7 Best Income Stocks for Right Now
August 29, 2019
I’m sure you’ve read a lot of investing advice over the years. And if you’re like me, you’ve noticed something important.
Amid all the hype of a bull market, or the doom and gloom of a bear market, the core principles of investing don’t change.
So, why do so many people have such a tough time?
The problem investors have is controlling their own behavior. People want more and more gains during a bull market and try to outdo themselves year after year.
Or they stick with bad investments too long, and don’t correct when they’ve made a mistake.
So, here is a principle for everyone to remember, regardless of market conditions.
Income investing is the best deal around.
I can understand why folks think income investing is just too stodgy.
After all, the Dow, S&P and NASDAQ all hit record highs over the last decade. Why would anyone want to limit themselves to just a boring old income stock?
Most people think that income stocks that pay out regular amounts are just investments for retirees or people afraid to take any risk.
But here is something most people forget. The right income-producing investments provide three specific benefits:
- Regular earnings,
- Lower risk than stocks that have more volatility,
- While actually outperforming the broader market.
That’s right. They outperform the broader market.
Let me explain…
My 7 Best Income Stocks for Right Now
To make my list, stocks have to meet two main criteria.
First, they must be among the most financially solid stocks on Wall Street.
Second, they must have a long history of paying investors a rising source of income.
Together, these two factors not only offer you a great safe haven in the most difficult and volatile markets but also will beat the market over the long term.
These stocks are not just safer, but some of the best performers in the market.
Let me show you why…
Dividends are one of the biggest contributors to long term portfolio performance and growth. Take the general S&P 500 Index for the past thirty years. During that time from December of 1988 through December of 2018 the Index gained some 868.36%.
But with dividends the total return of the Index was 1,751.98% for more than double the return. Just the dividends provided a return of 883.62%, which is more than the price movement alone.
The Power of Dividends
The S&P 500 Index Total Return Comparison—Source: Bloomberg Finance, L.P.
These kinds of stocks are the backbone of my Dividend Digest e-letter and my premium Profitable Investing service: High-yielding dividend-payers that you can use to grow your wealth or provide a rising stream of income—in both good times and bad.
That’s exactly the opportunity these seven income stocks offer you. Together, they are handing investors an average 11.21% annual yield while grabbing market-beating total returns.
Let’s take a look at them now.
Income Stock No. 1: AllianceBernstein (AB), Yield 7.85%
AllianceBernstein Holding LP (AB) is a global asset management company with 200 mutual funds as well as managed accounts, pension funds and some performance-fee hedge funds for customers around the world. It is a stand-alone company that is also a subsidiary of the Paris-based insurance company AXA SA (AXAHY), which works to channel customers into the fund management company helping to increase its AUM.
I’ve known AllianceBernstein for many years being in the business of trading and asset management. But I really got to understand its underlying strengths thanks to my recommendations and investments years ago in some of its closed-end funds, including the AllianceBernstein National Municipal Income Fund (AFB) and the AllianceBernstein Global High Income Fund (AWF).
I watched the holdings and the management during various ups and downs in the markets, including during times of stress, and I was impressed with how the company worked and worked well.
The company, like others in the asset management business, has gone through some changes and transformations over the years. But the key is that it has been building up its AUM, particularly over the past seven years, to a current level of over half a trillion dollars.
Alliance Builds Up AUM
AllianceBernstein AUM Growth—Source: Bloomberg Finance, L.P.
This build-up of AUM means that it keeps piling on fee income for its shareholders. And that continues to show up in nice revenue growth. Annual revenue is climbing by 34.06% over the trailing four years that keeps coming from the building mountain of AUM.
The financial company also has a lower efficiency ratio which brings great operating margins. For the most recent reported quarter, they are running at 25.10%, up some 7.20% over last year. That really shows how more AUM with the same business makes for greater overall fee income and better margins.
And with greater AUM and more efficiencies that it brings to margins, the return on shareholder equity is also impressive at 14.90%.
The company is set up as a limited partnership (LP), with AXA and other fund managers in the know owning millions of shares in this LP. And this extends to management and members of the board of directors, who own millions of shares in AllianceBernstein—again, knowing what’s so good about the company and the fee income from its AUM.
Being an LP, it is a form of a pass-through. This means that it is tax-advantaged for investors in that it avoids paying corporate income taxes while also passing some tax deductions through to shareholders along with their dividends. The dividend is strong at 56 cents a quarter, for a yield of 7.85%.
The Alliance Delivers
Total Return for AllianceBernstein—Source: Bloomberg Finance, L.P.
