Three Types of High Yield Stocks

“So what are you waiting for ? Put some high yield into your portfolio and boost your income performance today.”

Some people are so afraid of High Yield Stocks that they shy away from them. The end result being that they have cost themselves thousands of dollars in potential income.

The thinking goes because most of the blue chips only pay 2-3% in dividend yields and the average for the S&P 500 is around 2.5% that anything beyond that is “High Risk.”

Being prudent and cautious in the investing world is a good trait but come on folks, use a little bit of common sense also ! Why don’t “Blue Chip” stocks pay higher dividends then? The main reason is because these stocks are highly desirable and the demand for the stock drives up the stock price and the higher the stock price, well it cause the yield to decline. Another factor is that these behemoths are for the most part very mature and as such grow slower that the younger, smaller and more nimble companies. There really is no comparison.

There are basically three types of high yielding stocks:

  1. They are in naturally higher yielding sectors. Example of these are REITs, MLPs, or BDCs. All sectors known for paying out higher yields. Other examples are Tobacco stocks, and communication stocks, think Phillip Morris, AT&T, and Verizon.
  2. Stocks that are in sectors that for no reason of their fundamentals have found themselves in an “out of favor” scenario with investors. Now admittedly you may want to take a very close look at these stocks first, but this is where you can usually pick up some bargains and buy stocks at higher yields than normal. An example is when a whole sector of stocks are out of favor for one reason or another. An example is tobacco  stocks. At one point everyone thought for sure tobacco was going away but the brave souls that stepped up and purchased the stocks are much wealthier for having the guts to buy them. Another are was the coal stocks, I myself saw 50 to 150% gains on these stocks because everyone convinced themselves that coal stocks were doomed. (And they might be in the very long run, but short term I knew coal could not go away over night) Just a little common sense and you could see how impossible and impracticable it would be to replace coal plants. Things like this takes years and decades to play out.
  3. The third type of high yielding stocks are the ones that are out of favor because of their poor company fundamentals. These of course are the stocks you want to avoid at all costs if you can. Leave the purchasing of these stocks to speculators and gamblers because you will not receive warning before they go bankrupt and rest assure the bigger players will always get out ahead of you and you will be left with nothing but memories.

So in my  opinion it is not only okay to seek out higher yields it is highly desirable. Even when I am purchasing “Foundation Stocks” and all things are equal I ALWAYS pick the stock that has the higher yield. Even a quarter or a half a percent can make the world of difference over a long period of time.

When purchasing stocks keep in mind your desired total yield for your portfolio. If you desire a 10% overall yield for your portfolio then seek out stocks that are at or near that yield. But when doing doing keep in mind why is it at that high of a yield. Is it simply because of a sector selloff  because there is a temporary factor that is causing the sell off? Is the stock in a normally higher yielding sector such as a BDC (Business Development Company) or a REIT (Real Estate Investment Trust ) ? Or the one you  have to be concerned with – because of the companies underlying fundamentals.

So bottom line – I don’t have any qualms about investing in higher yielding stocks but I am very careful and selective about it. It takes a little patience and a little more effort but the reward is certainly worth it. For an example say you have a portfolio producing 3% in income and you can push that up to 6% – well, look at the results:

$100,000 x 3% = $3,000 per year or $250 per month.

If you double that

$100,000 x6% = $6,000 per year or $500 per month.

And triple :

$100,000 x9% = $9,000 per year or $750 per month.

Now which one would serve you better? Personally I would choose the $750 per month in income ! Yet, very few do, because they have the misguided illusion that they will lose their money if they even attempt to invest in higher yielding stocks. In reality it is costing them big time not to invest at least a portion of their portfolios in higher yielding stocks.

I also want to briefly touch on one of the arguments against high yields. Many will argue that the stock cannot possibly sustain that high of a dividend. Well I have been doing this for many years now, and I can attest that most of the stocks I pick do in fact sustain their yields. One of my reasoning’s was that even if a particular stock cut it’s dividend 50% say from 9% to 4.5% it is  still a higher yield than the 3% stock ! Sure I have had a few disappointments with my methods but I am not married to the stocks. When a stock disappoints me I simply sell it and replace it with another stocks that has my desired yield. In many cases they are replaced with a yield that is even better than the original stock.

If this seems like something you would like to try for yourself but you are scared then what I would suggest is that you open a brand new brokerage account and use it to experiment  with. In this way you can limit your risk and it will give you a clear indication as to whether or not you can make it work for you. I would suggest picking maybe 5 stocks at most in a couple different sectors.

A sample pick of stocks might be:

  1. Whitestone REIT (WSR) – 10% – REIT
  2. Newtek Business Services (NEWT) – 9.1% – BDC
  3. Omega Healthcare Investors (OHI) -7.3% – REIT Senior and Assited Living
  4. Starwood Property Trust (STWD) – 8.88% –  REIT Diversified
  5. Vector Group (VGR) – – 7.64% – Tobacco & Real Estate

Note: Yields effective – May, 2017

So what are you waiting for ? Put some high yield into your portfolio and boost your income performance today.

 

 

 

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Whitestone REIT Worth a Look

“If you are a Dividend Income Investor or looking to beef up your portfolios yield this is definitely a stock you may just want to take a closer look at.”

