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For those seeking high income, there are a variety of investment vehicles outside of the traditional fixed-income arena. Several MoneyShow.com contributors see potential in select niche income markets including an MLP that operates theme parks, an ETF that owns preferred shares, and a closed-end fund that holds floating rate debt.
Glenn Rogers, Internet Wealth Builder
I believe that in 2019 and 2020 we will start seeing the deficit explode. The pace of interest rate increases will accelerate, and the combination could tip us into a recession.
In these circ*mstances, we want to find stocks that are somewhat protected from the vicissitudes of this administration and won't be affected by trade wars and heaven knows what else.
So, against that disturbing backdrop what do you do to make some money? Well, when the chips are down let’s try and have some fun. As Warren Buffett said recently, don’t watch the market; just take the kids out for some ice cream.
As it turns out, we have just the stock that fits that advice, one with the perfect trading symbol; the company is Cedar Fair LP. The company is in the theme park business with 13 parks throughout the U.S. and one near Toronto: Canada’s Wonderland.
They also have five hotels adjacent to their parks with 1,600 rooms. As well, they own 1,400 acres of undeveloped land adjacent to their parks for future expansion.
Many of you will have heard of Knott’s Berry Farm, which is located beside Disneyland in Anaheim, California. That’s one of their properties. Think of Cedar Fair as a junior Disney in some ways, without the media properties and international exposure. The company offers 850 rides and 120 roller coasters and attracts more than 25 million visitors annually.
Last year, the company had record revenues and attendance. Net revenue was $1.32 billion, with adjusted EBITDA of $479 million. Cedar Fair logged 27.7 million visitors and out-of-park revenues of $144 million.
Overall the company has enjoyed steady growth with a long history of paying dividends, which they are committed to growing by 4% every year.
Additionally, theme parks are expensive to construct so there is a high barrier to entry. Its parks are geared toward middle-income people and are situated so customers can drive to their locations. The recent tax bill will generate some additional disposable income for the middle class so that should set Cedar Fair up for a very good 2018.
The stock, yielding 5.57%, has pulled back a little after the last earnings report because profits were slightly down from the previous year, due largely to extreme weather, which kept attendance slightly below budget. I think this is a good entry point for a relatively Trump-proof stock.
The company is set up as a master limited partnership, which allows for a tax-efficient return of capital to U.S. shareholders but may pose some tax problems for Canadians. Therefore, I strongly advise Canadian residents to discuss the tax implications of buying shares with their financial advisor before acting.
Bryan Perry, Cash Machine
I want to add asset manager AllianceBernstein Holding LP to our high-yield conservative portfolio. It is a multi-faceted company managing roughly $560 billion. The firm invests in public equity, fixed income and alternative investment markets across the globe.
For the fourth quarter of 2017, the firm blew past earnings estimates by 29% and declared a fat distribution of $0.84 in the process. I believe the company is going to keep that winning streak going for 2018 and into 2019.
Because quarterly distributions vary as to profits, I take the trailing four quarterly distributions and divide that sum by the stock’s price.
This exercise produces a trailing annual payout of $2.30 per share and an 8.7% current yield. The stock is also on a nice technical uptrend, currently trading at $26.40 with a recent 52-week high of $28.15.
AllianceBernstein was a holding back in 2013 and we booked a 29% total return over a span of 19 months. I think we can see that kind of return again by the end of 2019.
Chloe Lutts Jensen, Cabot Dividend Investor
The PowerShares Preferred ETF is an exchange-traded fund that holds preferred shares. That means it buys and holds preferred stock issued by all sorts of companies, although the most common issuers are financial companies.
Preferred stock is similar to a bond but it’s neither a bond nor common stock. It’s a different kind of debt that some companies choose to issue.
Preferred shares represent debt, like a bond or loan. They do not represent or confer ownership, and so the shares won’t appreciate in value like equity.
They’re usually issued at a par value of $25 and trade between $24 and $26. If you buy preferred shares at a discount to par — below $25 — you may see some capital appreciation, but it’s pretty limited.
Also, the distributions are fixed, like interest on a bond. So you’d only buy a preferred or a preferred ETF like PowerShares Preferredfor steady income, not dividend growth.
So owningthis fundis more like owning a bond fund than a financial sector ETF. However,PowerShares Preferredis less sensitive to interest rate changes than a bond fund, which is why I like it and have it in the Safe Income Tier of our model portfolio.
PowerShares Preferred pays dividends monthly, making it a good conservative holding for investors looking for regular income. The fund has low volatility but no capital appreciation potential; it generally trades between 14 and 16. The ETF is buyable now for investors looking for a good store of value and regular income.
Brett Owens, The Contrarian Income Report
The Eaton Vance Floating Rate Income Trust has delivered 30% total returns over the past two years. It barely blinks when stocks plummet. It’s exactly the type of Fed-proof, tariff-proof and crash-proof dividend payer that we want to own right now.
