Good News For Income Investors
Looking for good news in today ' s markets is resembling searching for the proverbial needle in a haystack. Optional to say, practically all investment league equities and nearly all closed tip funds that specialize in providing regular recurring paper income have been reduced in market value by this prolonged amends. The quake has spread in all directions from its financial epicenter, and the mounting doom and nite has stirred its toll on plane the most rational investment decision makers. Try to keep in mind that the purpose of income investing is the income that your portfolio produces not an increase in the securities ' market values - - -
So here ' s the good news ( and for anyone with a 40 % or higher income asset allocation, or an income portfolio being used for living expenses ), it really is very good news. Base income levels, from the beginning of the stock market correction in June ' 07 until mid - July ' 08, have barely altered at all. In fact, they have trite risen in properly asset allocated portfolios. I have tested the regular recurring fish wrapper income distributed by 56 taxable income CEFs and 61 tax - free income CEFs, and the conclusions are pretty remarkable.
In spite of the fact that the sweeping majority of my favorite monthly income producers are lower in market value than I would like, the amount of income they are distributing to shareholders has not agitated lower meaningfully - - - even though the Federal Keep secret has reduced interest rates by approximately 60 % during the past twelve months. Here are the numbers: ( 1 ) 48 % of the taxable - income CEFs are distributing precisely the same cost per share as they did a year ago. Fourteen issues have augmented their payouts and as well as fifteen have condensed them.
The net result is a decrease of just fourteen cents ( 2. 5 % of the total daybook payout ). The undistinguished current yield on the portfolio, as of mid July ' 07, is 9. 86 % without considering any capital gains distributions. Additionally, the group is selling at market prices that reflect an passable discount of nearly 11 % from NAV. Is that individual or what? The bonds, preferred stocks, government securities are priced 11 % beneath their current market values.
( 2 ) The numbers are matching with regard to the 61 tribute - free income CEFs: 46 % have not altered their payout over the past twelve months; eighteen have reduced their payout slightly, and 15 have increased the monthly dole. The net contrariness for the group over the past year is less than one cent, or a rate change of two - tenths of one percent. Far out. This group is selling at an accepted discount from NAV of 9. 1 % and has a current tax - free yield of 5. 51 %.
( 3 ) Of 117 individual issues, about partly have produced established income. The others have accounted for a total payout reduction of less than 15 cents - - - a measly 1. 7 %. Why is this quantity of slight consequence? Two reasons really.
First of all, a properly asset - allocated income portfolio does not conduct all of the base income it receives, so licensed is income available to reinvest in more shares of income producing securities. This routine assures a growing cash flow to quiet your fear of rising prices. The other motivation is a bit supplementary hypothetical. The Fed has lowered rates extensively, a process that generally produces higher prices for income securities. Eventually, those lower interest rates ( regular if global pressures convince politicians to take back some of the reductions ) should produce bounteous prices ( i. e., revenue winning opportunities ) in these all securities.
Admittedly, even if your favor allocation has been fine tuned for years, lower portfolio market values in this area make stock market valuation shrinkage feel even worse. But the value of even cash break becomes sharply clear for investors who misguidedly depend on capital gains for their spending money. Properly asset allocated portfolios contain enough base income generators to remuneration the bills. The ambition of chief gains is to produce proportionately more base income generators.
The purpose of this email is simply to bring some principal sunlight into an investment environment that is far gloomier than I think it needs to be. If you want the details, you ' ll have to inquiry them personally.
