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Larry Meyers, PDL Capital (76 clicks)
Value, special situations, long-term horizon, small-cap
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I took some time over the holiday to scour through the stock market searching for 3 stocks to add to my portfolio for 2012 that would provide reliable fixed-income with yields above 5%. For whatever reason, the start of a new year just gives me a certain clarity regarding where a company has been and where it's going. I didn't just want any three stocks, though. I wanted three stocks I could hold for at least five years and have reasonable confidence that they would maintain their high yields while preserving capital (and hopefully generate capital gains).

Ashford Hospitality Trust (AHT) is the best managed hotel REIT in the sector. The REIT holds over 160 hotels, and managed them beautifully during the financial crisis. They were able to cut expenses to keep pace with the devastating drops in RevPAR the hotel sector experienced. They were able to, and continue to be able to refinance their debt, pushing it further out. They have $200 million of cash available. They just set up a $20 million hedge fund within the REIT structure that allows them to invest in the public securities of other hotel companies. Nobody else has that kind of structure, and with management's 20 years of experience in hotels, nobody else could take advantage of it the way Ashford will. The stock is off some 40% from its recent high for no discernible reason, and it yield 5%. I see both significant capital gain upside from here, plus a stable dividend.

Preferred stocks never get the notice they should. They are fantastic generators of fixed income with limited risk. With bond yields having fallen to unattractive levels, and ever-present risk in the stock market, preferreds make a perfect compromise. You can invest in individual preferreds. Ashford itself has a Preferred D that yields 8.45% and an E Series that yields 9%). You might take a look at Public Storage (PSA), which has a Series P that yields 6.5%. If you prefer, you can use the nicely constructed iShares S&P U.S. Preferred Stock Index (PFF). This ETF holds a basket of preferred stocks presently yielding 7%. Mind you, I'm not crazy about the high level of financial companies it holds. Now I’m not worried at all about the preferreds it holds in Wells Fargo (WFC). Wells is in fine shape, the balance sheet looks like it's holding up, and they aren't begging Warren Buffett for a $5 billion investment like Bank of America (BAC) did. Wells has always made good on paying its preferred dividends. I’m not as crazy about Citigroup (C) being in the mix, but the bank has separated out its toxic mortgages, and if hedge fund manager Bill Ackman has bought in for $500 million, he's not concerned, either. Citigroup preferred also has a small part of the portfolio.

Finally, I'd go with Kinder Morgan Energy Partners, L.P (KMP). This energy pipeline play is considered the gold standard of stocks in this sector. The company has consistently raised its dividend -- sometimes even quarter to quarter -- over the past eight years. Energy is not going away, consumption will always be with us, and despite clamoring for "green energy", let's just say that ain't ever gonna happen in broad enough ways to put a dent in Kinder's business. The stock presently yields 5.6%, but the company has been recently raising the dividend every quarter, so it could go higher.

Disclosure: I am long AHT, PKKRF.PK

Source: 3 Must-Buy Fixed Income Stocks For 2012