This combination of a big and rising dividend and good performance at building and maintaining AUM continues to gain more notice in the market.
AllianceBernstein has not only continued to out-deliver the S&P 500 Index for the trailing 24 months—it has done much better. The overall return is 41.01% compared to the price gain in the S&P 500 of only 22.64%.
But there is more to like. Right now, the stock is valued at less than 2 times its book value. And with AUM on the rise, there should be further gains. If not, the ample dividends should be more than enough to deliver for your portfolio.
This is why Morgan Stanley, JP Morgan, Wells Fargo and 18 other big-name institutional and mutual fund investors have been gobbling up millions of shares and why you should add a few shares to your holdings as well.
Income Stock No. 2: Compass Diversified Holdings (CODI), Yield 7.68%
Compass Diversified Holdings (CODI) is an investment holding company. It acquires private companies either whole or through a majority and controlling stake. It then works with management of the acquired companies to expand their markets and improve operations.
When they’ve maximized the investment in the company, they sell and move on to the next opportunity.
Current companies include strong branded goods in specific markets as well as industrial companies in strategic industries.
The key to this mixed group of companies and those that came before them is that they all produce high-quality products that are well regarded in their markets. And they all generate ample cash for both further investments and dividend distributions.
Together, they are building up the underlying value of the overall holding company. For if we look at the underlying book value of the assets of Compass over the past seven years alone, it has increased some 99.23% from June 2013 through the most recently reported quarter.
Compass Builds Book of Value
Book Value Per Share—Source: Bloomberg Finance, L.P.
Revenues for the trailing year are up some 33.20%. Cash is ample, as the company is always at the ready for the right new acquisition. Debt is low at only 46.50% of assets, meaning that it is underleveraged to sustain its investments and maximize their values.
Dividend distributions remain generous and have increased since it came to the public market. And even during the 2007-2008 financial mess, distributions not only were sustained—they were increased!
With a current distribution of 36 cents a share, the yield is 7.32%, which pays you to own a growing collection of well-positioned and profitable companies.
Shares are currently on the cheap, as they are valued at a 30% discount to the trailing revenues of the company. They are, however, priced at a small premium to the value of the underlying businesses at 1.21 times book value.
If you like the kind of high dividends Compass Diversified Holdings offers you, you’ll be equally fond of my next recommendations. The reason is simple: You’ll get the same kind of income stream only by tapping into the rich tech sector.
Let’s take a look…
Income Stock No. 3: Hercules Capital (HTGC), Yield 9.74%
One of the best companies that specializes in investing and guidance is Hercules Capital (HTGC) (formerly known as Hercules Technology Growth Capital).
Based in the heart of Palo Alto, Hercules is an investment company that focuses on financing and guiding technology companies from start to IPO.
It is structured as a business development company (BDC), which means that as an investment company it does not pay corporate income tax but pays its shareholders its profits on pass-through basis.
The company has more than 350 current investments in varied groups of technologies. They include internet consumer and business products and services, clean and green technology businesses and drug development companies. All of which fills the company’s coffers with millions in cash.
But that’s just the half of it.
It has a long track record of participating in many successful companies, including many in its current portfolio. They include Box, the cloud-based storage company; social media company Pinterest; gaming/gambling company FanDuel; video steaming company Sling Media; Ancestry.com and green energy companies like Brightsource Energy.
The secret of the company’s success is simple: It scouts out innovators in various stages of their company developments. In turn, it creates financing to fund their development. But beyond just making loans, it also takes equity stakes in the companies in order to cash in when they complete their IPOs.
It has been in the business since 2004 and continues to gradually advance its revenues, with growth over the past three years alone expanding at an average of 9.76%.
And check this out:
Its revenue margin is fat at 81.00% and, with good funding for its own operations, it has a net interest margin (the difference from what it borrows from what it earns) of 8.90%.
Return on the assets of the company are fat for a financial/lending company at 6.20%, and the return on equity of the company is nice at 12.40%.
Even through it is leveraged like any bank or financial firm, its debts to assets are lower at 49.50%.
The dividend is ample at 32 cents a quarter, for a yield of 9.74%, which has been upped over the past year by 3.23%. And the company has begun to pay additional special bonus dividends throughout last year and this year.
The returns for shareholders continue to be impressive, as the company’s shares have delivered a total return of 296.48% since coming to the public market in 2005, providing an average annual equivalent of 10.22% as illustrated below:
A Heavy Lifter, Hercules Capital (HTGC)
HTGC Total Return—Source: Bloomberg Finance, L.P.
