With little yield to be had on the fixed income sector, investors need to find safe sector stocks, reports Mike Larson.
Income? Yield? Anything, to keep cash coming in and the bills paid. That’s what investors who are still working — and investors in retirement — need and crave like never before.
And no wonder! We’re living in a world where everyone is being squeezed by rock-bottom interest rates.
That’s true here in the United States, where the Federal Reserve has cut rates by 75 basis points (0.75 percentage points) since late July. And it’s certainly true overseas, where bonds in many countries are still trading with negative yields even after a bounce over the last several weeks.
It’s not just individuals feeling the pressure, either. Big-money institutions are in the same boat. Hardly a day goes by where I don’t read another story about firms doing foolish, high-risk stuff in a desperate hunt for yield.
Last week, it was a Wall Street Journal headline that read: “Pensions Venture Into Risky Corners of the Market in Hunt for Returns.” The piece chronicled how funds are pouring money into riskier private markets, 100-year Argentinean bonds, produce-growing greenhouses, garbage collection and disposal projects, toll roads, and a motley assortment of other dodgier ventures.
Will it all just work out in the end? Well, as I told you in the last few weeks, some of the world’s riskiest debt securities are starting to lose value. That hasn’t pulled the rug out from under the stock market yet. But it does raise concerns about what’s come down the pike.
As for the here and now, it also raises an important question for investors like you: In a world fraught with risk, what can you buy for both market-beating yields and reasonable levels of safety.
The good news is that stocks like that do exist. But you can’t just throw darts. You have to be systematic about your approach. That’s what I do in my Safe Money Report.
Rather than just recommend any old stock that pays a dividend, I follow a five-step process in the core model portfolio that’s designed to identify only stocks that:
- Earn either a hold or buy grade from our Weiss Ratings model, and that pass two screens design to ensure adequate liquidity.
- Sport a dividend that’s at least equal to the S&P 500, and up to four times as much. Research shows those are in the “sweet spot” when it comes to balancing yield and risk.
- Feature a multi-year stretch of double-digit dividend growth.
- Pass stringent dividend coverage and payout tests designed to weed out companies that may not be able to keep funding their dividends over time.
- Score highly on two technical tests designed to confirm that they remain in a bullish trend, regardless of what the broader averages are doing.
Now, you may have a different methodology. That’s fine. But this approach has paid off nicely in many instances, and I share it to underscore how there are still winning investments to be found — even in a more-challenging market.
If you’re already a subscriber, great. If not, just know that
Defensive sectors like utilities and Real Estate Investment Trusts (REITs) are still scoring well in my screening process. A new pharmaceutical name also made the core portfolio cut this month. Consider sectors like those if you’re looking to solve your own income challenges in this low-yield world.
You can check the grades on YOUR stocks at the Weiss Ratings website: www.weissratings.com. You can get specific names, and actionable “buy” and “sell” signals by subscribing.
