It's right there at the top of the masthead of my premium newsletter: High-Yield Investing.
Notice the emphasis on the word "high."
Some investors are perfectly content with Wal-Mart (NYSE: WMT) and its ordinary 2.6% dividend yield, or Microsoft (Nasdaq: MSFT), which pays 2.3%. After all, these are two of the most widely-held stocks in the world.
My readers aren't interested in hearing about Wal-Mart or Microsoft. They subscribe to my newsletter to discover securities with truly elevated payouts -- not average ones.
My goal is to help my readers dramatically boost their portfolio income. That's why I constantly scour obscure corners of the market to uncover new investment ideas. But it's no easy task.
In years past, you could almost trip over 5% yielders. They were everywhere. But in today's low-yield environment, they have become a rare breed -- and 10%+ yielders are practically an endangered species.
Of the 500 mainstream stocks in the S&P 500 index, only a dozen have yields above 5%. The norm is barely 2%. And you won't get too much more in the bond market either. The iShares U.S. Aggregate Bond ETF (AGG), which tracks thousands of investment-grade corporate bonds, is currently distributing a paltry 2.4%.
That's just the world we live in right now. To jump-start the economy, the U.S. Federal Reserve lowered short-term interest rates to near zero and kept them there for years. Only recently have they begun inching higher. That loose monetary policy has been great for borrowers, but terrible for savers trying to collect dividends and interest.
But at High-Yield Investing, I don't even present a stock, bond or fund unless it offers a minimum yield of 4% -- and the average security in my portfolio is dishing out 6.4%. On an even-weighted basis, these recommendations are generating $6,400 in annual income for every $100,000 invested.
That's three times the income from an average stock or bond fund.
Still, there is always room for improvement. That's why I recently made a big upgrade to one of my regular newsletter features -- by devoting an entire section of my newsletter to screen exclusively for double-digit payouts of 10% or better.
Now, I should note that we have a two-part objective at High-Yield Investing -- uncovering the highest and safest yields. To be blunt, these two goals are sometimes contradictory. Almost by definition, 10% yields aren't going to be the safest securities around.
History is littered with double-digit yielders that lured in unwary investors with high payouts, only to crash and burn later. And I'm not just talking about tiny, speculative businesses. Even some of the mightiest fall victim.
With this in mind, it should serve as an important reminder to exercise caution. Dividends aren't set in stone. A payout that seems too good to be true often is. And when the distribution subsequently gets cut, there is usually a painful backlash in the share price as well.
That being said, I wouldn't be writing this if there weren't exceptions. There are certainly times when the rewards are well worth the risk. And that's what this new feature is all about -- uncovering misunderstood 10%-plus yielders.
Since I just started this new feature of my newsletter, and I want to share a little bit of it with you today.
I Found 3 10%-Plus Yields Worth Looking Into
I started by screening our Bloomberg database for U.S.-listed stocks with double-digit payouts. It's a shallow pool comprising just 182 securities out of a universe of 10,000-plus. And I'd say 60% to 70% of these are pure garbage. Some may even have a one-way ticket to insolvency. That only leaves a few dozen reputable contenders.
Nobody ever said this would be easy.
Ordinarily, I would toss out companies with excessive payout ratios, negative cash flow outlooks and other such warning signs. But in this case, we have to show some leniency. If everything were running smoothly with a 10%-plus yielder, then investors would have already flooded into the stock and driven the yield lower.
If that hasn't happened, you can bet there is a reason. Most every contender on this list will be facing some short-term challenges. With few exceptions, there will be obvious signs of financial distress. So screening for distress won't do anything -- except give us an empty set of results.
There are some useful filters, such as a recent pattern of insider buying. But generally speaking, this is more of a qualitative process than a qualitative one, as I look for companies with valuable assets, sound business models and durable competitive advantages -- those built to withstand current headwinds and emerge strong.
With all that in mind, my first run-through uncovered three candidates, each of which is listed below.
|Security||TTM Net Income||Stock Price||Current Annual Dividend||Yield|
|NuStar GP Holdings (NYSE: NSH)||$92M||$21.55||$2.18||10.1%|
|Golar LNG Partners (Nasdaq: GMLP)||$182M||$22.29||$2.31||10.4%|
|Icahn Enterprises (Nasdaq: IEP)||$1,286M||$55.44||$6.00||10.8%|
As I mentioned previously, this "double-digit" feature will become a regular part of High-Yield Investing going forward. My goal is to find at least several worthy candidates each month, but I won't be including companies simply to meet a quota -- if I can find only one or two double-digit yielders in a given month that I believe are worthy of your consideration, that's what we'll go with.
The goal of this stock screen is to identify stocks that are worthy of a closer look. While they meet certain criteria, the companies in the table above haven't been fully researched and shouldn't necessarily be considered portfolio recommendations. If I find a real gem within these screens, a stock that can actually maintain this level of yield through the years to come, my High-Yield Investing subscribers will be the ones who benefit the most.
So if you'd like to join us in our search for the best high yields the market has to offer, then I want to invite you to learn more about High-Yield Investing. You don't have to settle for the paltry yields offered by most stocks. The high yields are still out there. You just have to know where to look -- and my staff and I are here to help you along.
This article originally appeared on StreetAuthority.