But for all this performance, Hercules shares are still only valued at 1.24 times its valuable book of loan and equity assets that would be very challenging to replicate.
It is precisely this locked-in advantage that will keep your income growing safely the moment you add it to your holdings.
Here’s another high-yield opportunity that will put a huge cushion of safety under your holdings…
Income Stock No. 4: MFA Financial (MFA), Yield 11.20%
MFA Financial (MFA) is structured as a real estate investment trust (REIT). As such, it holds mortgage investments instead of properties and avoids corporate income taxes by paying the majority of its income through to shareholders just like any other REIT.
MFA has consistently turned in profits for shareholders, even during the 2007-2008 crisis. And even through shares dipped briefly during the stock market’s latest broad-based correction, it has been a strong and consistent stock for investors.
Since coming to the public market in April of 1998 to date, MFA has turned in a total return of 778.55% for an average annual equivalent return of 10.73%, as shown in the graph below:
MFA Delivers Through Thick & Thin
MFA Financial Total Return—Source: Bloomberg Finance, L.P.
The company continues to generate positive returns that dwarf traditional lenders, with a return on assets of 2.60% compared to other lending banks with returns on assets in the 1% range. The return on shareholder equity is also healthy at 9.40%
Despite the intensive skill levels of management overseeing the mortgage-backed securities (MBS) portfolio, the annual operating expense growth has slowed to a low rate of 12.80%, improving over the past four years by 48.07%.
Dividends are paid quarterly from cash flows from the MBS portfolios and the underlying mortgages. At a steady 20 cents per quarter, MFA generates a yield of 11.00%.
Yes, that is a big yield. But as a REIT, the company has a proven record of turning in profitability and paying the majority of that profitability to shareholders.
A shock to the mortgage market, including a major spike in US interest rates or a major fall in real estate values, would impact the company. But since it has been tested by these conditions to the extreme, it should weather these threats well going forward.
The shares are also cheap right now. Trading right at the book value of its MBS assets without counting on the value added by management, the shares represent a bargain, not just for the current value of the mortgages, but for how they are managed by MFA.
For these reasons, I’m recommending that you purchase this great stock and sock your shares away.
Income Stock No. 5: Viper Energy Partners (VNOM), Yield 5.97%
Now, I’d like to introduce to you a domestic petroleum company that is set up differently from a traditional oil exploration and production company.
Viper Energy Partners (VNOM) was set up as a pass-through limited partnership that went to the public market in 2014. It was set up by Diamondback Energy (FANG) to hold petroleum properties in the US, primarily in the West Texas Permian Basin.
What sets Viper apart is that it does not largely operate or develop its field assets. It mainly collects the royalties from companies and operators in working interest contracts. This means that Viper has less need for heavy capital investment in equipment and services, which frees it from having to constantly budget for development and maintenance.
In turn, it focuses on keeping an eye on its working interest owners while looking to expand those interests from existing assets or by acquiring additional assets. This simplifies it for investors that get the benefit of revenue from oil and gas production as well as the rising future value of the underlying field asset reserves.
Oil production continues to advance with oil and gas equivalent seeing gains by 397.00% over the past five years alone. This increase in production from its fields continues with gains of 20% in the most recent quarter alone.
The company has some 14,000 acres, with a fraction of that in current production. This means more potential for even higher growth rates in production, resulting in even higher royalty cash payments.
With higher petrol prices, revenues over the trailing year are up 67.90%. But even with prior years’ lower petrol prices, the three-year average shows gains running at 56.84%.
The other key thing about Viper is that it does not hedge against oil and gas price fluctuations. Because it doesn’t have to worry about capital expenditures on equipment, it doesn’t need to be as worried about prices. This means that it is a very pure play on petroleum prices.
Given the structure of the company, margins are very fat, with operating margins running at 70.30%. The return on capital is strong at 14.40%.
It has piles of cash, with a current ratio (cash against near term liabilities) of 10.80 times. And its debts are low at only 24.80% of assets, primarily to fund its operations more smoothly as needed in between new acquisitions and further development of working interest operators.
The dividend is at 5.23%, paid quarterly, and the distributions have been rising over the past three years by an average 37.46%.
Total Return of Viper Energy (VNOM)—Source: Bloomberg Finance, L.P.
The stock pumps profits to shareholders with the past trailing three years alone generating a total return of 141.69% for an average annual equivalent of 34.20%.