I had not planned on writing an article about Whitestone REIT (WSR) today but the market was screaming at me to do so.

Shopping Center and Mall REITS have taken a beating the past couple of weeks. The broad sell off was triggered by the poor income and revenue showings of many retailers stocks. So like investors tend to do they over react. They sell off anything remotely connected and in the process create bargains. Whitestone’s share price  also declined because many investors are unhappy that they issued 7 million shares to pay for recent acquisitions. Perhaps these investors did not bother to read their Business Strategy clearly posted on their Web Site ! Here is what it states :

Our primary business objective is to increase shareholder value by acquiring, owning and operating Community Centered Properties™. The key elements of our strategy include:

Strategically Acquiring Properties

We seek to expand our geographic diversification by strategically acquiring commercial properties in high-growth markets.  Our acquisition targets are located in densely populated, culturally diverse neighborhoods, primarily in and around Phoenix, Chicago, Dallas, San Antonio and Houston, five of the top 15 markets in the USA in terms of population growth.  We may also pursue opportunities in other Southwestern and Western regions that are consistent with our Community Centered Property strategy.We believe that during the next several years there will be excellent opportunities in our target markets to acquire quality properties directly from owners, at historically attractive prices. Many of these assets may benefit from our management team’s experience in turning around financially distressed properties, portfolios and companies.

Redeveloping and Re-tenanting Existing Properties

We “turn around” properties and seek to add value through renovating and re-tenanting our properties to create Whitestone-branded Community Centered Properties™. We seek to accomplish this by (1) stabilizing occupancy, with per property occupancy goals of 90% or higher; (2) adding leasable square footage to existing structures; (3) developing and building on excess land; (4) upgrading and renovating existing structures; and (5) investing significant effort in recruiting tenants whose goods and services meet the needs of the surrounding neighborhood.

Recycling Capital for Greater Returns

We seek to continually upgrade our portfolio by opportunistically selling properties that do not have the potential to meet our Community Centered Property strategy and redeploying the sale proceeds into properties that better fit our strategy. Some of our properties which were acquired prior to the tenure of our current management team may not fit our Community Centered Property strategy, and we may look for opportunities to dispose of these properties as we continue to execute our strategy

It sure seems clear to me !

Some property pictures of recent acquisitions

 

Whitestone REIT which was founded in 1998 now owns over 70 properties which are primarily located in Texas and Arizona.  Some would see the lack of geographical diversity as a negative but because these are growing markets a and Whitestone targets the more upscale neighborhoods ( average income exceeds $75 thousand a year) and because they are concentrated I believe that it gives them an advantage of fully understanding  their markets.

I personally already owned a sizable position in Whitestone REIT but yesterday added an additional 300 shares @ $10.98 per share. That was at a whopping 10.38% yield that I could not just pass up on a stock that I believed in.  Since the dividend has remained at $1.14 per share since 2012 but with a current yield over 10% who needs dividend growth? After all – One in the hand equals two in the bush – right?

If you are a Dividend Income Investor or looking to beef up your portfolios yield this is definitely a stock you may just want to take a closer look at.  Retail might be struggling and going through some changes but its far from dead and Whitestone REIT will provide income for a good many more years.

For more information please visit the Whitestone REIT website.

Read previous article: Whitestone REIT Acquiring two Retail Centers

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Ten for Ten

Another way to use these picks is to sprinkle them into a larger portfolio of stocks to help boost your yield

Ten stock picks that have an average yield of 10.26%

As Dividend Income Investors we are always on the lookout for good High yielding stocks.

These High Yield Stock picks are suited for those that want to generate retirement income as they produce a lot of cash flow. I like to find stocks that many will not touch just because they are “high yield” stocks and by their reasoning they are to be shied away from. I currently have all but two of the stocks (WPG,& MTGE) in my own portfolio some of which have been there for over three years.

  1. (NLY) – 10.82%
  2. (NRZ) – 11.22%
  3. (AGNC) – 10.91%
  4. (WPG) – 12.08%
  5. (LADR) – 8.40%
  6. (CCP) – 9.18%
  7. (PSEC) – 10.98%
  8. (TCAP) – 9.67%
  9. (STWD) – 8.55%
  10. (MTGE) – 10.81%

For reference an investor that puts $100,000 into these stocks ($10,000 each) can expect to generate a cash income of about $10,260 per year or around $855 dollars per month.

For Comparison if the investor put the same amount into stocks averaging a yield of 2.5% the cash generated would be $2,500 per year or around $208 per month. A difference of $647 per month ! A huge difference for someone that needs income.

Another way to use these picks is to sprinkle them into a larger portfolio of stocks to help boost your yield. There are a variety of ways to use them and only your imagination will limit the possibilities. Dividend Income Investors should be careful as not to be reckless with the stocks they own but be willing to think outside of the box.

Some Investors are so focused on “preservation of the money” that they cannot possibly generate income. There is a balance between risk and high risk however but not being willing to take any risk – well maybe you should just buy a very good mattress to put it into.

But for those that need a great Income Flow with immediate results I believe the above list will serve you well.

Comments or thoughts – Feel free to express them  below.