The Best, and Worst, High Yield Investment Today

Brett Owens, Chief Investment Strategist
Updated: May 11, 2016

Billionaire “Bond God” Jeffrey Gundlach just shared his favorite short idea at the Ira Sohn investment conference last Wednesday. Dividend investors take note – the high priest of fixed income just panned your longtime standby!

Utilities aren’t safe, says Gundlach. Their valuations are stretched to the upside, and their yields are too low. So he recommends a pair trade that shorts the Utilities Select Sector SPDR (XLU), which pays a meager 3.3% today:

Utilities-Dividend-Yield-Chart

Utility Yields At 7-Year Lows

A low yield can be OK if dividend growth is meaningful, but few utilities are boosting their payouts at a fast enough pace to compensate. Of XLU’s top five holdings, only two – NextEra Energy (NEE) and Dominion Resources (D)
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2 Cheap Dividend Growers To Buy For Retirement

Brett Owens, Chief Investment Strategist
Updated: May 9, 2016

If you’re one of the many investors counting on a 7% average yearly return from your portfolio—or better—you’re putting your retirement at risk.

You’ve probably heard this 7% figure before. It’s gospel for many financial planners, and even Warren Buffett brings it up from time to time. It’s the S&P 500’s average annual return, adjusted for inflation, between 1928 and 2014.

With a time frame like that, it seems like a safe bet, right?

Wrong. Because over the next several decades, we’re way more likely see average yearly returns of 4% to 6%—and probably toward the lower end of that range.

I’m not the only one who thinks so. Consulting firm McKinsey & Co. just released an alarming study saying exactly the same thing. And if you think a 2% drop isn’t a big deal, consider this: …
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The 3 Best, and 2 Worst MLPs Right Now

Brett Owens, Chief Investment Strategist
Updated: May 6, 2016

In the energy sector, a number of companies operate as master limited partnerships (MLPs) to avoid double taxation and offer a high income yielding asset for investors to buy on the open market. MLPs were solid performers until late 2014, when oil began to fall, looking desperately for a bottom that never seemed to come.

Oil remains far below its prices earlier this decade, and it may fall again to $30 per barrel. But if oil prices drop again, the decline won’t be as aggressive as the dramatic plunge we just saw.

Crude’s Breathtaking Drop

Brent-Oil-Price-Chart

The chart continues to look ugly, but some tailwinds are likely to keep oil from falling below $30 for very long. For one, layoffs and shut wells in the domestic energy industry have already cut production capacity. …
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4 Big Dividends About To Be Slashed

Brett Owens, Chief Investment Strategist
Updated: May 6, 2016

High yielding dividend stocks are an appetizing part of any portfolio and it’s easy to see why. They act as risk moderators, balancing out a portfolio and amplifying gains over time. But stocks are a lot like the surface of a placid lake with torrential currents underneath that may not be obvious at a glance.

Sometimes a juicy high yielding dividend stock isn’t all its cracked up to be and unwary investors snap up the bait only to realize their mistake after it’s too late. Remember the old adage, “if it looks too good to be true, then it probably is.”

But before you start questioning all high yield stocks, there are telltale signs that a dividend yield could be all smoke and mirrors. One big clue is the dividend payout ratio – the percentage of earnings returned to shareholders in the form of dividends. …
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3 Big Money Favorites With 25% Downside

Brett Owens, Chief Investment Strategist
Updated: May 4, 2016

Most investors think it’s a good thing to be long alongside the “Big Money.” But professionals’ favorites are actually the riskiest stocks you could own. Let me explain why – and share three beloved names you should sell today.

Ten days ago, Barron’s published its latest Big Money poll, where money managers shared their top stocks for the next 12 months. Three “digital utilities” were particularly popular, and why not? All three had reasonable valuations, strong cash flows and of course healthy dividends.

Last week, two reported earnings – and both got clobbered. Here’s how they’ve performed since their Barron’s love letter:

Big Money’s Tech Darlings Get Dumped

Big-Money-Tech-Darlings

The beauty of an earnings report – and really any “news” a company reports – is in the eye of the beholder. …
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Don’t Sell in May: Buy These 4 Dividend Growers Instead

Brett Owens, Chief Investment Strategist
Updated: May 2, 2016

If you “sell in May and go away” this year, you could be putting a whole year’s worth of returns at risk.

