A Note From the Editorial Director: Normally Tuesdays are devoted to Chris Rowe’s Technical Tuesday column. But today’s a special day. Marc Lichtenfeld just released his latest trading advisory, Dividend Multiplier. In today’s column, Marc celebrates by discussing a thorny problem facing income investors: the difficulty finding safe, high yields. If you’re an investor interested in dividend-paying stocks (and every investor should be), then today’s column is a must-read.
Marc also hints – just hints – at the ingenious solution he’s developed to this problem. He’s being modest. But I’ll just say it: If you are looking for a safe way to double, triple or even quadruple your annual dividend income, you need to click here.
- Andrew Snyder
Everyone wants yield today, and it’s getting harder and harder to find. As stock prices have risen, dividend yields have fallen. And not just for stocks but for many high-yield bonds as well.
Over the past two years, dividend stocks have climbed in line with the S&P 500, both up 43%, while higher-yielding dividend stocks are up 44%. Even high-yield bonds are up 20% since January 2012, making it harder to find attractive yields in that market as well.
So it’s no wonder that investors have flooded into high-yielding master limited partnerships (MLPs) like Buckeye Partners (NYSE: BPL, Stock Forum), up 45% in one year and yielding 6.1%; or real estate investment trusts (REITs) like Omega Healthcare Investors (NYSE: OHI, Stock Forum), up 37% in the past year and also yielding 6.1%.
Even regular dividend payers like Bristol-Myers Squibb (NYSE: BMY, Stock Forum), which a year ago yielded 4%, yields only 2.6% today (even after a dividend raise) thanks to the stock’s 63% rise in the past 12 months.
When readers email me asking my thoughts on various dividend stocks, rarely do I get questions about Pfizer Inc. (NYSE: PFE, Stock Forum), McDonalds Corp. (NYSE: MCD, Stock Forum) or Consolidated Edison Inc. (NYSE: ED, Stock Forum).
It’s usually about double-digit-yielding mortgage REITs and 8%+ yielding MLPs. In other words, the riskiest dividend payers in the market.
I’m very concerned that investors are overloading their portfolios with MLPs, REITs and other high yielders. Don’t get me wrong, I love MLPs and REITs and have several of them in the Oxford Income Letter portfolios.
But I don’t want investors getting too overweight in them.
Not Diversified
The vast majority of MLPs are in the energy sector. Now, I happen to believe that energy is going to be a strong performer for years to come. But if I’m wrong, or if there’s a hiccup in the sector, MLPs will take a hit. And although their yields are attractive, an investor shouldn’t see his or her portfolio suffer a major hit because one sector falls.
Same thing with REITs. These companies invest in real estate and there are some that are
well-positioned to take advantage of higher interest rates and inflation, while others are not. An investor in the wrong bunch of REITs could see his yields wiped out by a fall in their stock prices.
So what’s an investor who needs yield today to do? I see three choices:
- Take on more risk than is reasonable in order to obtain higher yields.
- Buy safe stocks whose yields won’t get you where you need to go.
- Find an alternative.
Currently, I’m excited about No. 3. I recently launched a strategy that enables investors to multiply their dividends, earning annualized yields of 20% or more.
It involves safe stocks and is one of the most conservative strategies there is.
You can learn more about it by clicking this link.
Regardless of whether you use my dividend-multiplier strategy, be sure you’re not taking on too much risk in order to get the yield you want.
It’s better to have a little less income today than a lot less capital tomorrow. There will always be opportunities in the market, so be sure you don’t miss out on them because you’ve lost money taking on too much risk.