Income producing stocks outperformed in 2019, Mike Larson discusses what sectors he favors for 2020.
It’s been a great start to the year for my favorite, income-generating stocks. Several names from my Safe Money Report newsletter are hitting multi-year or all-time highs, with their common traits being:
1) Solid Weiss Ratings
2) Market-beating dividend yields, and
3) Business models that shine at this point in the economic cycle.
The incredible outperformance of income stocks is nothing new. Look at the data and you’ll see they’ve been leading this market for some time. And they’re doing so without all the hype and hoopla of money-torching IPOs, over-loved and over-owned tech stocks, or other higher-risk investments.
The table below shows the two-year total returns for various sector exchange traded funds (ETFs). I went back that far to show that this isn’t some flash-in-the-pan trend.
Source: Weiss Ratings, Data as of Jan.13, 2020
You can see that the plain-vanilla, steady utilities sector has returned around 37.5% in the last 24 months. That gain for the Utilities Select Sectors SPDR Fund (XLU) actually beat the return generated by tech stocks, as represented by the Invesco QQQ Trust (QQQ).
What about the Real Estate Select Sector SPDR Fund (XLRE), the ETF that represents higher-yielding, lower-volatility Real Estate Investment Trusts (REITs)? Boom! It’s showing gains of more than 34%, trouncing the 22.5% return for the SPDR S&P 500 ETF Trust (SPY).
Not only are income stocks like utilities and REITs generating sizable capital gains, but they’re also spinning off much more generous yields. Both XLU and XLRE recently yielded around 3%. That’s more than four times the yield on the QQQ and around 125 basis points greater than the yield on the SPY.
Furthermore, they’re generating these returns with lower beta and standard deviation readings. In plain English, that means they’re doing so with less volatility and/or fewer wild swings than sectors like tech.
Bottom line? Investing for income is a smart, profitable, prudent way to play this market. And to help really turbocharge the income you can spin off from it, my team and I just unveiled the findings of our largest, most in-depth income-focused research project ever!
Investors should consider ramping up income-generation by looking into the sale of put options and covered call options on high-quality, highly rated, dividend-paying stocks. Our work suggests that’s a great way to maximize returns in this market environment.
Check out our website for more details and join me and dozens of other analysts, money managers and market experts at the Orlando MoneyShow from Feb. 6-8. I have several presentations and a luncheon scheduled and would love to meet and talk markets with you.You can check the grades on YOUR stocks at the Weiss Ratings website: www.weissratings.com or get specific names, and actionable “buy” and “sell” signals by subscribing here: Subscribe to Safe Money Report here…
