High Yield With Deep Downside Market Protection From 3 Recession-Resistant Picks

Jul. 27, 2020 7:52 PM ET, , , 9 Comments
Richard Berger
10.78K Followers

Summary

  • Income Investors (and most others) should avoid market uncertainty, getting protected yield, and downside market protection. This is especially true in today's virus clouded economic outlook.
  • I discuss how to engineer high-yield rates with deep downside market protection, including 3 actual current market-priced examples.
  • Today's ideas provide an 18% annualized yield rate with 11% downside protection, 21% yield rate with 8% downside protection, and a 19% yield rate with 11% downside protection.

High Yield With Deep Downside Protection: Ideas For Navigating The Virus Economy.

This is an 1828 sketch of one of the world's greatest natural harbors, Guanabara Bay in Rio de Janeiro. Since the discovery on January 1, 1502, this bay has been providing a safe harbor from the storms that ravage the world.

Each day, as news of existing and potential new financial headwinds blow across the news feeds, I am reminded of this grand harbor just 60 miles from my home here in Brazil. I have developed Engineered Income Investing as a toolbox of strategies to serve as a safe harbor in the turbulent seas investors sail. High yield with deep downside market protection is just one such tool in our kit. Today, I provide 3 actual current market-priced examples using this strategy to engineer an 18% annualized yield rate with 11% downside protection, 21% yield rate with 8% downside protection, and 19% yield rate with 11% downside protection.

Great uncertainty continues to cast a dark shadow over markets even as they near full recovery from the recent deep and steep virus bear market. In an effort to help readers find and enter attractive positions quickly, I am starting a new periodic HYDP (High Yield - Deep Protection) series theme. These are ideas where I present a list of very solid, recession-resistant (or already with recession pricing built-in) companies that are long-time favorite targets of mine for high yield income generation at lowered market risk. All such targets in these presentations are already covered in full-featured analysis reports archived my body of public work and Engineered Income Investing, available to subscribers and all Seeking Alpha Premium users. As such, I will leave it to readers to review those earlier, more in-depth reports for a greater understanding of the companies. Here, in the HYDP series, I will focus on a brief summary of reasons I like the target

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This article was written by

Richard Berger
10.78K Followers
Mr. Berger is the creator and developer of the YDP screening tool, a chart system and its analysis for screening and monitoring dividend income equity investments. The recipient of Seeking Alpha's Outstanding Performance Award, he also has been Seeking Alpha's #3 ranked Author for Income Investing Strategy & #4 for Utilities. 20 years of sitting in the board room gives me unique insights into Oil & Gas investments and corporate deal making in general. Additionally, he offers a Subscription Service  for Value & Income investors, boosting income while reducing market risk using covered option writing on a dividend income equity portfolio. Residing in Brazil gives me a local's inside view on the pulse of its economy, politics, investment climate and breaking news. A view of my front yard is available here.A former Chief Operating Officer, Director, Vice President and General Manger of Oil and Gas for Southern Pacific's Oil and Gas Operations, Business owner, geologist, and cribbage player, I've been an investor for over 48 years (started young at 13) and learned my lessons the way that makes them stick, by hard knocks and both big and little mistakes. Hopefully I can share some of those lessons with others.I am an American expatriate that decided to retire at age 57 in 2009 and now live in Brazil. As an early retiree I invest for income and manage portfolio risk by screening for strong and reliable historic data along with favorable fundamental and technical current trends.I spend 6 months/year living at home in Brazil and 6 months/year traveling the world. I have structured my financial positions so that I live virtually tax free with much of my income exempt from US tax since I live ex patriot and a lot of my US derived income over the annual ex-patriate exemptions is held in my tax free ROTH and tax deferred IRA/SIMPLE plans. This enables my tax savings to pay for my 6 months of annual traveling :) . My investing is for income and appreciation with a balance of low to moderate short term risk and low long term risk. To accomplish this I use quality dividend payors with a long track record of steady or increasing dividends along with slowly appreciating equity prices. I target a 8 to 15 % yield and almost exclusively require a minimum history of 5 years of steady/increasing dividends and no decreases in dividend ever or at least past 10 years. I diversify through sector, country and currency unit the stocks are traded in, and security type (equity, royalty trust, REIT, etf, and ADRs). I use covered call writing to enhance my portfolio yield with no added risk. In fact, it lowers the risk substantially. Once I identify a stock I want to own and an entry price for it, I write cash covered puts at or below that entry price (with a minimum of 1%/month time premium. Thus i obtain at least a 12% annualized yield before compounding just from the option premium. Likewise, I use the sale of cash covered puts to generate income and and generally get an entry point at 5 to 10% below my acceptable entry level price if/when the put stock does get presented. Thus my strategy provides a 12% pre compound yield on cash and entry into stock purchases at a 5 to 10% discount from "retail". Because I only select stocks that I am willing to hold long term for their reliable dividend yields, I am not concerned much with market volatility or short/midterm risk. Indeed, market volatility is my friend since it increases the premiums paid on the options I sell. I also selectively sell covered calls on positions I hold long so as to add to my yield that way while not taking on any additional risk.This strategy has kept me happily living off my portfolio income and traveling 1/2 the year while my portfolio has been slowly increasing in value even after my harvesting income for living expenses. As of December 2020, I am no longer writing for Seeking Alpha. If you would like to contact me with questions about my work or subscription service, please leave me a message on this site or email me at boater805@gmail.com

Analyst’s Disclosure:I am/we are long FMX, AMT, GPN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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