It is also a value based on its stock’s current price to book at 2.47 times as the underlying book value is up 21.56% year to date. And with much of its field assets yet to be developed, there is a lot more value to the underlying company.
Income Stock No. 6: Easterly Government Properties (DEA), Yield 5.41%
The US government is a reliable customer. After all, Uncle Sam can always write a check to cover his chits even if his Secretary of the Treasury has to issue a few more IOUs in the form of Treasuries to make up the balances.
This is why when it comes to real estate investment trusts (REITs), one of my favorite segments is in REITs that own properties that are on long-term leases to the government.
That’s where DEA comes in. Easterly Government Properties (DEA) is a real estate company that is made up of nearly entirely U.S. Federal Government tenants.
The company was founded back in 2011 as a private company by a collection of folks with considerable experience in the government leasing market, including the former commissioner of the General Services Administration’s Public Buildings Service, which oversees all building facilities for the federal government.
The real estate company went public in 2015 as a real estate investment trust (REIT). And since then, shareholders have enjoyed a total return of 58.42%, which equates to an average annual return of 10.79%.
Uncle Sam Pays Well
Easterly Government Properties Total Return Since IPO—Source: Bloomberg Finance, L.P.
It has 46 properties that are currently reported as near fully leased with most in longer-term lease agreements with an average of about eight years. This provides a great deal of stability, not just with the Government as its tenants—but with the certainty of low turnover for many years to come.
The return from Funds from operations (FFO) is growing at a healthy rate of 20.60%, which measures revenues generated from its actual business of leasing properties and excludes other ancillary profits.
Its current FFO return is running at nearly 9%, making its leases very attractive for investors. And with strong and expanding cost controls, I would project the profitability of the portfolio to improve even further.
The dividend is sitting at 5.97% and should see some further growth with its property leases and cost controls having risen over the past trailing three years by 5.73% on an average annual basis.
Income Stock No. 7: Discounted Municipal Bonds (BLE, NVG & NZF), Average Tax-Equivalent Yield 7.32%
On the closed-end municipal (muni) bond front, there are some very attractive opportunities, particularly in three of my favorite discounted closed-end muni bond funds.
To start, buying at a discount is a great idea for any investor. And by buying into my recommendation of the three funds together, they generate 36 payouts each year, which come from monthly dividend distributions.
But there’s more. Each of them also has a history of paying Christmas bonus checks to shareholders that have been even higher than the regular distributions.
Combined, the average discount to net asset value (NAV) is running at 1.32%. The average dividend yield—not counting year-end special distributions—is running at 7.32% on a taxable equivalent basis. Of course, municipal bonds are exempt from Federal income tax, and so in order to make investors in the 35% tax bracket the same amount of money after taxes, a taxable bond would have to pay over three times higher than the average for US bonds overall as measured by the Bloomberg Barclays US Aggregate Bond Index, and of course nearly 400% higher than the dividend yield of the S&P 500 Index.
Let me expand on the muni market and why I see further value in the market for current income and appreciation over time along with well-supported credit behind the underlying muni issues.
Municipal bonds are offering some of the best yields for individual investors right now and continue to outperform US Treasuries almost three to one. And specific market and economic developments are providing an immediate opportunity for higher yields and appreciation over the coming quarters.
Municipal bonds have always been a great staple for investors looking for steady and dependable income. With the exemption from Federal income tax as well as specific state income tax, municipal bonds offer even better taxable-equivalent yields, particularly for investors in higher income tax brackets, which largely remained intact even after the passage of the Tax Cuts & Jobs Act of 2017 (TCJA).
The general market for municipals had a selloff recently when the impact of the corporate tax cut came into focus. The result is that with lower income tax rates for corporations, from 35% down to 21%, the attraction of municipal bonds to bank and insurance corporations became a bit less. And as these corporations were major owners of municipals as they sought yield, their selling is now providing the deal for you to scoop up.
For many investors who are still paying Uncle Sam a 35% income tax rate, the allure and the advantages of municipals haven’t changed one bit.
As I said above, the best way to get the most from the immediate opportunity is to buy three closed-end municipal investment funds right now. They are on average selling at a discount to their liquidation value of 1.32%, with the best at 3.53%, and they pay an average taxable-equivalent yield of over 7%. I’ve followed and recommended these collectively for the diversity in their holdings across the US and how they tend to work well together in reducing month-to-month price volatility.
Look to buy the BlackRock Municipal Income Trust II (BLE). This is a value-focused municipal fund that’s well-managed by one of the biggest and best fixed-income management companies. It yields 7.03% on a taxable equivalent basis.
