8 High-Yielding Stocks for Income Investors

We all know the baby boomers are going to begin entering retirement. While there are many different styles of investing, I believe that when one enters the retirement stage of life, income investing is by far the best. Investing in companies and bonds that offer high dividend yields can prevent one from being forced to start living off the capital in the portfolio. Nothing would suck more than outliving your portfolio and winding up a 85+ year old with no money and a big burden to your children or your country.

Finding high dividend yields will probably become increasingly hard. Why? As the boomer’s enter retirement they will most likely start searching for high yielding investments in large numbers so they can afford retirement. As the demand for these high dividend yielding investments increases, so too will the price of those investments, meaning that dividend yields may decrease.

There is a wild card… perhaps many CEOs will realize that investor’s are looking for companies with high dividends and maybe more companies will begin offering dividends so they can lure investment capital. I hope this happens and I’m sure it will to a degree, but I don’t think it will happen in large numbers.

I do like to invest for growth in a companies stock price, but I also want to be paid as an owner. Why should anyone own a company? To make money! Too many public companies fail to issue dividends, instead telling their shareholders that they are going to put all that money back to work to grow the company and it’s share price. This probably makes it easier for CEOs and executives to grow the bottom line and get those big bonuses. But, as an owner, and while I LOVE growth in the stock price, I still want to be paid a portion of earnings. It doesn’t have to be a high portion, but I should be paid something.

There are benefits to increasing the stock price as opposed to issuing dividends. Obviously the company will ultimately be in a better financial position if it isn’t giving away its earnings. It will have more options to grow and compete. Heck, as long as you don’t sell the stock frequently, the paper gains over a period of 10+ years can all grow tax free. Yes, you will pay taxes when you sell the stock at a gain, but as long as you don’t sell it, you pay nothing. Dividends are taxable, but at a lower rate (at least in my country). So while I do like and understand why many companies don’t offer dividends, I still believe a company that is profitable and has a healthy balance sheet should give at least a SMALL dividend.

8 High Yielding U.S. Stocks

Harvest Energy Trust (HTE) 15.20% - Oil & Gas

GSC Investment Corp (GNV) 16.30% - Asset Management

Oceanfreight Inc. (OCNF) 16.20% - Shipping

Penn West Energy Trust (PWE) 15.00% - Oil & Gas

Pengrowth Energy Trust (PGH) 14.80% - Oil & Gas

Babcock & Brown Air (FLY) 14.20% - Leasing Aircraft (long term leases)

Omega Navigation (ONAV) 14.10% - Shipping

Terra Nitrogen (TNH) 14.10% - Agricultural Fertilizers

There is a common theme when looking through the companies that offer high yields. Almost all are in the Real Estate Investment Trust sector or are Oil & Gas Income Trusts (Canadian). Just remember that Canadian Income Trusts (with the exception of REITs) will have to change structure within the next several years and they will be taxed. Another common theme is the sheer number of shipping companies that offer high yields. Shipping has been around FOREVER, and unless air freight were to significantly decrease, it looks like it will be around for a while longer.

Also remember, you don’t have to go with a high yielding stock. There are plenty of stable companies that offer steady dividends like Procter & Gamble (PG) 2.10% which has been paying dividends for over a hundred years.

Comments

[OneRichOne]

I retired in 2002 because the company wanted to give some people a buy-out. I started looking for ways to get a good growth of my IRA. I started out looking only for high dividend stocks only. That turned out to not be the best way to search as I found a lot of them were mortgage REIT's. I got burned on Impact Mortgage IMH and a couple of others. I refined my search to include debt to equity ratio and this turned out much better results. Since 2002, my IRA has grown by over 5X. I invest in a varity of companies, a couple in your article. I want my average dividends to be over 7% because when I turn 70-1/2 I will be required to take out of the IRA about 7%. Meantime I just keep re-investing the dividends and adding more diversity. I currently have positions in 33 different companies and hope to add more.

[Phil Obal]

OneRichOne should share his list of 33 companies.

Great article BTW, but you failed to list is a US oil trust called "TEL Offshore Trust".

TEL Offshore Trust's (Trust) principal asset consists of a 99.99% interest in the TEL Offshore Trust Partnership (Partnership). Chevron U.S.A., Inc. (Chevron) owns the remaining .01% interest in the Partnership. The Partnership owns an overriding royalty interest (Royalty), equivalent to a 25% net profits interest, in certain oil and gas properties (the Royalty Properties) located offshore Louisiana.

Around March 26th (a week away) - they will announce another quarterly dividend, which should be .80 to .85 IMHO. The yield would be roughly 16.8 % EXTREMELY NICE YIELD for a US based (not Canadian) oil and gas trust. Almost 17% with the new yield at 19.30 / share price.

