Dec 27, 2009

Jackpot Dividends: 5 Ultra High-Yield Stocks

By Andrew Mickey, Q1 Publishing

Swear off tiny 2% and 3% dividend yields forever!

Jackpot Dividends:
5 Ultra High-Yield Stocks

Learn how you can find dividend yields as high as 15.5% and why high-yields are now more important than ever.

 

Dear reader,

You just went through a great job interview. It’s for your dream job.

Congrats! You nailed it. You answered every question right. The interviewer was impressed by your experience, attitude, and even laughed at your jokes.

You’re a shoe-in. But there’s the issue of salary.

Basically, you’re new employer says it’s your choice.

“Do you want to start at $50,000 or $150,000 a year?”

You’d take the $150,000, right?

Of course you would. We all would.

Assuming the work, location, and hours are all the same, you’d be crazy not to take the bigger salary. There’s a big difference between $50,000 and $150,000 a year.

When it comes to investing though, most investors choose the $50,000. They unwittingly pass up the truly safe and consistent gains which boost their annual investment performance dividends provide.

High-Yield Investing: More Important than Ever

The thing most investors never realize is the importance of dividends as a part of overall return.

The chart below shows why including high-yield stocks in your portfolio is more important than ever:

As you can see, dividends provide a significant boost to annual investment return. Dividends, on average, account for nearly a third of total annual return.

There’s no reason to expect the next decade to be any different than the past nine.

The thing is though, as we enter a period of muted economic growth, dividends will probably account for an even bigger part of total returns.

Not Just for “Widows and Orphans” Anymore

Today, all signs point to the world entering a period of slow economic growth which will make dividends more important than they’ve been in a long time.

With the U.S. facing higher taxes, greater government involvement in the economy, and an aging population, the inevitable result will be slower rates of growth. In the long run, slower growth reduces earnings growth which, thereby, cuts the total returns from the stock market.

Just look at what happened in the stagnant growth period of the 70s. Stocks and dividends returned a total of 5.8% per year. Dividends made up 72% of the market’s total return.

An investor who passed over dividends in the 70s would have passed up 72% of the total potential return for 10 years.

Jackpot Dividends Revealed

That’s why we here at Q1 Publishing have continued to keep dividends high on our list of priorities.

And in this research report, Jackpot Dividends: 5 Ultra High-Yield Stocks, we have highlighted five exceptional, high income opportunities.

We’ve uncovered all kinds of ways to get more income than the most popular alternatives:

The differences are tremendous. High yield stocks, like our Jackpot Dividends picks, allow you to start out essentially seven or eight percent ahead of the market. That’s a giant head start considering stocks return about 11% per year on average.

Remember, do you want to make $50,000 or $150,000?Start surpassing most investors and get on the path to financial independence. Choose $150,000.

All five Jackpot Dividend stocks are revealed below.

Good investing,

 

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

 

Jackpot Dividend Stock #1: Expected Yield – 15.5%

Exploiting IRS loophole to earn low-risk high-yields.

Anworth Mortgage Asset Corporation (NYSE:ANH)

When Fannie Mae and Freddie Mac were hours away from collapsing in 2008, the U.S. Treasury stepped in. As a result, the U.S. government has guaranteed mortgage securities issued by those agencies.

The move, whether you agree with it or not, essentially removed all risk from Fannie and Freddie bonds. Of course, the agencies bonds pay a modest 5% or 6%. Not too bad, but not too great either. That’s where Anworth comes in.

According to Anworth:

[Anworth]  invests primarily in United States agency mortgage-backed securities issued or guaranteed by United States government sponsored entities, such as Fannie Mae or Freddie Mac, or an agency of the United States government, such as Ginnie Mae, including mortgage pass-through certificates, collateralized mortgage obligations, and other real estate securities, on a leveraged basis.

Once you cut out all the “corporate speak”, Anworth borrows money at a low rate and lends it to government-backed agencies at a higher rate.

Anworth is basically a bank. It makes money on the “spread” between rates it can borrow at and the rates it can lend at. Normally, the spread is about 1%. Anworth, however, can leverage up by borrowing more and relending. That’s how it can offer such an enormous dividend.

Normally, leverage is very risky – especially in a stagnant economy. The kicker with Anworth is that it primarily lends to U.S. government agencies. More than 95% of its “loans” are made to government agencies like Fannie Mae. Since the agencies’ debt is de facto guaranteed by the U.S. Treasury, the leverage isn’t nearly as risky as it normally is.

