Preferred Picks for a Retirement Paycheck

10/23/2019 5:00 am EST


Robert Carlson

Editor, Retirement Watch

Our Retirement Paycheck portfolio has been doing well since the Fed decided to suspend its tightening policy. I developed this portfolio after the Fed made clear it was would keep interest rates near zero for a long time, asserts Bob Carlson, income expert and editor of Retirement Watch.

Decent income isn’t available through the traditional retirement investments. So, we broadened the investment universe. For example, I like preferred securities in this investment environment, and we own them through two funds.

The closed-end fund Cohen & Steers Limited Duration Preferred & Income (LDP) uses about 30% leverage. As the name indicates, the fund reduces interest-rate risk by owning preferreds with limited duration. LDP is up 0.49% in the last four weeks and 23.30% for the year to date.

The distribution yield is 7.36%, though a portion of the yield most years is return of capital. This is another fund I like because it doesn’t try to follow an index.

The preferred securities indexes have a lot of low-quality securities in them. LDP analyzes each security and owns only those in which the management has confidence. The fund sells at a 2.12% discount to net asset value, compared to a 1.99% six-month average discount.

We own both preferred securities and REITs, two of my favorite investments in this economic environment, through Cohen & Steers REIT & Preferred Income (RNP).

The closed-end fund is about half invested in preferreds and half in REITs. It uses about 23% leverage. The fund rose 4.26% in the last four weeks and 43.40% for the year to date.

The distribution yield is 6.16%. It has made no return of capital distributions this year. The discount to net asset value has been shrinking. It recently was 2.38%, compared to a 6.49% six-month average.

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