[djbtz]

what is the symbol for Tel offshore trust, thanks

[tk77mann]

Good article, but one important thing about PGH is that it is treated like a partnership by the US government for personal tax reporting purposes. That means you have to file additional, detailed, and hard to use paperwork every April 15 when you own these shares, even in an IRA or other tax-deferred account. Otherwise it is a good company to own shares (or units, more precisely) in but the annual tax reporting is not for those who want an easy filing every year.

[OneRichOne]

Tel Offshore Trust=TELOZ

[DividendGrowthInvestor]

I disagree that you should chase higher yielding stocks just for the yield. You also need to have some past stability in the dividend payments. But I do agree with one richone that having a diversified income producing portfolio is a good way to produce income.
Have you considered income deposit securities?

[Andrew E.]

Ditto the comment about PGH for TNH. I have to file a Schedule-K with the IRS because TNH is treated as a limited partnership rather than a corporation.

[OneRichOne]

If your TNH or any ltd partnership is in an IRA you do not need to do the K-1. I got this from the TNH website.

"If the Schedule K-1 reports that the account is for an IRA, the amounts are not reportable on your individual income tax return. It is required by federal tax law that each unitholder receives a Schedule K-1."

Check their website.

[SaveTheRupublic]

OneRichOne - Mind sharing your list of 33?
I need some help. I'm 29. I've been investing in stocks for a little over a year and to say I've made a few mistakes would be an understatement. Suggestions on how I can improve my portfolio are greatly appreaciated as..... I am a moron.
BRK.B 26.94%
GOOG 4.01%
KO 3.04%
HD 3.6%
PBR 8.1% (Great!)
ETFC 5.21% (Killing me!!!)
PTR 3.78%
GE 3.49%
AAPL 3.29%
XOM 3.19%
TOT 3.14%
STO 3.14%
JNJ 3.08%
E 3.07%
MRO 2.91%
BP 2.81%
COP 2.81%
CVX 2.61%
VMW 2.37% (I use VMWare everyday. Why can't everyone else?)
SNP 1.54% (Should I add some more?)

ETF's......
EEM 2%
FXI 2%

IRA.... (Down 9%)
TRBCX - Blue chip growth fund 25%
JAGIX - Janus Growth and income 25%
PRMTX - Media and telecommunication 25%
TRRJX - Retiremnt 2035 25%

[nyka]

Major problems with apostrophes and possessive forms, which detracts from the believablity of your message. For example, ...realize that investor's...Why an apostrophe? The plural form is investors.
Example no. 2 -- grow the company and it's share price. Clue -- it's means IT IS It's questionable if you want your message to read AND IT IS SHARE PRICE.

[Turnipseed]

When looking for high yields, be sure that some isn't considered return of capital.

[User 166382]

What abut the fact that these stocks could all go down, as with the 2006 Halloween event re Canroys, which dropped 30%? You can't just invest in companies that pay high dividends without knowing a lot more about the stock.
I have had K-1s and did not find it very difficult to transpose the numbers to the 1040. Don't let this dissuade you.

[Michael Levy]

When the illusions of the emotions are removed from the mind and the genius everyone is born with takes command of the brain ... It becomes a joy game of gain, a-gain and a-gain

Remember ... Reality is still all around you even when you stop believing in it.

[Trims]

I retired in year 2000 and took over hubby and I's ports for investing. I've made my share of mistakes also, like someone said IMH and recently TMA among them. But I have slowly migrated to closed end

www.etfconnect.com/sel...

funds, since they are a little basket of stocks in a sector they are less risky for going bk at least. I now have 40 of them such as Pimco, Cowen & Steers, Nuveen, Nicholas applegate, etc. You can research them at this site. (above)

I also have limited my investment in any one stock to $5k or $6k because if it goes under I'm not wiped out. The one exception to that rule is Amerigas (APU) which I know is owned 44% by our local UGI gas company. It pays about 7.5% dividend and I've had it about 10 years.
Verna aka Trims

[RobertNabloid]

Sorry NYKA. I didn't re-read it to correct mistakes and I know I make plenty of grammatical errors when it's late. That's what happens when you work an 11 hour shift, come home and throw up an article real quick (I type 100+ wpm, so I can type an article almost as fast as I can talk). Regardless, the content is either valid or it isn't. I'm not being paid and I'm not expecting to win any journalist awards. We're playing a numbers game here.

BTW, those 8 stocks aren't actual recommendations - just a quick glance to show readers that high yielding stocks do exist. I wouldn't personally want to own some of those since there are better ones out there.

I forgot to write that I don't blindly chase yields. I always check to see a stable company with profits, growth and steady dividend increases and a healthy balance sheet (I hate a company with too much debt). I've stayed away from the mortgage income trusts. I do like some REITs (especially some Canadian ones).

And no, there will be no more "halloween canroy news" that can drop them by 30%, because they are already slated for destruction and that is factored into the price. Destroying the Income Trust Industry was the worst case scenario and it occured and the result was a 30% drop. Alberta just raised the royalty rates on oil and gas and won't be raising it any further (though that was bad news and set prices back a bit too - seems like a few years of bad news for the Canadian side of things if you count the USD being so weak and the fact that Oil is quoted in USD... Sure oil went up, but not by much in CND$).

