3 High-Yield Plays for Conservative Investors

11/03/2011 3:00 pm EST


Victor Schiller

President, Investors Observer/Fresh Brewed Media

Victor Schiller advises investors to keep 80% of assets in a safe place and invest the other 20% in dividend payers, like the ones he recommends in this exclusive interview with MoneyShow.com, that could generate 7% or 8% a year or more.

We’ve been seeing a lot of volatility in the market. Victor Schiller has some advice on what we can do to protect our finances. Victor, thanks for being here.

You’re welcome. Yes, the market has been up and down for the last few years, and it can tend to unnerve investors.

Definitely, the solution is not to take all your money out of the market and put it under the mattress. The mattress gets slightly less interest than a CD or a money market, but the CD or money market is safer hopefully. But it’s really about selectively picking the right investments to get into, and then creating structured trades so that your downside is protected.

Another thing that we use is the 80/20 rule, where you take 80% of your capital and put it in a super-safe place. Maybe it is a CD—something like that that’s earning just barely any interest—but then you take the other 20% and you become a little more speculative with that.

I’m not talking about penny stocks or hot tech stocks that nobody knows what’s going to happen to them, but get out there and try to earn even 10% a year on those. There are plenty of dividend-paying stocks that are up in that range,  7% to 8%, that you can then use a covered call to not only protect but juice up those returns and get them closer to 10%.

When you average out your portfolio between the super safe and the more speculative, you’ll come up with a higher return rate that will get you through these turbulent times in the market, which could last a long time.

Any specific stocks that you might recommend?

You know, up in the 7% to 8% range...I mean there are some great scanners that you can use, but one that I’ve been playing is Altria (MO). I’ve been playing it cautiously, because they had a bad earnings report in the second quarter, and they’re just worried about people continuing to smoke. I’m not a smoker but I don’t mind making money off of smokers.

There is also Philip Morris International (PM) which was a part of Altria that was spun out. Anybody who travels internationally kind of gets it that people smoke more overseas than here.

So those are nice ones to play, because again, that’s inelastic. They can raise prices on the cigarettes and people will still smoke. So, that’s a good one to play, but play cautiously. Don’t go all in on it. It’s a good part to have in your portfolio.

The others I look for, I look for reasonable REITs. I had mentioned American Campus Communities (ACC) is one like that, because caution is really going to be the theme for the next few years. There is no question about that.

And the way you protect yourself on these is you do covered calls—especially if it’s a dividend-paying stock, you still collect the dividend, but in the meantime you’ve sold somebody the right to buy that stock off of you at a lower price in the future. They pay you a premium for it. You’re like an insurance company and that helps to juice up the returns, protects your downside.

You know, it’s a good way to go in this market. Look, if you’re a 22-year-old person who is earning a lot of money and that, you can take more risk, but if you’re up there in the 40s and 50s closer to retirement, you have to be very cautious, because you may not get another try at it. You don’t want to be working until you're 85...unless you really like what you’re doing.

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