I am retired and take educated guesses on all things financial.

December 25, 2009

December 26, 2009: Are You Ready To Yield?

For 2010, I believe that we will experience one of those years where the markets move sideways. Certainly there will be individual security and sector exceptions, but this article will focus upon a few random investment-worthy securities that you may wish to consider to obtain a high yield.

Here they are:

Alpine Global Dynamic Dividend Fund (AGD). Slaughtered in 2008 through most of 2009, this CEF appears back on its feet and presents an excellent monthly distribution with capital gain potential. AGD is also a modest hedge against a weak greenback. Trading at $10.15 with a market cap of $240m, AGD holds approximately 45% in U.S. securities and 55% in ROW. The fund at present pays a 13% yield.

Petroleum and Resources Corporation, a CEF, has been producing yield and total return since 1934. PEO fails to make headlines and talking head touts, but this well-run, conservative ETF annually throws out a total distribution between 7-12%. Trading at $24.02, PEO has a $570.4m market cap. It is presently trading at an almost 12% discount, so this may be a great time to consider PEO for your 2010 portfolio.

Barclays Convertible/SPDR Bond ETF (CWB). This ETF deserves more respect. This ETF tracks the >$500m Barclays U.S. Cnvertible Bond Index. CWB trades at $38.23 with a market cap of $237m. I like the holdings in this ETF, which may provide modest capital appreciation in addition to the nice yield, which is 5.67%.

IShares Preferred Stock Index ETF (PFF) tracks the S&P Preferred Stock Index. Trading at $36.85 this $3.1b fund yields 8.72%. It is by nature heavy into financials, but I do not believe that the integrity of PFF or its juicy yield are threatened. This is my favorite preferred ETF amongst the several available.

IShares iBoxx Corporate Grade Bond ETF (LQD) follows the iBOXX Liquid Investment Grade Index. Trading at $104.57, this $12.9b market cap ETF yields 5.24%. LQD is wildly popular, but there is a risk due to the lower investment grade ratings of holdings. That said, diversification and size does make this concern a small one.

I enjoy the hunt for juicy hybrid preferred stocks. Although some of the characteristics can be complex, if successfully researched, one can find high yields that appear to be mispriced based upon the underlying asset mix. A few examples:

Archer Daniels Midland 6.25% (ADMpfA) trades at $43.65 and yields 7.16%. Par is $50.00 if it is called.

Bank of America Preferrred Series J (BACpfJ) trades at $22.32 and yields 8.12%. Par is $25.00 if it is called.

National City Bank 6.625% (NCCpfA) trades at $22.29 and yields 7.43%. Par is $25.00 if it is called.

I do not want to create the impression that one should only invest for yield. Commodity ETFs such as DBC, foreign bond ETFs such s BWX, inflation-protected security ETFs such as TIP and a dose of precious metals and wisely purchased real estate should tendered as a portion of the well-rounded portfolio.

The author will not take an additional position, if any, on the above securities for seven trading days beginning December 26th, 2009.

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