We don't know what many of these Income Trust Companies will look like when they switch to a traditional corporate structure - will they continue their high dividends? Or will some switch strategies and issue smaller dividends? We don't know and that means there is an element of risk with many of the Canadian Income Trusts (except REITs).

Also note that I did not know the U.S. Government treats PGH like a partnership. I guess I'm lucky we don't.

Invest in what you know and feel comfortable with.

[YR Dog]

You forgot to mention the really important thing about PG that everone seems to miss.. Its dividends increase about 12 % a year and this has been going on for about 30 years. So every year you get a 12 % raise. Where else does that happen. And the stock price has gone up about 60X since 1970. That is why the 12% increase in dividends keeps showing up as 2%. The price of the stock is going up at the same rate and the dividend stays at about 2 %. Notice the author said "steady dividends". He certainly missed the real story about PG dividends.

[Vancan]

W

[Vancan]

We have not heard OneRichOne's list of 33 dividend stocks. Here are the dividend stocks I own: DD, DOW, GE, GIM, HCN, PFE, JNJ, PDS, OKS, VFC, MAT, USB, CVX, COP, T, TSM, FPO, VNO, BMR, BFD, and AB. Some of these are rock-solid and others shaky. Another that I do not own, but am considering for purchase: WFC. Finally, one that I sold, but may re-buy: JPM. I also own DIA for other reasons but note that it does come with a reasonable yield at its current price. Besides their yield, I look especially hard for a history of increasing dividends, a relatively high ROE, relatively low Payout Ratio, and a reasonable PEG (keeping in mind that PEG ratios are pretty much based on black magic and witchcraft). These are my dividend stocks. I also own other energy stocks (besides OKS, PDS, CVX and COP) that do not pay dividends but which have made me so much money, that I can't seem to sell them. It would be like selling my spouse. Hummm.

[OneRichOne]

I'm pretty much into energy related stocks. I use the yahoo stock screener to find the ones that look good but always do fairly good research before investing. Here are a few that have been good to me. FRO,BPT,PCU,PBT,CRT,NA... Made a bunch on LCAV when I bought at 2.86 then sold at 51. That was pure luck.

[notsosmart]

fro-one of the best

[Phil Obal]

TEL OFFSHORE TRUSTS ticker symbol is TELOZ

Assuming that dividends start paying .80 per quarter on a regular basis - this should be trading at 26 to 32 a share. Currently at 20.11 a share, but will climb to 26 during the next 5 to 7 days.

[p2pvoice]

Often, articles about high-yielding stocks don't warn the readers enough about the danger that such stocks can drop in value substantially. The author, Robert Nabloid, finally mentions that fact in response to comments rather than in his main article.

Comment by "I'm a moron" is indicative of this. Buying GOOG for dividends??? That's the first time I have heard of this.

Chasing only dividends is hazardous to your portfolio. In many cases, especially in a bear market such as now, the dividend yields look tempting only because the share prices have tumbled and *NOT* necessarily because those are GOOD companies paying GOOD dividends.

Some commentors have echoed this reality in this thread.

[E Nuff Sed]

We very careful of debt (leverage) and liquidity issues esp with finance companies. They can blow up very very quickly and get liquidated for pennies on the dollar. (Looks at BSC which sold for $2 and had a book value of $80).

Many of the energy related companies (esp canadian trusts) have declining reserves i.e. they are pumping out their assets and monetizing them. Sooner of later they will run out and share prices will decline to zero.

[d_teller]

I had TELOZ for several years, but they stopped paying a dividend after the 2004 hurricanes...now I guess they're paying again.

With regard to K-1's from Publicly Traded partnerships: the item that can disqualify (render taxable) an IRA or Roth is the UBTI >$1000.00 indicated in section 20 of the K-1, and shown by the letter "V". UBTI is Unrelated-to-Business Taxable Income.

Most PTP's of exploration, mining, pipeline, etc. companies do not generate UBTI, but some with complicated financial changes may.

Some ETF's, particularly DBA and DBC are one's I know, send the K-1's from the DeutscheBank index maker, and not from the brokerage. They tend to come a bit later than 1099's, usually by Feb 15-Mar.10th. And some have neat little diagrams showing where to put the data from the K-1 on the tax forms.

In addition, you should get a good tax attorney's assessment of Frontline's (FRO) claim that it may "hypothecate"... common shares , (it's buried in their 2007 proxy statement in boldface italics)...this can disqualify the IRA, because it says the company can borrow against your shares.

Now all of these are related to tax-sheltered accts, where divs in the form of carry-through losses, and return of capital, have no value, because the minimum required distributions from a typical IRA are taxed at a marginal rate...there's no benefit from a "lower" cap gains rate. In addition, absent some other considerations, a return of capital is an attempt to manage a dividend stream, which generally causes depreciation of the share price, although it has obvious benefits to majority shareholders and company officers.

