments that already were discussed.
RNP is up 28.05% for the year to date and 42.62% for the last 12 months. The recent distribution yield was 5.35%. The fund uses a leverage ratio of about 24% to increase its yield and capital gains. RNP recently sold at a 1.00% discount to net asset value and has a six-month average discount of 1.87%.
Also in the portfolio is another closed-end fund TCW Strategic Income (TSI). This fund doesn’t use leverage. About 40% of TSI is invested in non-agency residential mortgages. The rest of the fund is diversified among the traditional income invest- ments.
The fund has been in a narrow trading range for the last few months. It is up 0.70% in the last four weeks but down 0.42% over three months. So far in 2021, it is up 4.70%, while rising 5.97% in the last 12 months. The fund’s distribution yield recently was 3.80%.