Then add the Nuveen Municipal Credit Income Fund (NZF). This fund focuses on maintaining steady higher yields and is trading at a discount to net asset value. It yields 7.54% on a tax equivalent basis.
And to round out our basket of municipal bonds, buy the Nuveen AMT-Fee Municipal Credit Income Fund (NVG). This fund has the particular added benefit beyond the focus on current income, as it buys municipal bonds that are exempt from the Alternative Minimum Tax (AMT) that can hit higher-income taxpayers. It is trading at a discount to net asset value and has a yield of 7.38% on a taxable equivalent basis.
In addition, as I noted above, these yields do not include the Christmas bonus payouts, which further boost the returns.
Why the Discounts?
Closed-end funds come to the market in initial public offerings (IPOs), just like stocks. Fund companies make their pitches, sell shares and raise a set amount of capital to invest. This allows fund managers to avoid the fund churn that plagues open-end funds, which have to deal with daily inflows and outflows (and therefore redemptions) of investment.
Closed-end investors get stability and cost savings, and management can afford to take a longer view on the market. Closed-end funds also can use leverage to better manage portfolios via varied approaches, including issuing preferred shares.
Just like common stocks, closed-end funds will be valued at premiums or discounts to book value (or net asset value, NAV). But closed-end funds are cleaner in how book is valued, unlike common stocks that can and do use varied accounting schemes that can muddle reported book values.
Closed-end funds just tote up their holdings’ market prices and subtract liabilities to pop out the NAV, which is easy for individual investors to see.
The key is to look at the underlying portfolios of the closed-end funds.
Underlying Portfolio Performance of BLE, NVG, NZF from February to Date Source: Bloomberg
Now let’s look at the stock performances of the three…
Stock Performances of BLE, NVG and NZF—Source: Bloomberg Finance, L.P.
The bottom line is that at the current combined discount to NAV, these three funds are all at good margins that shouldn’t be there if the stock market wasn’t asleep to the bargain values that they represent together.
This buys downside protection for the stock prices, even if I’m wrong for a while on closing the discount margins. And investors will get large monthly tax-free dividends along the way.
For Many Americans, These High Income
Opportunities Are Like Winning the Lottery
I’ve spent my entire financial career helping mainstream investors grab the big cash payouts from little-known, publicly traded stocks, private trusts and preferred shares reserved for the rich.
These seven income stocks are just a few of the kinds of high-yield, high-total-return opportunities we’ve brought to our Profitable Investing readers for the past 30 years.
If you’ve never seen Profitable Investing before, let me explain what it is.
Profitable Investing is a growth and income investing research advisory whose sole mission is to help you build your wealth safely and systematically in all markets and at all times.
We’ve been able to do this by targeting financially solid companies in undervalued sectors with long histories of paying rising dividends and making investors rich, including:
- Microsoft: 520.38%
- Nestle: 341.79%
- Procter & Gamble: 163.52%
- Enterprise Products Partners: 435.54%
- ONEOK, Inc.: 156.77%
- Realty Income Corp: 131.48%
- NextEra Energy: 427.07%
- Verizon: 180.90%
- BCE Inc.: 312.02%
- Dominion Energy: 284.36%
- Public Service Enterprise Group: 178.71%
In fact, the average top 10 high-yielding investments in my Profitable Investing portfolios pays a whopping 8.50% annual yield as of the end of the first half of 2019.
- That’s 4.72 times more money than a one-year Treasury note.
- That’s 3.95 times more money than a taxable money market fund.
- That’s 3.40 times more money than a one-year CD.
- That’s 5.12 times more money than a five-year Treasury note.
- That’s 4.59 times more money than a 10-year Treasury note.
- That’s 3.04 times more money than a five-year CD.
All in the safest and highest-yielding income investments on the planet.
So instead of earning $21,500 a year in a money market fund or $25,000 in a five-year CD, my readers are collecting $85,000 a year in dividend income—not including capital gains.
I hope you’ve enjoyed reading our new recommendations for Alliance Bernstein, Compass Diversified Holdings, Hercules Capital, MFA Financial, Viper Energy, Easterly Government Properties (DEA) and my discounted municipal bond offerings.
More than that, however, I hope that you can profit from them too.
I wanted to give you their names now for two reasons. First and foremost, I wanted to give you a great way to boost your income in exchange for the time you’ve spent reading this report.
But more importantly, I wanted to show you the type of income investment opportunities I’ll bring you every month when you join us at Profitable Investing.
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