Many retirees need dividend income to pay for ongoing expenses. Every retiree is in a unique financial situation with different sources of income. Retirees want their investment dollars to provide a cushion for rising medical bills and living expenses. In this article I recommend four stocks with a an average yield of 10.1%. I recommend one dividend stock to avoid due to the dividends exceeding the net income.
American Capital Agency Corp. (AGNC)
American Capital Agency is a mortgage real estate investment trust (mREIT). The company invests in agency mortgage backed securities (MBS). Agency MBS are implicitly backed by an U.S. Federal Government agency. An example is the Government National Mortgage Association. "Ginnie Mae" is the popular name for the organization.
American Capital Agency's business model is to borrow short term funds via a repurchase agreement. The mREIT then invests these proceeds in higher yielding Government Sponsored Entity MBS. The higher yielding assets are longer duration. The mREIT uses leverage to expand the yield margin between borrowing and lending costs.
American Capital Agency has successfully operated their business since their initial public offering. The bond market continues to favor agency mREITs to effectively provide high yields to investors. The current Treasury Bond rates, as of March 29th, indicate the following yields:
The longer duration yields have moved up per the above table. It is important to remember mREITs invest in Government Sponsored Entity MBS, and do not invest in Treasury Bonds. I recommend buying shares at current price levels.
Linn Energy, LLC (LINE)
Linn Energy is an exploration and production company. The focus is upon natural gas and oil with long life reserves and predictable cash flow. The company provides a K-1 to all unit holders for tax purposes. The company is not a wildcat explorer, but focused upon a steady distribution stream to investors.
On May 27th, management provided an updated hedge position for thecompany's natural gas and oil production. The company, by hedging production, has allowed for a predictable cash flow distribution. The equity offers an annual 7.3% yield and production is predominantly hedged through 2015. I recommend buying shares at current price levels.
Altria Group Inc. (MO)
Altria's PM USA unit is the largest cigarette company in the U.S. The leading brand is Marlboro. Due to the 2009 Family Smoking Prevention and Tobacco Control Act, the Food and Drug Administration has significant authority over cigarette sales and marketing. This act provides a barrier for new companies to enter the market.
I recommend investors to buy shares at present levels. The yield is 5.4% and the company's business model is resilient to a deleveraging economy.
Gabelli Global Gold, Natural Resources & Income Trust (GGN)
Gabelli Global Gold is a closed end fund that holds equity positions in gold production equities and natural resource equities. The management team proceeds to sell covered calls against the long equity positions. The sale of the covered calls is treated as return of capital. The fund pays a monthly 14 cent dividend, and has done so for the past 6 years.
The yield is a compelling 10.5% payout. I recommend buying shares when the price drops down to net asset levels, which is presently$14.58 per share.
Collectors Universe Inc. (CLCT)
Collectors Universe offers authentication and grading services. Key customers include dealers and collectors. Items that are graded include high priced coins, sport cards, autographs, stamps, and memorabilia.
I recommend investors avoid Collectors Universe due to their dividend exceeding their quarterly and annual net income per the SEC 10Kfilings.
Retirees can find ample dividend yields to bolster their income needs. They must pay very close attention to each asset class, and fully understand what they are investing in. A 10.1% yield, as witnessed above, is obtainable for retirees who want to be proactive and take matters into their own hands.