Got Cash? If you have some cash that you don't know what to do with, you may have more options than you think. Of course, you can always leave it in the bank but you will be lucky to get 5%. You can invest in the stock market but you will vulnerable to a major correction which could happen at any time. My strategy in these circumstances is to invest in stocks that produce an income stream. Don't need income to buy groceries, gasoline, etc? How about income to re-invest in the event of a market correction? During the major correction that occurred in the early 2000's, many saw their portfolios decimated as stocks that were overpriced returned to more realistic levels. There were bargains to be had at these levels but most investors had little capital to re-invest. Our income portfolios may have been down but the income stream continued and we had cash flow to re-invest in these bargains.
A Sample $45,000 Income Portfolio. The following is a sample portfolio of some stocks that I think are realistically, if not bargain, priced in the current market. These are higher income stocks which were punished during the recent credit crunch. While some companies in this category were corrected because the market thought they had little chance of continuing their dividend, my opinion is that the companies listed here have a good chance of continuing to pay their dividend. One caveat before I list these stocks: This is a sample portfolio and not necessarily one I would recommend for everyone. I would never advise your grandmother to put 100% of her savings into this. We are playing the probabilities here and those who can't afford the possibility of a major disruption should not take the chance. I should also call your attention to the fact that I did not do a comprehensive screen of all dividend stocks to pick out the best ones. Although, I do like these companies as evidenced by the fact that I either own some of them at present or have owned some in the past there may well be better ones out there. Do your own screen and due diligence before deciding you want to own this portfolio. Here is the sample portfolio:
1. 500 shares of Capital Source (CSE) @17.25. Cost is $8,625. Annual Income $1,200
2. 200 Sh. Am. Capital Strategies (ACAS) @41.4. Cost $8,280. Income $736.
3. 200 Sh. Bank of America (BAC) @47.48. Cost $9,496. Income $512.
4. 500 Sh. Permian Basin Trust (PBT) @ 15.69. Cost $7,845. Income $885.
5. 200 Sh. Kinder Morgan (KMP) @51.65. Cost $10,330. Income $704.
The total cost of this portfolio is $44,576. The annual income is $4037 or a yield of 9.06%. This is almost double what you can get in a money fund. Advantages are: 1. Reasonable diversification since the portfolio contains shares of the second largest bank on the country, business development companies, oil and natural gas royalty companies, and energy pipeline companies. 2. All these companies have a strong dividend payment history including a track record of increasing the dividend at least annually. 3. Growth in share prices.
Why Not Put All Your Money in This Portfolio? No matter how strong the company appears, you never know when the economy will throw you a curve like it did with Enron, Kmart, or American Home Mortgage. You need a bank account and other kinds of investments to make sure that under-performance of any company in this mix won't put you in the poorhouse.
It's Been a Busy Summer. Everything from personal illness to deaths in the family have kept me from accomplishing everything on my list this summer. We plan to leave this coming Wednesday for our winter home but we will be available by phone, fax, or e-mail. In addition, I am planning several trips back during the year. If you have issues that you think might need my attention, don't hesitate to call.
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