Finally, with regard to the CanRoys conversion to PTP, or regular corp'ns., with reduction of dividends: some have income from U.S. operations, and won't be affected by the Canadian Tax (and if they're in a sheltered acct, won't be affected by the idiot proposal from Mass. to tax the income streams as "non-qualified)&q...

Of course, you don't benefit from the tax credit vs. income taxes due our IRS, and it's impossible to get a refund of those Canadian taxes (15%) if the securities are in a U.S. Tax-sheltered acct.

The second thing to check is at the company's home site:what are their plans for >2011...do they have a 10-20 year stream of depreciation claims to mitigate the Canadian Tax on corporations. Is their income tied to commodity pricing? (up with nat. gas prices, for e.g.). Are their own production costs rising with energy costs (Oil Sands and Shale oil companies)? Pravchaw's comment concerning development of reserves is very pertinent for resource intensive companies. But there are many CanRoys, and some are timber companies that "grow" their resources, others are carriers, like Pembina Pipeline, others sell ice, or water heaters, etc.

For the newcomers to CanRoys, they're listed on the Toronto Stock Exchange (TSX) (by the company's name and the symbol "xxx.UN", and you can get the info. concerning taxation plans at their homepages, but not necessarily by looking up the NASDAQ or OTC,or Pink Sheet symbol. (Arc Energy = AET.UN on the TSX, & AETUF on the NASDAQ Pink Sheets: Vermillion Energy= VET.UN & VETMF, etc.)

I thank the posters "OneRichOne" and "I'm a moron" (IMHO, no, you're not; at 29 you can hold securities of companies that pay increasing dividends {e.g., PG mentioned by Vancan} and have a decent retirement. But I'm an Oldman, and taking MRD's), for the listings and some suggestions.

Finally an observation for the original poster, Mr. Nabloid: I believe that the MRD of 1/14 (7%) seems high. The uniform table requires <4% (1/27.4 for those turning 70 between Jan and July1; 1/26.5 for those born in the latter half of the year.) Also, I hold PGH, and it's NOT a limited partnership in my listings, its dividends and foreign tax-paid is reported on the 1099's...and I haven't received a K-1 for PennGrowth Energy (PGH) for the past 8 years.

[tangoing]

Would it be worthwhile to hold Canadian oil and gas trusts in a Roth IRA account? Or does it make more sense in a regular account?

[Mike Stathis]

This is a nice article and contributions by readers are equally good, While I am a big fan of high dividend yield common stocks during the current market conditions, I'd like to mention a few points. First of all, I think consideration of some of the big pharma names is worthy. Certainly they don’t offer the double-digit dividend yields of other stocks, but they are amongst the highest DYs for large stable companies.

PFE and BMY have been beaten down for years. And in my opinion, there is much more upside over the next several years than downside. They are currently yielding upwards of 6%. At the same time, they are solid at these valuations. PFE has an excellent 40-year history of dividend growth, while BMY is not quite as good, but still impressive. The main risk with the pharmas (and with all other traditional asset classes) is market risk or the risk of a market decline. Sure, there are some issues such as waning pipelines, but this has already been factored into these stocks. Thus, I feel the valuations present some nice appreciation potential once Medicare Part D kicks in with retiring boomers.

The second point I'd like to mention it's not that easy to find high dividend yield stocks that are safe. While the author makes note of companies that have and will always be around, "being around" as investment criteria is a dangerously low benchmark. A stock can cut its dividend by 50% or even 80% and the stock price could get hammered. This would not only devastate the expected dividend income but would also pummel the account value. In fact this is exactly what happened to some oil trusts a couple of years ago. Although we can never know what is ahead, one thing investors should do is look for increasing dividends during rising oil prices.

When researching for dividend-bearing stocks, first you should check the dividend growth. Next, you should consider are the merits of the industry and particular stock under consideration. I would consider the shipping stocks to be very risky and would not purchase them personally. Aircraft leasing is also quite risky unless you have been an investor for a long time and have a low cost basis. Understand that these companies, by necessity are involved with the financial system and could have some problems down the road.

Regardless how nice a stock may look, one should be extremely careful with any financial firm paying 15% dividends. Ask why the DY is so high. Is it due to the stock price getting sacked while the dividend has remained? Or is the dividend just that high? Regardless, I'd stay away from financials for a while, especially if you are seeking dividends.

I do think the oil trusts offer the best risk-reward. But I certainly would not overbuy. Regardless of your income needs, you should still have some stocks offering capital appreciation. Oil prices are volatile but oil trusts don't share the same volatility as the other types of oil stocks due to the high dividends. However, these trusts have thin trading volumes, making liquidity a potential issue. All this said, I think the oil trusts are excellent. Just don't buy too much because they are like any other stock - eventually they will have problems.

