Continue reading Three Simple Rules to Buying Great Stocks

Three Simple Rules to Buying Great Stocks originally appeared on BloggingStocks on Wed, 09 Jun 2010 18:00:00 EST. Please see our terms for use of feeds.

Most high-yield income investors want an energy component within their portfolio as a long-term cornerstone against inflation. That makes perfect sense, but only if that income vehicle can stand the test of time. It does this by replenishing reserves at a rate higher than those energy assets to the marketplace at whatever the prevailing prices are.

This is the main drawback of owning domestic energy trusts.

Continue reading High-Yield Sin #7: Buying Domestic Energy Trusts

High-Yield Sin #7: Buying Domestic Energy Trusts originally appeared on BloggingStocks on Sun, 28 Feb 2010 15:00:00 EST. Please see our terms for use of feeds.

A common method for paying dividends from funds that invest outside the U.S. is to pay special dividends composed of short-term and long-term capital gains. The dividend policies of such funds are predicated on the ability of the fund manger to pay out whatever gains can be garnered over the course of a year depending on short-term or long-term holding periods.

Closed-end funds based on China, India and other emerging markets had explosive returns from 2003 to 2007, chalking up greater than 50% returns. But a large portion of those returns were paid out in the form of huge capital gains-based dividends and are reflected in most screening software portals that suggest these funds are still paying out these gorilla-sized dividend yields.

They're not, and the data can be hugely misleading when investors are hunting for big yields through various screening tools.

Continue reading High-Yield Sin #6: Getting Paid in Special Dividends

High-Yield Sin #6: Getting Paid in Special Dividends originally appeared on BloggingStocks on Sun, 28 Feb 2010 13:00:00 EST. Please see our terms for use of feeds.

All common stocks, income trusts, master limited partnerships, REITS and other pass-through entities have what is called a payout ratio. It's a number that essentially says how much of the dividend is paid out from each dollar of net income.

A company like AT&T (T) has a payout ratio of 77%, meaning that the company retains 23 cents of every dollar after dividends are paid out to put back into the business. This is a decent ratio, but something around 50% to 60% is more ideal.

Continue reading High-Yield Sin #5: Owning Securities with High Payout Ratios

High-Yield Sin #5: Owning Securities with High Payout Ratios originally appeared on BloggingStocks on Sun, 28 Feb 2010 11:00:00 EST. Please see our terms for use of feeds.

Some closed-end funds pay out what is known as managed distributions as a template for their dividend policy.

What happens here is that the fund, in its attempt to draw investor attention, states that it will pay out a managed distribution that is a percentage of the net asset value (NAV) at the end of each quarter. The idea is stability of income.

Hardly! Most closed-end funds that employ a managed distribution payout policy use 8% as the percentage of NAV they peg the fund to at the end of the quarter.

Continue reading High-Yield Sin #4: Buying into Managed Distributions

High-Yield Sin #4: Buying into Managed Distributions originally appeared on BloggingStocks on Sun, 28 Feb 2010 09:00:00 EST. Please see our terms for use of feeds.

This is one of those areas that should be treated like poison. When a big, fat, juicy dividend yield is composed in whole or in part by what is termed a return of capital, you want to steer clear.

When a mutual fund or entity pays out a scheduled dividend payment that hasn't been earned by profits or interest income, you can bet that a portion of that dividend will be in the form of a return of capital, which simply means you as an investor are receiving some of your money back as part of the dividend.

Two negative things happen here.

Continue reading High-Yield Sin #3: Receiving a Return of Capital

High-Yield Sin #3: Receiving a Return of Capital originally appeared on BloggingStocks on Sat, 27 Feb 2010 15:00:00 EST. Please see our terms for use of feeds.

Most closed-end funds trade at a premium or discount to their net asset value (NAV) for various reasons and can offer excellent investment opportunities. Locking in a high-yield payout in a discounted fund can make for some exciting total returns.

Yet some investors buy into a popular closed-end fund that is trading at an enormous premium to its NAV. Why would anyone pay up to 25% for shares of a hot closed-end fund when they could buy that same basket of stocks or bonds from their broker at real market value? It's a bit insane.

Continue reading High-Yield Sin #2: Paying Big Premiums over Net Asset Value

High-Yield Sin #2: Paying Big Premiums over Net Asset Value originally appeared on BloggingStocks on Sat, 27 Feb 2010 13:00:00 EST. Please see our terms for use of feeds.

This statement may come as a shock to most investors, but if there is a choice to buy a certain index or sector closed-end fund instead of an open-end fund, opt for the closed-end fund.

First of all, with the Dow showing triple-digit point swings on an intra-day basis, you never know when you may want to exit the fund if the market makes a dramatic move up or down. With an open-end mutual fund, you can only sell at the end of the day

Continue reading High-Yield Sin #1: Buying Open-Ended Mutual Funds

High-Yield Sin #1: Buying Open-Ended Mutual Funds originally appeared on BloggingStocks on Sat, 27 Feb 2010 11:00:00 EST. Please see our terms for use of feeds.

In the world of high-yield securities, investors on a quest for the biggest yields are often lured into securities that either they don't understand or are simply tempted beyond their personal discipline to investigate how that yield is being supported.

If you can't identify where the "Yield Power" is that makes the king-size payouts possible, then they should avoid purchasing them.

So how do you know which ones to avoid?

Continue reading Seven Deadly Sins of High-Yield Investing

Seven Deadly Sins of High-Yield Investing originally appeared on BloggingStocks on Sat, 27 Feb 2010 09:00:00 EST. Please see our terms for use of feeds.

For the past several days, I've been giving tips about how to predict trends and ride them to profits. My last tip is that sometimes you can make money by taking a clear trend -- and then ignoring it and investing in a less trendy stock, or even a stock that seems to be losing out because of that same trend.

Pinnacle West (PNW): How the West will win originally appeared on BloggingStocks on Mon, 15 Oct 2007 13:00:00 EST. Please see our terms for use of feeds.

The difficult analysis of the credit markets is exactly that: analysis.

In the equity markets, when a company encounters difficult times, it tends to be isolated and somewhat unique to that company. The issues can be quantified and analysis will quickly give the investors the snapshot of the current value the company will have in the market place.

Continue reading Credit markets 101: Finding the value

Credit markets 101: Finding the value originally appeared on BloggingStocks on Mon, 06 Aug 2007 13:24:00 EST. Please see our terms for use of feeds.

Sometimes there is an article in a newspaper that's so great that it's worth doing a post on just so that more people will see it, and no additional commentary is really necessary. Whitney Tilson's tips for value investors in these weekend's Financial Times is such a piece.

For the uninitiated, Whitney Tilson is one of the great value investing minds of our time. He's also a heck of a good guy: He's one of the founders of Teach For America, and I'm an eager reader of anything that he has to say.

For more information about how to implement the investment strategies discussed in his latest column, I recommend the following books:

You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits. If there's an award for the most informative book with a clunky, annoying title, I nominate this Joel Greenblatt masterpiece. It's focused on special situations such as spin-offs and bankruptcy investing, which are both featured in Tilson's list of tips.

Contrarian Investment Strategies: The Next Generation. Whether you like it or not, almost all value investing seems to have a contrarian angle: You're buying stocks that you think the market is pricing inaccurately. David Dreman makes a compelling case for contrarian investing, and shows how you might be able to beat the market.

Must-read tips from a value investing legend originally appeared on BloggingStocks on Sun, 20 May 2007 13:10:00 EST. Please see our terms for use of feeds.