Barron’s cover article this week is by Andrew Bary, on Income Winners, focusing on blue-chip stocks, electric utilities, MLPs, and to a lesser extent, REITs.

Bary writes:

“It’s hard to make a case for two of the lowest-yielding parts of the bond market — Treasuries and mortgage securities — because yields are in the 1% to 3% area, and both sectors could be hit hard if rates rise. Perhaps the best that can be said for Treasuries is that they’re one of the few asset classes that are negatively correlated with stocks, meaning they tend to appreciate when stocks fall, and thus offer a hedge against a stock-market downdraft.”

The whole column is worth your time to read . . .

Full table of suggestions (some of which I actually like) is below:
click for larger graphic



Income Winners
Barron’s JANUARY 5, 2013

Category: Fixed Income/Interest Rates, Investing

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

10 Responses to “Barron’s Income Winners”

  1. jpmist says:

    Am I and 5 other people the only ones familiar with Mortgage REITs? Can’t be, cause there are two ETFs that invest in them, MORT & REM both yielding 10% or so.

    I never see them on any of these “Best Dividend” lists I suppose because the double digit yields read like a ponzi scheme to those who haven’t actually looked at how they make money. No one seems to understand their assets are generally safer than assets banks hold and the leverage they use is much lower than banks as well.

    And it’s a shame because they’re basically a bet on the yield curve cycle which is in for some interesting changes when the Fed decides to stop buying Treasuries and Mortgage Backed Securities. They’re not a buy now, but in the next 12 months they will be.

  2. RW says:

    Good point, mortgage REITs are leveraged but not extremely so and they certainly deserve a place in an income portfolio: I’ve had modest positions in a couple for several years with no regrets* thus far (the environment for them is getting tougher of late though).

    Same thing goes for Business Development Co’s. Those are typically structured as REIT’s too and I’ve got several with an average yield north of 10%. Those who don’t want to research individual BDC’s however can always go with something like the ETN offered by Wells Fargo (BDCS).

    *Because both these groups can be volatile the correct position size can significantly lessen the odds of experiencing regret needless to say.

  3. “…because they’re basically a bet on the yield curve cycle which is in for some interesting changes when the Fed decides to stop buying Treasuries and Mortgage Backed Securities…”


    are you holding your breath (waiting for that to occur)?

    or, differently, if you think that is a likelihood, explain how (they’d be able to pull it off/its effect on the ‘Yield Curve’)?

    past that, it’s, too, bad peep can’t figure out..

  4. jaymaster says:

    Last sentence in second paragraph of the article: “There are higher-yielding securities in all of these categories, including mortgage REITs and junk bonds that carry 10%-plus rates, but the rewards here may not be worth the risk.”

  5. ConscienceofaConservative says:

    These names are high yielding for a reason.

    Income stocks and stocks in general have a duration risk far in excess of the average bond.
    Pfizer funds it’s dividend by selling off pieces of itself which is not a long term strategy.
    Mortgage REITS , at least the ones buying bonds strike me as captive buyers playing with other people’s money
    Technology stocks need to invest heavily or risk losing their customers.

    As far as mutual funds go, you run the risk of new money coming in and watering down your high yielders.

    In short there’s no free lunch. At the end of the day, if you want risk you either accept duration, credit or currency or call risk.

  6. Moss says:

    IMHO the PFF ETF is the best risk/return option.

  7. jb.mcmunn says:

    AMLP is a breath-takingly stupid choice. Due to its C corp status it is guaranteed to underperform the underlying basket.

    AMJ was capped months ago and behaves more like a CEF than an ETN. It’s also and ETN with the counterparty risk that entails.

    mREITs make highly leveraged investments on the spread between short and long term rates. That’s why the dividends have been dropping along with the long end of the yield curve. They could also get crushed if/when short rates go up. If the recent rise in long term yields persists their story gets a little better. I sold my mREITs in August and don’t plan to get back in for at least another quarter to see how much QE3 hurt them. It looks like the impact will be less than it initially appeared since QE3 seems to have not been as aggressive as was expected. Some these have held up well (MTGE) but the biggies like NLY and AGNC got hosed.

  8. esquilo says:

    I agree with the comment on mortgage REITs and BDC’s. Both require some research to pick the good ones, e.g., beware BDC’s who lever up to collect more fees. Barron’s has really helped me identify good income ideas over the years, e.g., CEF’s trading at a discount, etc. I didn’t like the look of the top ten holdings of the PFF ETF, although I have certainly owned my share of bank preferreds up until recently.

  9. clipb says:

    Typical Barron’s: a day late and a dollar short. More like 2-3 years late and left out several high dividend plays. Typical.

  10. Jim67545 says:

    On preferreds, don’t overlook call date. For example, a preferred, par $25, selling at $25.75, callable 1/1/15 has a YTM of 4.42%, not the 5.83% my brokerage’s computer says it is. Of course, if it is not called on 1/1/15 the effect of the $25 call begins to fade. Some of these have a coupon of 7.5% or so. I cannot believe that the underlying company won’t find a way to refinance these at lower rates as soon as they can. If they cannot…you might wonder why.