When interest rates soar (I expect this in a couple of years) stocks with high DY won't be as attractive to investors and this alone could knock the price down.

Always remember, if you think you can easily find stocks paying 15% DY that don't have high risk, you are wrong. A 15% investment return is outstanding, but you should never expect that to be sustainable over a long period. While it can and does happen, it defies market performance, as the average annual returns over 70-80 years have been 8% (capital appreciation + dividends). It simply defies the risk-reward dynamics within the market as well as the law of supply-demand which dictates stock prices. If stocks with 15% DY were viewed as low risk by investors, they would be purchased in masses, driving the share price up and the DY down. But this has not happened (not yet anyway). So be careful because the market is saying that these stocks are very risky. The market is not always right in the short-term, but over a longer timeframe it is. And if you are dealing with a short investment horizon such as that during retirement, you'll want to be careful.

[djbtz]

Does anyone have any advice on rgm, general motors preferred stock. It looks like it pays a very nice dividend and the price looks good. Not sure the auto industry is a good bet right now, but like the dividend and price. Thanks in advance for any advice.

[Skoodog]

I think it's hard to get solid gains without considering your diversification - This past year I played heavily in Canroys, and while they pay out high yields, i think I'm actually in the red on all of them because their payout didn't exceed their CG - ending up just treading water, essentially.

CEFs have been talked about too - I played in that year before last with Boulder Income Fund (BIF) and actually made a good jump - however their "dividends" were coming out of their share value, not revenues.

I'm about to embark on a plan to spread my money across several large-cap funds paying out modest quarterly dividends and then reinvesting those dividends to take advantage of compound interest in a Roth. Diversification is key to capture average gains and below-average losses and just letting your money work for you.

[Wm. D. Roden]

I'm thinking about adding PWE to one of my IRAs. Does that mke sense? I now have several Mutual Fds. in this IRA, and one is Fidelity Large Cap Stock Fd. I would sell this Fd. and use the proceeds (about $13,800) to buy PWE. Wm. D. Roden

[bhakta]

I am primarily in the oil trusts, PGH, AAV, HTE, PWE, PVX, but also found a very interesting one TIRTZ, a UIS based oil royalty thay is paying out for more than 40 years every quarter. May I add BPT is good, although I do not own it now. The shippers FRO, DSX, etc can be good for dividends, but the shares are jumping around like Yo-you, so hang on to your pants if you fly with them.

[bhakta]

@Wm Rhoden... PWE is good. PGH I feel is better right now. PGH has a fantastic DRIP program, which multiplies your dividends rapidly.

[tk77mann]

OneRichOne and D_Teller, even though distributions from publicly traded partnerships (like PGH, BPL, and FUN) are not taxed, I believe their Unrelated Gross Business Income (UGBI) does have to be reported on tax form 990-T, if it is more than $1,000 and if the shares are in an IRA account. It does not mean the revenues or distributions into tax-deferred accounts is taxable, it just means you have to file that form every year. Here is what the Cedar Fair (FUN) PTP tax form states: "IRAs and tax-exempt entities with more than $1,000 of Unrelated Business Gross Income (UGBI) are required to file a tax return (Form 990-T). UGBI is identified on your Schedule K-1 and is located on the Federal Supplemental Information Schedule that is included in your tax package." Since PGH has such a high payout, it does not take many shares before you hit the $1,000.

PGH is a publicly traded partnership and its UGBI meets the above requirements for IRA filing. HTE and PWE are not PTPs for US tax purposes and their distributions count as regular dividends. These companies are fairly easy to file taxes for.

User 166382, you must be very detailed oriented (and even more compulsive than I am). The K-1 values go into a whole lot of tax forms (1040, 1116, 4797, 6251, 4952 and Schedule D) and it is anything but crystal clear to me. There are even values on the PTP graphic guides which do not have instructions as to where they should go on the tax forms.

Check out page six of the FUN tax guide for the visual direction FUN gives on how to fill out taxes for their distributions:

www.cedarfair.com/_upl...

PGH in their tax FAQ this year says they offer an automatic download from their website into TurboTax but that TurboTax does not populate form 1116 correctly and that we should contact our tax advisor for assistance with this form. If TurboTax can't even handle all the inputs, I think K-1 tax filings are a pain.

I look at the cash flows, much more than profits, when I look at any potential stock investment, especially good dividend payers. Some companies have huge depreciation and amortization expenses (non-cash, of course) that are much bigger than their annual capital expenses. This gives them much better cash flows than their income statements and P/Es would make you think. They can pay great dividends and buy back lots of shares, and still stay in business. Take a look at CZN, WIN, and EQ for great dividends.

CTL is in the same industry and has the same high cash flows but mainly buys back their shares with all their cash, but is not too much of a dividend payer. In 2007 CTL bought back $460M of their shares, which is great for a company with a total market cap of just $3.52B. If they keep that buyback rate up I will own all of the company in 8 years because I am not selling. LOL.

