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  • Are these the best Places to get higher Returns in this very low rate environment? 0 comments
    Oct 18, 2011 4:24 PM | about stocks: JNK, HYG, DVY, CVX, MCD, LINE, ERF, MMP, EPD

    As I'm sure you are aware, Federal Reserve Chairman Ben Bernanke is absolutely adamant about going into a deflationary spiral and backs up his word by saying that rates will stay at the ultra-low 0-.25% rate for at least another two years. That's fantastic for borrowers, but absolutely hammers the savers and people reliant on a fixed income using CD's, savings accounts, and other secure forms of fixed savings. Therefore, I think it's wise and actually necessary to search for a higher yield as the real return will eat into the prinicipal rather quickly as fuel, food, tuition for the kids and grandchildren, etc. grow at a far faster rate than the approximate 1% returns these common forms of savings give.  We can look for high yielding stocks such as one's I mentioned here or look to get some additional income as we hold our stocks which I described here. Moreover, lets see if there are any Exchange-traded Funds (ETF's) and dividend paying stocks to consider:

    1. I currently own the SPDR Barclays Capital High Yield bond ETF (JNK) and what really is enticing right away is its 8%+ dividend yield paid monthly. However, there is of course risk as the fund normally invests at least 80% of its fund in non-investment grade bonds, but I believe a person is getting paid very well for that risk when the spread is 600+ basis points above the 10-year treasury bond. Moreover, the underlying companies that sell these bonds are having right near record low defaults, even after the bleak economic times of the last four years, and the fund is well-diversified as demonstrated by their ten largest holdings only compromising just over 20% of the portfolio. The iShares High Yield Corporate Bond Index (HYG) has a very similar make-up as its yield is just over 8%+ paid monthly as well and well-diversified as well with their ten largest holdings only compromising just over 10% of the portfolio. I feel confident recommending them both to the long-term dividend seeker right here at these current price levels.

    2. The iShare Select Dividend Index (DVY) is for the more conservative investor, but still gives a considerable 3.8% dividend yield paid quarterly. The fund simply looks to mimic the Dow Jones U.S. Select Dividend Index by having at least 90% of its assets in securities comprising that index, such as Chevron (CVX) and McDonald's (MCD), and is well-diversified as shown by their top 10 holdings compromising less than 25% of the total portfolio. I think this is a solid buy at these leves and if one is interested in more specific names, they can be found here.

    3. Some energy limited partnerships have caught my eye as their dividends look very generous and more importantly secure. Martin Midstream Partners (MMLP) currently is apprxoimately 9% and has been not only maintaining their dividend since going public in 2003, but raising it. Linn Energy (LINE), named after it's very competent CEO Michael Linn)has a fantastic management team who hedged almost all of their natural gas prices a few years back and therefore look to have a very secure 7.4% dividend going forward for the next few years. Their dividend has not only been maintained, but raised as well every year since going public in 2006. I think it's a solid buy here. At the beginning of 2011, the Canadian independent oil and gas producer, Enerplus (ERF), became a corporation and as such has different tax ramifications that, as always, should be consulted with your tax professional. Nonetheless, this monthly dividend payer has a yield just under 8% and while it has not raised it as consistently as the previous two mentioned, still looks secure with their strong free cash flow. This is a good buy at this price level. Magellan Midstream (MMP) has the same, great consistent history of raising dividends since going public in 2001 and currently sports a 5% quarterly dividend. Even though it’s trading right near its highs, it still offers some great secure income and trading at reasonable valuations. Finally, I would be remiss by leaving the biggest one of them all, which also has great value, Enterprise Products Partners (EPD). Since going public in 1998, has not only kept, but raised its dividend consistently and now sports a yield just under 5.5%. This is a buy here at these levels.

    Disclosure: I am long JNK.
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