Now is the time to be adding top-notch dividend stocks to your portfolio. I’ll give you four my “second-level analysis” has uncovered in a moment.

First, here’s why “sell in May” is a flawed strategy that could cost you money.

True, stocks typically struggle in the summer months: since 1950, the Dow Jones Industrial Average has gained an average of 0.4% from May through October, according to the Stock Trader’s Almanac, compared to a 7.5% rise from November through April.

But jumping out of the market only to jump back in six months later is still a terrible idea. For one, you’ll miss out on dividends, which make up a big part of most investors’ long-term returns. …
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3 High-Yield Mortgage REITs To Buy, 2 To Sell Now

Brett Owens, Chief Investment Strategist
Updated: April 29, 2016

On Wall Street, there’s a familiar saying: the next crisis won’t look like the last one. If true, it means the next crisis won’t be in the mortgage market—it will be somewhere else.

There are reasons to feel confident about this hypothesis. Mortgage delinquency rates are falling significantly, according to data from the Federal Reserve. Back in the first quarter of 2010, delinquencies on single-family mortgages peaked at 11.26% – they’ve declined steadily since, and are quickly approaching 5%.

Delinquency-Rate-Chart

Mortgage Delinquency Rates Continue to Decline

Several analysts believe that on-time mortgage payments will continue to improve. Delinquencies are still high by historic standards – throughout most of the 1990s and in the 2000s, defaults stayed below 3%. …
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Buy These 3 High-Yield REITs While They’re Still Cheap

Brett Owens, Chief Investment Strategist
Updated: April 28, 2016

The buy-the-headline crowd is at it again. This time, they’re dumping real estate investment trusts (REITs) based on a small uptick in 10-year bond yields.

Earlier this week, the yield on the 10-year Treasury broke through 1.90% after moving in a range between 1.70% and 1.80% for the better part of April.

As is often the case, the jump had the opposite effect on REITs. Here’s how the Vanguard REIT Index ETF (VNQ), my favorite REIT ETF and a good proxy for the sector, has performed in the past week:

VNQ-Stock-Chart-Current

Why the decline? Investors are worried rising rates will make REITs less attractive, as yields on so-called “safe” investments like Treasuries shoot higher. But even if the Fed does as most traders expect and hikes rates one to two times this year (I think it will be more like once or not at all), it will still be a long time before Treasuries rival REITs yielding 4% and up. …
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5 Despised Dividend-Payers With Easy 20% Upside

Brett Owens, Chief Investment Strategist
Updated: April 27, 2016

There are two easy ways to make sure your portfolio beats the market averages, and most professionals too. The first you already know: Buy dividend payers, preferably those that boost their payout annually. The second is just as simple…

Buy the dividend raisers that analysts hate the most.

We see it repeatedly – the highest rated stocks lag the dogs. When every analyst is already bullish, the only possible change in grade is a downgrade!

Bespoke Investment Group ran the numbers for the first quarter of 2016. The S&P was roughly flat (up 0.8%), while the biggest dividend payers rolled (soaring 10.2% collectively).

And analysts’ darling stocks? Their most dear fell 2.8%, while their most hated rose 4.3% to 7.8%.

In this contrarian income spirit, let’s apply some thoughtful …
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5 Big Dividends To Add To Your Watchlist

Brett Owens, Chief Investment Strategist
Updated: April 25, 2016

There’s a common misconception when it comes to dividend paying stocks. They’re conservative, lumbering, defensive assets only to be used as a portfolio-balancing act. In other words, “boring.”

But dividend payers have a terribly misunderstood reputation. True, they operate as defensive stocks – but they can also be great instruments of profit. Imagine owning a stock that not only produces solid growth but also pays you a bonus for owning it every quarter. Now picture this investment in an industry that no one else is paying attention to making these stocks deeply undervalued and under-appreciated.

Good news – there is. High-yielding dividend stocks are great value pick-ups for investors in this market. The yield on the 10-year treasury is a dismal 1.85% and investors are hungry for fat yields. …
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