Income Investments Take Center Stage Entering 2019Sheaff Briefs Editor
Income investments represent a popular “meme” for pundits these days, and for good reason. In offering innovative portfolio solutions for Sheaff Brock investors who want a balance between risk-avoidance and higher returns, income investments are taking center stage as we enter 2019.
“After a tumultuous few weeks in the markets, the steady income offered by yield-focused investments looks very attractive,” Andrew Bary writes in Barron’s. The two drivers, Bary points out, are these:
- following the erratic market movements, the steady income looks very attractive
- the recent selloff has created opportunities in both stocks and bonds
Dividend.com sums up one type of income investment as follows: “Have you ever wished for the safety of bonds, but the return potential of common stocks? If so, preferred stocks are potentially a good choice to explore.” Not only are preferreds not a new phenomenon, an entire century ago most-publicly traded companies were offering preferred shares, the authors point out.
By way of quick review, preferred shares are “senior” to common stock in the capital structure, yet below bonds. (In a bankruptcy situation, preferred shareholders come before common stock owners in terms of recovery of investment dollars.) As income investments, preferreds are sometimes referred to as hybrid securities, because they have elements of both common stock and of bonds.
When it comes to income investments, there are two different terms to describe the total income an investor receives from a stock during the fiscal year:
- dividend RATE—total actual income the investor receives. This number is expressed in dollar amounts per share.
- dividend YIELD—the total annual dividends divided by the current share price of the stock. This is expressed as a percentage. Because the dividend yield changes with the stock’s price, it often looks unusually high for stocks that are falling quickly, Investopedia explains.
“Early forecasts for 2019 predict another range-bound year for stocks, suggesting dividends may be one of the only guaranteed sources of market returns.” Wayne Duggan opines in U.S. News. “Companies with relatively low payout ratios … are the safest dividend stocks to buy in the current environment.”
“Heading into the new year,” The Motley Fool comments, “plenty of questions remain unanswered, The Fool mentions the slump in oil prices, a divided Congress, Fed policy, and trade wars, concluding that “while we don’t concretely know the answer to any of these questions, as investors, we can take steps to shore up our portfolios against possible downside and near-term volatility.” The best way to do that, The Fool advises, is seeking out income investments, specifically dividend-paying stocks.
Sheaff Brock’s disciplined approach to overall portfolio management involves much more than structuring income investments to generate current income, Director/National Sales Manager Jim Murphy explains. The focus is on growing that income over time, with the opportunity for investors to participate in long-term capital appreciation.