Yahoo has regularly updated cash flow statements for all US-based stocks and they are a great reference, IMHO.

As stated above, great discussion on this site. Much better than on a typical Message Board.

[rkay48]

I like dividends (I own PWE), but prefer to let good MFund managers pick the best values. Some funds I own have some yield (2-3%), but also give me some growth. I own conservative funds, some of which hold cash/bonds: OAKBX, PRWCX (which are still open), and MACSX, MDISX, MQIFX, SGIIX (which are closed or have sales loads now).
One fact folks seem to lose sight of is that when a stock pays a dividend its price is reduced a corresponding amount. That's OK, as long as the stock is growing (PG is a good example). Also, as the case of PWE shows (I bought before the wonderful tax change by Canadian politicos), individual stocks present more risk.
You pays your money and takes your choice, to be sure. But I think simply chasing yield can be dangerous to your portfolio.

[d_teller]

Thank you for your comments -tk77mann - I decided to look at all the SEC filings of PGH with the access through my brokerage for the sheltered accounts - and you are RIGHT - PGH has elected and has recently filed (12-06-07) with the U.S. to attempt to be listed as a partnership for U.S. tax purposes...depending upon the Canadian rulings & U.S. rulings, etc.

So, probably, next year, in March, I'll get a K-1 from them. I don't expect to get more than a few hundred $ in divs from some of the securities that send me K-1's now; and certainly not a huge amount from the K-1 section that is section 20...it's Income that is Taxable due to Unrelated Business (UBTI), not Unrelated Business Gross Income (there's no section of the form Schedule K-1, Form 1065) where I find the term "Unrelated Gross Business Income" {UGBI}).

I did check with the IRS concerning 'gross dividends' in Section 11 of the K-1, particularly "Code C" (Income from contracts and straddles, section 1256 of the U.S. code), because that is applicable in the case of commodity ETF's such as DBA, and was told that there's no need to report that info...if the security is held in a sheltered acct.

I thank all of the subsequent posters, including those (for example Mr. Stathis) whose comments about unsustainably high dividend yields are most important to note, but dividends at those levels do cycle up and down, with the business cycle that is represented by that security. In the case of U.S. and Foreign Royalty (or Grantor) trusts, their dividends from sky rocketing commodities can be huge one year, and reduced the next. There's no such thing as a free lunch.

[d_teller]

In further response to tk77mann

After checking through 571 instances of "990t" at the IRS site, late last evening, I believe the UGBI that you refer to concerns the organizations that are tax-exempt under 509c and other IRS sections regarding charities, religious organizations, not-for-profits, etc...THEY are the ones who have to report UGBI to the IRS on form 990t. I double checked the K-1 form and its instructions and UGBI is NOT on it.

The link posted to "cedarfair.com...... above doesn't work, and for general info, CEDAR is the Canadian equivalent of SEDAR where companies file their U.S. financial reports.

I will look for more info., but there are a number of Canadian regulations that must be satisfied before a conglomerate, such as PGH, can actually finally register as a Publicly Traded Partnership in the U.S. listings, with a "tax Shelter Registration number" and all the other goodies necessary for a K-1's data to be imported into a tax software package...and I'm sure they'll figure it out, at the corporate level.

Several queries above refer to the possiblity of buying a CanRoy in a Roth, or other tax-sheltered account. I wouldn't advise this if the comany will convert to a Limited Partnership & Publicly Traded Partnership:

First-

The 15% withheld on current Canadian dividends in a taxable account satisfies (by way of the current U.S. "Foreign Tax Credit") just about all of the real dividends' taxes, so if it's just a stream of dividends...they're already tax-free when you get them..., but only until the expiration of the "Qualified Dividend" rate at the end of 2010...depending on the election of Democrats/Republicans, etc., in the U.S. forthcoming 2008, Fall elections.
(That's some run on sentence... but I didn't major in Journalism)

Secondly -

The K-1s are really not that hard to decipher to put their info onto a 1040 form. In several taxable accounts I get about a dozen. I get the advantage of converting a "return of capital" to a reduction of tax-basis (the purchase price of the security is reduced, so a year later, some gains will be reported as a LT cap Gain upon sale ... and eventually all of the security's price may be a LT CapGain, even if the stock (PTP Limited Partner's Units) haven't changed one penny since purchase, because of the continuing return of capital causing a reported decline in the taxable basis.
However, the losses reported and other expenses can be carried through to reduce short or long-term gains ...and they can't be used, at all, in any sheltered account.
Again, perhaps the LTCG rate will increase after 2010, depending on who wins in this Fall's election, and whether their party wishes to change the tax rates.

Thirdly-

It's most important to note that not all CanRoys will have any increased CDN TAX liability, and many will not on most of their income...but all of their payments will still have 15% deducted for at least the next 2.75 years.

