Old-World Opportunities for Income in Our Current Reality
Here at Bauman Daily we are committed to helping our readers get through this crisis. Our experts will provide continuous updates as well as useful insights to help you survive the market decline … and to position you for even greater wealth in the weeks and months ahead. Below you’ll find the latest analysis from the world’s leading financial minds.
Lately, the daily parade of headlines in my email inbox can be clustered into one of two categories:
- The world as we know it is coming to an end.
- The market is awash with value investments with great potential upside.
What’s an ordinary investor supposed to do?
Well, for one thing, you can forget about the first scenario. The world will most likely change … but it’s not going to end.
No matter what, there will still be an economy, with businesses, consumers and stock markets.
If your approach to investment is speculative — buying stocks in the hope that their prices will increase and you can sell them for profit — then there are plenty of bargains to be had.
But if your goal is to earn income that you can use to pay for life’s necessities, there is another option.
It’s an approach that’s made the Endless Income portion of my Bauman Letter portfolio the best performer relative to the market since the pandemic started.
And today, I’ll give you a free sample.
Now Is the Time to Be an Investor
My colleague Charles Mizrahi, currently braving quarantine in New York City, likes to say that he doesn’t invest in squiggly lines on a chart. He invests in companies.
His point is that buying a stock solely as a bet on future movements in its price isn’t investing … it’s speculation.
Charles has been in the business for decades, starting out as a floor trader on the New York Stock Exchange. According to him, the only speculators who die rich are the ones who die during a lucky patch.
Everybody else who dies rich bought shares in companies that profitably produce things people want and are willing to pay for.
Now, it’s true that under the circumstances a lot of those companies are suffering.
I desperately want to take my wife out to a restaurant, but they’re all closed.
Basically, if you can’t download it or have it delivered to your door, the company that makes it is probably suffering declining sales and a plummeting share price.
Many real-world, brick-and-mortar companies aren’t going to survive this crisis.
Others will, thanks to low debt, strong management and perennial consumer demand.
Among that group of companies, there are some that are going to continue doing something right throughout this crisis that defines who they are — pay dividends.
Old-World Companies That Pay
Lately all you hear about is how fancy new-world technology companies will leave old-world companies in the dust.
That’s true in many cases. But just because a company has been around a long time doesn’t mean it’s destined for extinction.
Some of the most profitable and financially sound companies in the United States have been around for a century or more. That includes Wall Street banks, consumer goods conglomerates and energy giants.
These companies don’t usually see explosive share price growth. They aren’t growth companies, after all. Their share prices increase as they become more efficient and grow their market share.
That process takes time. In the meantime, these companies traditionally attract investors by paying them a share of their profits in the form of dividends.
Of course, this bear market has been particularly ruthless. So even these safe and solid companies have taken something of a beating. But because they have maintained their dividends at historical levels, their current yields are astronomical.
Companies that have historically paid out around 5% have recently yielded over 10% against projected future earnings.
Buying companies like that right now means that you’ll double your income per dollar invested — not just today, but for as long as you hold onto them.
As they increase their dividends — as they surely will in years to come — your yield on cost will grow.
And the John Hancock Preferred Income Fund (NYSE: HPI) is a great way to position yourself for those future income streams.
HPI is a closed-end mutual fund. It trades on the stock exchange like a company or an exchange-traded fund. Its holdings are concentrated in U.S. utilities and financial stocks. Both are well positioned to weather the current storm.
Today, HPI’s forward dividend yield is over 9%. That’s 50% higher than it was a month ago.
So if speculation isn’t your game — if you’d prefer a bird in hand to two in the bush — consider investing in HPI now to lock in safe long-term income!
Editor, The Bauman Letter