Investors who want income don’t have to settle for the negative real yields (after inflation and taxes) available in traditional retirement income investments, explains Bob Carlson, editor of Retirement Watch — and a participant in MoneyShow's Accredited Investors Virtual Expo, Dec. 7-9. Register here for free.
In my Retirement Paycheck portfolio, we consider investments such as closed-end funds, preferred securities, high-dividend stocks, high-yield bonds, energy service companies and more.
We also don’t use buy-and-hold strategies. They are more volatile than traditional income investments. But over time, we’ve delivered a current yield of 5% to 7%, plus some capital gains. Here's a look at four investments in this portfolio.
Emerging market bonds offer higher yields and better values than U.S. bonds. I believe they were neglected by investors over the last few years and will receive more investment flows as the emerging economies recover from the pandemic.
We have two positions in emerging markets in our Retirement Paycheck portfolio. First, we own them through DoubleLine Emerging Markets Fixed Income (DBLEX). The fund invests in the countries the managers believe are the most attractive, ignoring the country allocations and bonds that index funds are required to hold.
DBLEX invests primarily in corporate bonds but also owns sovereign and quasi-sovereign bonds when they’re attractive.The fund s up 2.39% for the year to date and 7.38% over 12 months. The yield recently was 4.07%.
High-yielding emerging market stocks are owned through the ETF Cambria Emerging Shareholder Yield (EYLD).
Cambria developed a unique system that ranks dividend-paying companies using dividend payments, net share repurchases and net debt reduction.
It considers only stocks that pay cash dividends and have low leverage and several other characteristics. Cambria's managers seek to use their system to identify high-dividend payers likely to sustain such dividend payments. After ranking the emerging market companies, the fund buys the 100 top-ranked stocks.
ETF Cambria Emerging Shareholder Yield is down 5.98% over the past three months. It is up 7.81% for the year to date and 27.86% over 12 months. The fund’s yield recently was 5.83%.
Our Retirement Paycheck portfolio also owns a combination of REITs and preferred securities through the closed-end fund Cohen & Steer REIT & Preferred Income (RNP). The fund is about evenly split between the two types of investments.
RNP is up 5.68% over three months, 28.05% for the year to date and 42.62% for the last 12 months. The recent distribution yield was 5.35%. The fund uses a leverage ratio of about 24% to increase its yield and capital gains.
RNP recently sold at a 1.00% discount to net asset value and has a six- month average discount of 1.87%.
Also in the portfolio is another closed-end fund TCW Strategic Income (TSI). This fund doesn’t use leverage.
About 40% of TSI is invested in non-agency residential mortgages. The rest of the fund is diversified among the traditional income investments.
The fund has been in a narrow trading range for the last few months. It is down 0.42% over three months. So far in 2021, it is up 4.70%, while rising 5.97% in the last 12 months. The fund’s distribution yield recently was 3.80%.