Finally, someone thought to put a fairly large sum to work in a CanRoy....but I hope that it is less than 5% of the portfolio, and hopefully, it'll be divided among a number of Royalty/REIT/Stapled Unit securities, so that if one has an earnings problem, the entire portfolio suffers minimal damage.

[Wannabe]

After going through all the posts which are very informative btw, what are the filters we should be looking at to make a decision on these companies (high dividend payers specially) e.g debt to equity ratio, cash flows etc..?. What will be the entry point at this stage?.

Thanks a bunch folks !

[tk77mann]

d_teller,

Here is a link to the 990-T instructions that tells that UGBI must be reported on a 990-T form for IRA and Roth IRA accounts. The specifics are at the bottom of the second column on page 2 of the instructions.

www.irs.gov/pub/irs-pd...

I had asked my buddy, who is a tax lawyer, about this issue. He confirmed that IRA accounts holding partnership units / shares are considered "unrelated" investments by the IRS, which is why the 990-T filing requirement. Corporation shares are related investments for IRAs but PTP shares are not. (No, it does not make sense, but this is the government, so . . . .)

With regard to the above link, if you copy and paste the whole thing into your browser address line, it works. (or it did for me just now.) The software on this webpage split it into two pieces and just clicking on what appears to be the linkable piece does not take you anywhere.

Also, for more taxing uncertainties for us CanRoy owners, the Canadian government announced in their "Halloween surprise" that they plan to tax CanRoys like corporations starting in 2011. So the U.S. taxes on dividends might increase, as d_teller identified, after George Bush's tax reductions go away, but higher Canadian government taxes might still offset the higher US taxes in 2011. The US and Canada have offsetting tax codes in a treaty that covers this.

For sure things will be uncertain for a while with CanRoys and how they are taxed on both sides of the border. That is one reason, along with normal fluctuating oil and gas prices, why CanRoys are priced low, which give them such a high yield (for now at least).

[Ocala, Fl.Tom]

Lots of interesting ideas for the dividend investor, however No where did I see some of my favorites. I buy closed end funds that don't spin off capital gains. So I only pay taxes on earnings. I feel that we have got to be close to a bottom if not on the bottom or on the way up. Most of the closed end funds I like are averaging appr. 10% from their 52 week lows I think a good time to buy...The symbols are AWP EVV EOS just to name a few and they all are averaging a 10 PERCENT YIELD..

[WhatIf]

Reminds me of Will Rogers advise on investing-- "When a stock goes down buy it, when it goes up sell it ... and if it doesn't go up don't buy it."
It appears STOCKS ARE RISKY --- but normally one makes a bit more than with a CD over the long run. And any stock you personally like, someone can always find a hidden risk with ..... which relates to sentence one "STOCKS ARE RISKY. Thanks

[AmesTiedeman]

PGH HTE and PWE keep on cranking higher..

[halboy]

I just started investing on my own recently-my biggest problem so far is that am not a patient invester-if i can learn to be patient-I think I will do well-have to have rules-and stick to the rules.
I began investing for dividends-then switched to index stocks-If I had stuck with the dividends I would be way ahead-it is a learn as you go thing.
One thing to consider when it comes to dividends-it lowers your break even basis. If Fro is trading at 45 and is paying a $2.00 dividend per quarter-then it can drop $2.00 and with you dividend-you break even. Thats an $8.00 per share cushion over a years time. The damn thing does bounce around alot-but volatility is good-if you take a little off the top-buy in again when it drops.
I also had PGH, collected the dividend-then sold at a profit plus dividend-but i should have let it ride-its up over a buck from where i bought in. I also had TNH-I could kick myself for selling that one-I could have been up $20.00 per share plus still collect the big dividend.
If you look at whats working in the market--Ag stocks, oil and gas stocks, coal stocks-all defensive stocks. The Major indexes drop-investors leave financial stocks and move to the defensive stocks-they tend to run counter to the major indexes. My problem is -the PWE, PGH, HTE, FRO, and TNH's of this world are moving up so fast I can't get a dip to get back in-so much for high dividend stocks not being growth stocks.
I like the idea of reinvesting and diversifying-spread the risk around.

[halboy]

Dividends--yes they can reduce the dividends-or eliminate the dividends-however in most cases-dividends tend to increase over time-a CEO would rather cut off his arm than reduce a dividend-if the dividend drops or is eliminated-there is going to be a mass exodus out of that stock-lots of unhappy folks and an unemployed former CEO.
I think the oil and gas stocks are going to be fairly secure for the next year or two-just waiting for a dip to get back in-then just sit back and enjoy those monthly paydays.

[User 179157]

Sorry but I'm still confused with the tax issue. Should I buy them for my regular trading account or the IRA. I'm leaning towards PWE, ERF and HTE.

[tk77mann]

If you buy them for an IRA account you will pay the Canadian government their 15% and also the US government when you take money out of the IRA account. So, to avoid double taxation, a lot of folks just buy CanRoys for their trading / investment account.

