Preferred stocks offer the distinction of being unique hybrid instruments with qualities of both stocks and bonds. In that manner, they offer healthy dividend yields alongside a favored position in the capital structure of many companies that issue these securities.
The reason company’s issue preferred shares are to raise capital from investors that are seeking an attractive yield without adding traditional debt (bonds) that carry strict maturity dates and covenants. Preferred stocks can also be “callable” from the issuer, who has the right to redeem them at a certain price or time at their discretion. Read more
Love is in the air this Valentines week and many income investors are smitten with the returns of their high yield investments. The steady march higher in assets like junk bonds, preferred stocks, emerging market debt, and even leveraged closed-end funds has remunerated shareholders for their faith.
The poster child of this strength may well be the iShares iBoxx $ High Yield Corporate Bond ETF (HYG). This well-known fund, which invests in a passive index of high yield U.S. corporate debt, has gained more than 22% over the last year. That jump includes both price gains and income distribution over a 52-week period. It also bests every corner of the U.S. fixed-income sector map by a wide margin. Read more
Income investors with large taxable accounts are consistently focused on maximizing their total return and minimizing the impact of taxes on their nest egg. That means seeking out funds that are sensitive to the type of income they produce and the implications of using capital losses to offset gains.
Exchange-traded funds (ETFs) are one avenue for investors to consider in this pursuit. Many ETFs that track a passive index have low portfolio turnover rates and often pay little to zero capital gains at year-end. These make for a truly inexpensive and effective vehicle for tax-conscious investors that want diversified stock or bond exposure. Read more
This month’s video takes an in-depth look at the closed-end fund marketplace. Charts include both diversified CEF indexes and single fund names. Overall the trend remains solid, however we are starting to see stretched premiums and tight discounts across the entire spectrum. Risk is high and caution should be warranted at this stage of the cycle. Video recorded after the market close on February 8, 2017.
Many investors are familiar with the GARP acronym, which stands for Growth At A Reasonable Price. The basic definition is to uncover stocks with reasonable fundamentals (undervalued) that have sustainable growth potential. The methodology seems sound and is essentially a way of saying – don’t chase price simply for the sake of recent performance.
On the flip side of that ideology is a perilous path that I have seen many investors tread in recent years. I call it “Yield at Any Price” or YAAP. Read more