3 Income Picks for Turbulent Times
03/04/2011 10:43 am EST
These big-yield investments will pay out up to 10% or more, while weathering any approaching economic storms with ease, says Cash Machine’s Bryan Perry in this exclusive interview with MoneyShow.com.
We’ve got worries about higher taxes, higher inflation, and higher interest rates. How can investors looking for income take advantage of what looks to be a bleak outlook?
Traditionally those are barriers for investors, especially in fixed income vehicles because that spells nothing but downside. Yields go up, bond prices go down—and unfortunately, a lot of people got trapped last year in the bond market thinking that we were headed for a major double-dip recession.
So, in fighting that—to put the wind to your back, so to speak—and to take advantage of higher inflation, higher taxes and higher interest rates, there are assets out there that benefit and are sensitive to those forces. For instance, convertible bonds and convertible stocks.
Convertible investments basically allow you to own a bond that is convertible into the common stock of the company, so as the market rebounds…Breaking it down further, convertibles typically start as a bond, and then as the stock appreciates to a certain point there is a conversion feature built into the bond—so if the stock moves up to that point, the manager can convert that into common stock and sell it.
For instance, I made a lot of money in Apple Computer Convertibles. Currently, there’s an ETF I’m interested in, the AGIC Convertible & Income Fund (NYSE: NCV).
So on the way up, you’re making this fabulous income—in the case of NCV, it’s a 10.4% income stream—and it pays every month.
It’s a great dividend payer for people looking for a diversified portfolio, because you’re getting that good income. But your net-asset value is improving, because it owns preferred stocks that are convertible into the common stock, so as the common stock moves higher with the market, the preferred follows suit.
This is unlike a straight preferred, which has a 25-year maturity. Those are like bonds. Those get sold off—and these are just a direct opposite.
This way, we can be a part of a resilient stock market now by being in convertible bonds and convertible preferreds—and that’s how you get your cake and eat it too in the preferred world.
What else are you looking at?
Anything energy is working for us right now. I like a couple of shipping names that are also in deep-water drilling, one being SeaDrill (NYSE: SDRL). That’s a fairly new name for most people.
It was formed in 2005, but they have the most advanced drilling equipment in the world and, therefore, they command the highest day rates and they don’t do any drilling in the Gulf of Mexico. They’re primarily off of Norway and in Asia, so they’re very excellent at what they do.
The stock trades around 35 [around $37 at closing on March 3—Editor.] and pays about 7.5% yield. You’re just not going to find that in any of the drilling stocks out there—any of the big ones, like Transocean, or Diamond Offshore, or any of these other names. They just don’t pay that kind of yield.
Ship Finance International (NYSE: SFL) is another one I like, and it pays about almost 8.5%. They operate double-hull tankers for transporting crude oil. They have dry bulk. They’ve got jack-up rigs also and they do chemical container ships.
They also have container ships for finished goods, so their boats are going back and forth. They’re not empty coming back from China or vice versa. That’s the thing with shipping—you want to try to get freight going both directions and not just one.
SFL also does a lot of financing for other companies in the shipping business, and I think as the global economy continues to rebound, the shipping business will continue to be pretty good. And the deep-water drilling business—when day rates increase (and they are now ticking back up), there’s another way you can be a part of the energy sector.
The shipping stocks are a nice way to be a part of many different things, and they raise their dividends consistently as their profits improve.
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