As impressive as its recent performance is, we could see even better total returns (15%+) over the next year. After all, the outlook for rates is more hawkish now than it was two years ago.
But isn’t this bullish outlook already baked into the fund’s price? If it were an exchange-traded fund with ample advertising, it might be. Fortunately for us, this Eaton Vance vehicle is a CEF (closed-end fund), which means it’s quietly operating in an unloved, underfollowed corner of the income world.
This obscurity is perfect for us. A lack of fame means these shares trade at a 5.2% discount to their net asset value (NAV). Bargain windows like these give us a bit of additional upside potential.
As floating rate funds continue to gain favor in fixed income circles, I wouldn’t be surprised to see the fund trade for a premium to NAV before this rate hike cycle is finished.
After all, it happened just a few years ago. Investors paid 7%+ “surcharges” for the right to own Eaton Vance Floating Rate as recently as 2013. Today, even though the Fed has momentum, the fund is actually trading at its widest discount levels in two years. It’s classic closed-end fund behavior.
But what if interest rates don’t climb as fast or as furious as widely anticipated? Eaton Vance Floating Rate should be just fine. It’s compounded its NAV by an impressive 7.2% per year since inception — a solid 14-year track record under the guidance and steady hand of Scott Page.
Page has been with Eaton Vance since 1989. He’s managed this fund since inception — through rising and falling rate cycles, and through rising and falling stock markets. His 7.2% average annualized return record is excellent, and we’ve got a good chance we’ll do even better by buying now.
Jack Adamo, Insiders Plus
To say retail and mall REITs are out of favor is a gross understatement. The whispers in the wind say that brick and mortar stores are going the way of the dodo bird, thanks mostly to Amazon.
Besides the online pressure, America was over-stored in the early 2000s anyway, as folks indulged in an orgy of spending from home equity loans. The bursting of the housing bubble showed the flaws in that reasoning.
Not all areas of retailing and real estate were equally affected, and neither were all regions. That’s why we will do well with Saul Centers, Inc. Series D Cumulative Preferred.
Saul Centers Inc. is a REIT that invests primarily in upscale malls, apartments and mixed-used properties in the Washington, DC area. The location makes a lot of difference.
The growth of the federal government, as well as a good central location and pretty good weather, has made the area a fertile area for all enterprises. The population density and wealth effect of all the government largesse (and waste) has done wonders for the region.
Saul’s Series D is a new series of preferred. Part of the older series was redeemed with the proceeds. Both series are cumulative and the company paid out more than double the preferred dividends last year to common stock shareholders, so there should be no problems meeting these obligations.
In fact, Saul has never even missed a common dividend since it went public in 1993, and it only reduced the common stock dividend in 2009 after the financial meltdown. It came down 23% and gradually worked its way back up. It’s currently 10.6% higher than its pre-crash payout.
All this is very good, but there’s more. Here, we have a founder and chairman of the board who owns 46% of the company's common stock and only takes a salary and bonus of $150,000 per year, although various perks bring total compensation up to about $248,000.
Last but not least, this issue is very new and not well known yet. The preferred D shares recently sold at $23.27, a 7.4% discount to its redemption price. The coupon rate is 6.125%, but with the current discount, the yield is 6.58%. The shares aren’t redeemable until January 2023, so you get nice income at least until then.
With the current price below redemption value, the shares have a compound annual return of 7.06% to the redemption date. Buy the preferred stock only with a limit order, never a market order. The float is rather small. There may be a significant bid-ask spread. Also, remember that there is no standardized system for preferred stock symbols, so you may find the symbol slightly different.
Ned Piplovic, DividendInvestor
Established in 2004, the Cohen & Steers Infrastructure Fund is a non-diversified, closed-end management investment company. The fund’s primary investment objective is high current income through investment in securities issued by infrastructure companies.
Infrastructure companies are defined as utilities, pipelines, toll roads, airports, railroads, marine ports and telecommunications companies. As of December 31, 2017, the fund had $3 billion in total assets under management spread across 179 individual holdings.
The top four holdings — Crown Castle International, NextEra Energy, Enbridge, Inc. and American Tower Corporation — account for 17.3% of fund’s total assets. The top 10 holdings account for 30.6% of total assets.
Geographically, the fund has 59% of its assets invested in the United States — 51% — and Canada — 8%.
The fund was forced to cut its annual dividend payout twice after the 2008 financial crisis but has been growing its dividends steadily since then and currently offers an 8.7% dividend yield.
Since the fund started raising its annual dividend again in 2014, total annual payout amount grew at an average rate of 5.3% per year and rose a total 30% over the past five consecutive years.
Over the last 12 months, the fund rewarded its shareholders with a 9.5% total return. Additionally, long-term investors enjoyed a 19.3% total return over the past three years and a 46.5% total return over the past five years.
For more income ideas check out ourlatest free special report:GOLDEN GAINS: Top Gold Mining Stocks & ETFs for 2018.
