Yield Hog ETF Seems a Safer Bet

After the recent closing of the positions in City Bank (CTBK) and Penn West Energy (PWE), I wanted to add another income security to my site’s hypothetical Income Portfolio. The usual types in the high yield world are MLPs, REITs, shipping companies and utilities. Also, many foreign companies pay excellent if not regular dividends.

The current market conditions make it very difficult to pick an individual issue that does not have some piece of bad news up its sleeve that will hammer the stock price when the news gets out. So I decided to throw my fate on to the general market and pick an income providing ETF to add to the portfolio.

I selected the Claymore/Zacks Multi-Asset Income Index ETF (CVY). CVY pays dividends quarterly and has a current yield of just over 12%. The index is a mixture of stocks, MLPs, REITs and CEFs. Energy and financials make up right around 50% of the fund, but the top 10 holdings are only 15.6% of the portfolio.The index is designed to select companies with growing dividends and well covered payout ratios.

I have been writing for a while that the current market is a great buying opportunity for stocks whose prices have driven them to unbelievable yields, but they will be able to continue to pay their current dividends. There are a host of stocks that have historically yielded 7% to 10% and now show double that. When market conditions return to a more normal state, share prices will double. In the meantime, shareholders will collect excellent dividends.

At this point the Income Portfolio is pretty much fully invested and I will practice patience until the current bear market has run its course.

Comments

[SectorAlloc...:]

MLP's typically send K-1's to holders at tax time which are difficult to translate to the IRS tax forms. Does anyone know if CVY, which holds many MLP's, will also send out K-1's?

2008 Dec 07 01:05 PM

[SectorAlloc...:]

MLP's send out K-1's at tax time which must be laboriously entered onto the IRS forms. Does anyone know if CVY also sends out K-1's?

2008 Dec 07 01:07 PM

[Tim Plaehn:]

From what I understand, buying the ETF eliminates the K-1 coming to you.

2008 Dec 07 03:34 PM

[Chancer:]

You don't own the MLP. CVY owns the MLP.

The income you report comes from your investment in CVY, not from the MLP's that CVY owns.

2008 Dec 08 12:40 PM