Retirement Strategy: REITs Are An Antidote For A Zero Interest Rate Environment (Part 30)

| About: AGNC Investment (AGNC)

It is not often that I will place more allocation than 10% of investable funds in any one asset class, however the Fed has made it quite clear that interest rates are going to remain low for BEYOND 2014. In this sort of environment a retiree can take advantage of the usually more risky market sector of REITs (Real Estate Investment Trusts).

The highest paying REITs within the sector are the mREITs, who make profits in the buying and selling (and lending) of mortgage backed securities. The less risky of them by government backed securities. Since it should be obvious to all that no nation including the USA will let anything fail in the monetary sector, mREITs are ironically one of the safer havens for placing cash right now.

Let me be clear. This will be a closely watched sector by us, and will not be a buy and hold forever plan. These stocks have an inherent amount of risk for their reward, but until we see a definite move up in interest rates, we have an intermediate term opportunity to increase our income, cash flow, and overall portfolio value.

Given that our "Team Alpha" portfolio has been streamlined and is flush with cash, we can redeploy some of the cash into a wider assortment of REITs and mREITs. That includes increasing our current positions as well.

Our "Team Alpha" portfolio now consists of; ExxonMobil (XOM), Johnson & Johnson (JNJ), AT&T (T), General Electric (GE), Annaly Capital (NLY), Southern Company (SO), Procter & Gamble (PG), Intel (INTC), Realty Income (O), Coca-Cola (KO), Bank of America (BAC).

Actions We Are Taking Now

We currently hold Annaly Capital and Realty Income within our portfolio and will be increasing our position in each. Our total position is right at a 6% allocation and we will double that by adding 50 shares of Realty Income, and 190 shares of Annaly today.

That will give us a 12% allocation roughly, with stocks we already own, and we will add 150 shares of American Capital Agency (AGNC) prior to their earnings report today. Our total allocation will be about 15% in the REIT sector among 3 stocks.

American Capital Agency : Price: $34.97/share, Dividend Yield: 14.30%, ESS Rating: Neutral

By redeploying some of our funds now, we will accomplish several goals:

  • We strengthen our core portfolio by adding to existing positions
  • We widen our portfolio holdings within a sector that gives us more income
  • Not only do we replace the dividends of the stocks we have sold off, but we increase our overall yield by more than 2%
  • By monitoring the sector we are enhancing more closely, we will be able to adjust our allocation in an appropriate time frame
  • By adding the top performing mREIT into our core portfolio, we diversify our holdings in the mREIT sector

My Opinion

Putting money back to work is part of our strategy that enables us to improve and enhance our portfolio. Not to mention, increasing our cash flow within a sector that has money flowing into it from institutions, insiders and retail investors.

We will continue to redeploy our cash into other opportunities as we move ahead. Taking what the market is giving us right now is a prudent strategy.

Stay tuned!

Disclosure: I am long XOM, JNJ, GE, NLY, T, O, KO, BAC, INTC, AGNC.