A new truck from the Ford Motor Company (NYSE:F), for example the F-150 four-wheel drive regular cab pickup truck, costs the average American business owner about $26,600. Current lease rates mean that you can probably negotiate yourself about a $150 per month payment on a truck like this.
The portfolio below is financially engineered to throw off that amount of cash on a monthly basis, although not all the securities pay monthly. To be tax efficient the stocks should be purchased in an IRA or other tax deferred account and the truck leased by your corporate entity. In this way the lease payments are expenses from your business income and your dividends are tax deferred.
|Company Name||Ticker||Type||7.4.12 Price||Dividend Yield||Share Amount||Dollar Amount|| |
|Spectra Energy||SE||Oil & Gas||$29.11||3.9%||100||$2,911||$114|
|Spectra Energy Partners||SEP||MLP||$30.63||6.3%||100||$3,063||$193|
|Targa Resource Partners||NGLS||Oil & Gas||$37.00||7.0%||100||$3,700||$259|
|Campus Crest||CCG||College REIT||$10.45||6.2%||300||$3,135||$194|
|HealthCare REIT||HCN||Medical Office REIT||$59.00||5.1%||50||$2,950||$150|
|Cheniere Energy Partners||CQP||Oil & Gas||$23.50||7.5%||100||$2,350||$176|
|New Mountain Finance||NMFC||Business Loans||$14.80||9.5%||100||$1,480||$140|
|Warwick Valley Tel||WWVY||Local Telco||$13.30||8.2%||100||$1,330||$109|
As you can see, the portfolio includes MLPs, REITs, and other types of securities that create K-1 tax accounting but if you're running your own business your accountant should be able to handle filling out that extra form for you on your business returns.
The 10 securities that make up this portfolio are heavy in oil and natural gas pipeline companies but have a bit of diversification with a secure pharmaceutical royalties company, a small-cap telecom company that hasn't missed a dividend in 109 years, and some education and healthcare real estate. No one stock has a greater than 14.2% concentration.
The portfolio is pretty much plug and play for 3 years, which should be about the life of your lease. At the end of 3 years your truck has probably depreciated by 30%, but the portfolio may have appreciated or stayed the same. At the point you can either buy your truck by cashing in the portfolio (keep the cash in the IRA and use other non tax deferred money to do that) or use it as a trade in and keep defeasing the lease payments with your portfolio.
If the portfolio value has decreased in the meantime, well then, you still probably can cover the cost of the truck buyout. In any event, you have now driven a truck for three years with the payout from your truck payment portfolio.
If you think the world of finance is going to hell in a handbasket and the portfolio will be worth less than 50% after 3 years, please refer to our other practical guide to investing, "Guns and Gold".