Market Pulse: Slow economy benefits income investors
The market acts like a roller coaster, moving up and down depending on the news from D.C. Washington’s folly is hurting an already slowing economy and it will lower consumer confidence. That will impact what matters most for investors … earnings.
Increasingly, corporate executives are tempering their outlook for the rest of the year and into 2014. The macro economic data show tepid growth at best, even less than earlier expected due to the government slowdown and a decline in confidence.
There is no reason for executives to boost hiring in a bet that growth will accelerate more than a little. They don’t see a catalyst. For now, neither do I.
A slow-growing economy makes fixed income securities and preferred stocks attractive, especially since most yield one-to-two percent more than just a few months ago.
Some of my favorites are:
• RenaissanceRe Preferred ‘E’ is an investment-grade preferred that pays qualified dividends and yields 7.2 percent.
• PartnerRe Preferred ‘D’ is also investment grade and yields 6.7 percent.
• Annaly Capital Management Preferred ‘D’ succumbed to heavy selling when rates rose but they have never missed a dividend payment and its yield is now 7.9 percent.
Readers of this column know that income investors should also own dividend-paying stocks. Never mind what’s happening (or not) in D.C, these stocks will do well.
BP Plc (BP) yields 5.0 percent, AT&T (T) yields 5.2 percent and it raises its dividend every year. Spectra Energy (SE), which will raise its dividend in the first quarter, benefits from our increasing demand for natural gas and yields 3.5 percent.
The slowing economy doesn’t mean stocks will move lower. Just the opposite. Expanding multiples and the need for income will continue to move the market higher.
With short-term income vehicles yielding next to nothing, it remains a TINA environment. That is, There Is No Alternative. Sitting in money market instruments doesn’t pay off. Retirees in need of income should hold some selected fixed-income instruments and stable dividend paying (and raising) stocks.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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