[K. Argenta]

I own PGH<PWE<HTE<P... as these stocks pay big dividends, there is caution, watch what the stock trades at. It may go up/down ratio. It's best to look at the 52 week Hi/Lo, and find when the stock bottoms out. That may be a sign to BUY, but reasearch very well as to why the stock dropped, especially a fast drop. HTE drops fast every year around Nov. & Dec. The U.S. is dependent on oil, no mater where it comes from. Invest wisely and you get a good return on your money. You can buy "Mutual Funds" that return a decent dividend. If you ever look at what a mutual fund invests in (which is allmost everything,except the kitchen sink), tou will find they know what they are doing. I own several Mutual Funds and they pay fairly good.

[redbaron]

I use oil analyst Kurt Wulff (www.mcdep.com/)
to help me make such decisions, and he currently has a buy on PWE, SJT (San Juan Basin Royalty Trust) and HGT (Hugoton Royalty Trust). In the past, Wulff has consulted with many of the major players in the oil patch, including T. Boone Pickens. He posts his recommendations each Sunday evening (free, with a few weeks delay), at the above site, or you can pay big bucks to get it in real time if you wish. I don't mind the delay, and find his methods for comparing energy companies to work very well for my purposes. I currently own most of his recommendations, and am very happy with the returns (of course, given the price of oil.....but also longer term). His methodology, reduces each stock to one number, his mcdep ratio, which then can be used to easily compare the various energy stocks he follows..........and further, perhaps more importantly, gives one an opportunity to see when these varioius stocks are approaching full valuation. I recommend him highly...........and it is free.

[StateofConfusion]

I live in the U.S. and the tax code (as shown above) is sheer lunacy and must be done away with. It is astounding how much you have to deal with just to invest some money. Get rid of income taxes and use a VAT. I know this is not about the article but as the posts show, our government is insane.

[User 44258]

I've used McDep for about a year ...long PWE...and respect his methodology and conclusions. The two week lag really isn't an issue for a long-term investor.
dprla


On Apr 20 11:42 PM Red Baron wrote:

> I use oil analyst Kurt Wulff ( www.mcdep.com/)
> to help me make such decisions, and he currently has a buy on PWE,
> SJT (San Juan Basin Royalty Trust) and HGT (Hugoton Royalty Trust).
> In the past, Wulff has consulted with many of the major players in
> the oil patch, including T. Boone Pickens. He posts his recommendations
> each Sunday evening (free, with a few weeks delay), at the above
> site, or you can pay big bucks to get it in real time if you wish.
> I don't mind the delay, and find his methods for comparing energy
> companies to work very well for my purposes. I currently own most
> of his recommendations, and am very happy with the returns (of course,
> given the price of oil.....but also longer term). His methodology,
> reduces each stock to one number, his mcdep ratio, which then can
> be used to easily compare the various energy stocks he follows..........and
> further, perhaps more importantly, gives one an opportunity to see
> when these varioius stocks are approaching full valuation. I recommend
> him highly...........and it is free.

[DBLEGL]

As I understand it if you buy them in a regular trading account you will have Canada deduct 15% of dividends paid but get credit for the deduction when you complete your USA tax return. If you buy them in an IRA, Canada still deducts their 15% and you can never get the credit on your US tax return. When you eventually draw on your IRA you pay Uncle Sam at your tax rate. The only advantage in an IRA is that you defer the US taxes until you ultimately take a distribution. Its your call depending on where your buying funds are located. I personally buy them in an IRA as it may be 5 years before I take a distribution.


On Apr 16 12:54 PM User 179157 wrote:

> Sorry but I'm still confused with the tax issue. Should I buy them
> for my regular trading account or the IRA. I'm leaning towards PWE,
> ERF and HTE.

[DBLEGL]

I frequently invest in preferrred stocks and RGM is a good buy depending on the confidence you have in GM. The call date of the stock has passed and GM is not going to call it right now and pay $25 per share when it is at $15.80 in the market. Both Moodys and S&P rate this stock in the non-investment category. Since the yield is about 20% it is worth a try to me. Preferreds get paid before commons and I do believe GM will be around for awhile.


On Mar 25 10:57 AM djbtz wrote:

> Does anyone have any advice on rgm, general motors preferred stock.
> It looks like it pays a very nice dividend and the price looks good.
> Not sure the auto industry is a good bet right now, but like the
> dividend and price. Thanks in advance for any advice.

[a. palmerjr.]

That's what I did. I guess the Canadiens will tax it 15% but still pays better than most places you could put your money.


On Mar 26 04:14 PM Wm. D. Roden wrote:

> I'm thinking about adding PWE to one of my IRAs. Does that mke sense?
> I now have several Mutual Fds. in this IRA, and one is Fidelity Large
> Cap Stock Fd. I would sell this Fd. and use the proceeds (about $13,800)
> to buy PWE. Wm. D. Roden