Wednesday, November 20, 2013

The Perfect Income Investment

The more I vet income investments, the more convinced I am that business  
The Perfect Income Investment
Wednesday, November 20, 2013

Editor's Note: Microsoft more than doubled its dividend payouts over the past decade - which is great. But our income expert Andy Crowder recently uncovered a way to double Microsoft's dividends in a matter of months - not years. TOMORROW at 2 pm, he reveals exactly how in a free, live teleconference event. Click here to sign up.



The more I vet income investments, the more convinced I am that business development companies (BDCs) are the investment of choice for many income investors.


BDCs are especially appealing to investors seeking alternatives to traditional fixed-income investments like bonds, certificates of deposits, and savings accounts. Unless you're willing to reach on the risk curve or commit money for several years, most of these investments offer pitiful yields. 


But many BDCs, in comparison, pay income that yields 8% to 12%, and do so with sound assurance.


These BDCs make money borrowing at one rate, usually by issuing notes and bonds, and lending at a higher rate. They earn money on the spread, which is not dissimilar to how traditional banks earn money.  The differences are that BDCs don't take deposits or offer banking services, and they focus on a specific clientele - small-to-mid-size businesses. 


There are a few characteristics, in addition to yield, that make BDCs particularly attractive as fixed-income alternatives.


Liquidity is one. BDCs trade just like ordinary stock. Many individual bonds trade in $1,000 increments, and bid-and-ask spreads can be expansive. They can be difficult for retail investors to buy.  


The better BDCs also offer protection against rising interest rates, which can lead to significant capital losses.


When interest rates spiked higher in April, fixed-rate bonds lost money, as did  fixed-rate bonds funds. Even a respectable conservative bond fund like the Vanguard Long-Term Bond Fund (NYSE: BLV) experienced double-digit losses. 



Collect monthly $1,200 "rent checks" -- without being a landlord


It's one of the greatest income sources available... being a landlord. You collect rent month after month and ever year it goes up! But being a landlord also means headaches and increasing your debt by taking out mortgages to buy new properties or renovate existing ones. That used to be the case... until now. We've uncovered a way to earn steady, monthly income through rental properties WITHOUT being a landlord. If this sounds good to you, please read our research brief that explains how to collect your first "rent check" next month. 


Click here to read my report.



In contrast, the High Yield Wealth portfolio owns two quality income BDCs. Both experienced a slight single-digit loss in April, but quickly recovered. I was not surprised. One of these BDCs yields 8.5% and not only regularly raises its payout, it frequently supplements its payout with special dividends. 


The other is an income powerhouse. It yields 11.5% and pays its distributions monthly. What's more, every few months, the payout is increased incrementally.  It's a terrific low-volatility income investment for those who depend on their investments to meet monthly expenses. 


I believe the BDCs we recommend in High Yield Wealth are well-positioned to prosper if interest rates spike again. Over the past year, both have altered their capital structures toward fixed-rate liabilities while their assets remain mostly - 80% to 90% - variable rate. When interest rates rise, the cost of their funds will remain static while income from their loan portfolios will increase. 


I actually prefer our BDCs over another asset class that's specifically designed to prosper when rates rise: floating-rate (or variable-rate) funds.  These funds invest in low-quality variable-rate bonds and variable-rate bank loans. To goose returns, they employ leverage that itself is variable rate and will rise if interest rates rise. 


For example, the LMP Corporate Loan Fund yields 7.2% (which is still less than the yield on our two BDCs). The fund invests primarily in low-rated variable-rate senior bank loans. But it uses considerable leverage - 33% of the fund. When rates rise, so will the cost of borrowing, because the borrowing costs are variable rate.


When income, yield, and interest-rate risk are factored into the equation, a quality BDC is a hard investment to beat from an income investor's perspective. 


Good Investing,


Stephen Mauzy

Aurora, Colo. 




12 Straight Months of Dividends


If you're looking for just one dividend stock to round out your income stream, consider a little-known company that pays out dividends 12 months of the year.


Click here to see the full details of this company in my Dividend Calendar...

Popular Analysis from Wyatt Research

Tuesday, November 19, 2013
Why Microsoft Needs the Next Marissa Mayer

Steve Ballmer is out as Microsoft (NASDAQ: MSFT) CEO. After 33 years with the software giant, the last 13 spent as its CEO, Ballmer was essentially forced into retirement by Microsoft's board of directors.

Monday, November 18, 2013
My Favorite Growth Trend
It's usually a challenge to select one single growth trend that is more powerful than the rest. But that's not the case these days - it has to be the boom in U.S. oil and gas production.


Friday, November 15, 2013
Retail Recovery Benefiting Income Investors
This hasn't been the best year for U.S. retailers. But retail sales have undoubtedly been a major contributor to America's post-recession recovery.



Latest Income & Prosperity

Tuesday, November 19, 2013
A New Opportunity to Double Your Dividend

I'd say it's no stretch to call AT&T (NYSE: T) one of the more reliable dividend-growth and income investment stocks on the market.


Monday, November 18, 2013
How a DRIP Helped Pay for My First Home
If there were no such thing as dividend reinvestment programs (DRIPs), I probably would never have been able to afford my first house.


Friday, November 15, 2013
QE3 Extension Means Buy Gold and Silver
I'll believe it when I see. I refer to Federal Reserve, quantitative easing, and tapering.


Thursday, November 14, 2013
The Bear Call Spread Strategy
Over the past several weeks, the combination of rising stocks and falling bonds has led to an unusual and extreme precedent between the two asset classes.



Disclaimer & Important Information is owned and published by Wyatt Investment Research. Wyatt Investment Research is neither a registered investment adviser nor a broker/dealer. Readers are advised that this electronic publication is issued solely for information purposes and should not to be construed as an offer to sell or the solicitation of an offer to buy any security.

We encourage you to review our full Email and Disclosure policies.
To view our Email Policy, please
click here. To view our Disclosure Policy, please click here.

If you believe this communication to be a mistake or unsolicited, please e-mail with details regarding your situation, and we will be sure to promptly investigate your situation.

You are subscribed with the following email address:
To unsubscribe from this newsletter, please visit

Copyright (c) 2013 Wyatt Investment Research. |
Privacy Policy

Wyatt Investment Research
65 Railroad Street
Richmond, VT 05477. PO Box 790



1 comment:

  1. eToro is the ultimate forex trading platform for rookie and pro traders.