2 Required Holdings For Any Fixed Income Portfolio

Includes: KMP, PCG
by: Larry Meyers

If you're building a portfolio geared towards generating regular income - whether it be to pump out cash for you to spend as a young pup or as part of a retirement portfolio - there are a few companies I think you must have as part of that portfolio. Companies that are long-term rocks that don't move too much are just fine, but I prefer solid performers in regards to total returns as well.

To that end, I'm suggesting Kinder Morgan Energy Partners, LP (NYSE:KMP). This is known as a limited partnership, a structure that was created by Congress for "the exploration, production, mining, processing, refining, marketing or transportation of mineral and natural resources." This sounds all well and good but investors must remember that investing in these "pipeline MLPs" carry one big risk that can only be mitigated by really good management. That risk is that pipelines require capital expenditures on a regular basis in order to keep growing. If we hit another credit crunch, an MLP with a limp cash position may find itself quickly burning cash. The reason I select Kinder Morgan is because management has always been well ahead of the curve regarding market changes. It's evidenced by the company's dividend history, which has been stable and predictable, increasing over time, with negligible impact during the financial crisis. It has a current yield of 6% and long term earnings growth of 5%. A perfect choice for your fixed income portfolio.

PG&E Corp (NYSE:PCG) is a California utility operator with over 5.2 million electricity customers, and 4.3 million natural gas customers. It has a massive backbone of transmission and natural gas lines, and is over 100 years old. It's always going to be a part of the California landscape. Utilities in general are solid, dependable dividend payers because they are regional monopolies. Furthermore, if you've ever studied your utility bills over the years, prices always move in one direction - up. There's always some reason why. Currently the company wants to bake in $1.25 billion in higher fees to pay for safety fixes. Uh huh. Whatever. The stock itself is actually flat compared to where it was five years ago which doesn't bother me, because the dividend has gone up almost 18% during that period, and presently offers a 4% yield. This is as safe a fixed-income bet as you'll find.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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