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High Yielders from Personal Finance

07/11/2003 12:00 am EST


Neil George

Editor, Profitable Investing

Neil George, long a contributing editor to Personal Finance, has now taken the reins of the publication, one of the most popular newsletters. We’re confident that Neil and the rest of the editorial team will maintain the excellence of the newsletter without missing a beat. In his first issue as editor, George offers some favorite high-yielding opportunities.

"Below are a handful of our favorite high-yielding stocks for the next few years. They all have one thing in common: They’re justifying your investment by paying you back now with cash and into the future with continually improved businesses. And you can’t beat getting paid monthly. While the companies that do this might not be in exciting industries, nothing is more impressive these days than regularly appearing checks.

"Leading the pack is one stock that we’ve followed for years, even though Wall Street doesn’t even know its address–W.P. Carey (WPC NYSE). Its mission is pure and simple. It buys business properties from big-time companies that need cash and turns around and rents them back to those same companies as long-haul leases. It’s sort of a pawnbroker for the Fortune 500 set. During tough times when the corporate world needs cash, W.P. Carey buys properties at rock-bottom prices and locks in triple-net lease payments for decades. When times get really good, it gets to sell the properties at nice profits. The firm pays a fat, near-6% dividend and the stock is up 32% alone. What’s more, it still trades at nice discounts to the book values of its peers. Bottom line: It’s a solid value that will keep paying you and give you some goods to grow. Buy up to 35.

"Another company that’s been overlooked by Wall Street while it keeps paying and growing is Thornburg Mortgage (TMA NYSE). Like Carey, Thornburg keeps it simple and stays with what it knows. It’s a mortgage lender that primarily holds adjustable rate mortgages (ARMs) of higher credit scoring customers. This means that unlike troubled behemoths Fannie Mae and Freddie Mac, which have bigger default and interest rate risks, Thornburg keeps humming along with one of the most stable and secure portfolios in the banking business. It’s not a huge firm but it’s growing nicely, generating five-year annual average returns of over 23% while paying a healthy near-10% yield. Buy Thornburg Mortgage up to 30 when the broad market is rallying, or when Fannie/Freddie make headlines with more bad news.

"And it’s not just what you build on land but also what’s underneath land that has value. Pumping gas and oil are still some of the best ways to make money in good times and bad. We’ve found a company that asked a simple question and built a business to take advantage of the answer. The question: Why take all the risks of drilling or exploring when you can just pump and collect cash year in and year out instead? This is why during the past five years companies like ExxonMobil have lost 5% on average while a company like Enerplus Resources (ERF NYSE) has generated a positive 43% gain year after year. Nevertheless, Wall Street thumbs its nose at this Canadian natural resources company and you won’t hear anything about it from analysts. Buy Enerplus up to 27 and enjoy its 13.8% dividend yield for many years to come."

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