The other advantage of Anworth is that it’s classified as a Real Estate Investment Trust (REIT).

The IRS defines a REIT as:

Internal Revenue Code, Section 856(c)(2) requires at least 95 percent of a REIT’s gross income to be derived from passive sources, including rents from real property.

Since Anworth makes all its money from investing in mortgage securities, it classifies as a REIT.

As a REIT, Anworth is required to pay out 90% of its income to shareholders. If it does that, it avoids the double taxation of dividends. Dividends from a REIT are not paid out of after-tax earnings and, as a result, are only taxed once. That’s why a REIT like Anworth pays a 15% dividend yield instead of 7% like many other high-yield stocks – the IRS only taxes its dividends once.

In the end, Anworth borrows money at low rates and lends it to the government at higher rates. It’s a veritable government-backed cash cow.

Jackpot Dividend Stock #2: Expected Yield – 16.8%

Bailout bonus: 16.8% yield with U.S. government backstop

Annaly Capital Management (NYSE:NLY)

Annaly is turning the bailout into a dividend bonanza for shareholders as well.

Annaly is just like Anworth mentioned above. It’s basically a bank. It borrows money at low rates, lends it to government agencies like Fannie Mae and Freddie Mac, and then pockets the difference between the rates. It too leverages up its borrowing and lending to create the massive dividend yield.

Again, normally all the leverage is very risky. However, as long as the U.S. government has backstopped Fannie and Freddie, there’s very little risk.

Annaly is also a REIT as well and it provides shareholders with the same beneficial tax and income conditions required to be a REIT.

Jackpot Dividend Stock #3: Expected Yield – 9.7%

The Verizon of New Zealand with twice the dividend

New Zealand Telecom (NYSE:NZT)

In the 1980s, New Zealand jumped on the international privatization bandwagon. It sold its state-owned telecom monopoly, New Zealand Telecom (NZT).

Since then NZT has maintained its leadership role on the island nation. It remains the leading landline phone provider and is now entrenched in the mobile sector as well. More than 1.9 million Kiwis count on NZT for mobile phone and data services. That’s a 49% market share.

NZT’s real value, however, is in a fiber-optic cable line that connects New Zealand and Australia. The line connects New Zealand to the rest of the world. From our perspective, it’s an information pipeline which creates an incredibly stable source of revenues for NZT.

The combination of high value assets and dominant position in the market will likely keep the NZT cash machine paying off for years to come.

Jackpot Dividend Stock #4: Expected Yield – 6.6%

Income of a long-term corporate bond and safety of owning high-value infrastructure assets like ports, power lines, trains and trees.

Brookfield Infrastructure Partners (NYSE:BIP)

BIP is a company which owns and/or operates some of the steadiest cash flowing assets in the world.

The company owns 1.289 million acres of timberland in Washington, Oregon, and Canada. It has interests in power lines in Chile, Canada and the United Kingdom. It has natural gas pipelines in the United States. It also has an interest in ports throughout China and Europe and controls a railroad in Western Australia.

Granted, BIP is not in the most exciting businesses. But its lack of excitement is easily overshadowed by the value of its assets which just spin out cash flow.

BIP’s structure allows it to pay exceptionally high dividends. BIP is technically a publicly-traded partnership (PTP). That structure allows it to hand over a large portion of its cash flow to shareholders.

Jackpot Dividend Stock #5: Expected Yield – 4.3%

Steady dividend flow powered by the world’s cheapest, cleanest electricity source.

Exelon (NYSE:EXC)

Most investors look at Exelon and see a run-of-the-mill utility. But don’t think it’s some boring, “widows and orphans” stock.

Its dividend yield is almost twice as high as the S&P 500.

It’s a highly regulated company almost completely insulated from competition.

The cost it would take to replace all the company’s assets is nearly 50% more than the value the market is giving it.

It’s in perfect position to benefit from any environment regulation or cap-and-trade scheme. About 98% of its power generation comes from the lowest-cost, carbon-free energy source ever created – nuclear power.

But the reason I like it is because it combines the upside potential of a high-powered growth stock with the safety and income of a utility. In fact, over the last decade Exelon shares’ total return has beaten the S&P 500 by more than 12% per year.

 

Originally Published, December 27, 2009