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Strategies & Market Trends : Dividend investing for retirement -- Ignore unavailable to you. Want to Upgrade?

To: Investor2 who wrote (4321)	4/3/2010 10:45:38 PM
From: stock bull	Respond to of 34328

Regarding rates, I fully understand what you mean. I think we all want to see rates higher, especially those living on a fixed income. The problem is making the transition from low to higher rates. A lot of damage can be caused during the shift. Stock Bull

To: Investor2 who wrote (4321)	4/4/2010 12:47:25 AM
From: E_K_S	Read Replies (2) \| Respond to of 34328

Hi Investor2 Most of my bond money is in Vanguard GNMA Fund where I also have an average 10% capital gain too. If I hold onto these while rates move higher, I expect to lose my capital gains and maybe another 3%. I have been moving a portion of this money (about 15%) into utility equities that pay 5% or higher and sell at a PE of 11 or less. As the Feds raise rates, I expect these utility stocks to move higher (regression toward their mean PE around 13-14) and/or raise their dividends as long as their payout ratio is not too high. The regulated component of these companies have had pretty good success in obtaining rate increases. If their cost of capital increases (ie higher Fed rates), they should be able to petition the regulatory board for high user rates. Sometimes you can also find a "hybrid" utility w/ an unregulated operating division which may be undervalued. For example Black Hills Corporation operates a very profitable unregulated coal mining division but the stock is already up 100% from it's lows. I have been focusing on utilities that have NG storage and distribution (ie pipeline) divisions. These units generate excellent cash flows which allow the utility to raise their dividend. You might look at EDE or NI. Both pay pretty good dividends. Eventually you can peel off shares of the utilities and ladder back into treasuries, CD's or TIPs. I also expect all Taxes to increase and this needs to be factored into your total return if they are substantial. In CA the highest rate is 10% and the State is proposing to move the maximum bracket as low as $45K AGI. Essentially everyone will be in the highest marginal bracket! Therefore, you may even want to look at muni bonds (w/ preferential exempt state tax). Beware because we may see some defaults (many city and state municipalities have HUGE unfunded pension liabilities and may be forced to file BK - Just look at the City of Vallejo in CA). It just may not be worth the risk especially on this rate increase cycle. I have the last of my Treasuries coming due (4/2010) that were paying me 5% bought 6 -8 years ago. I plan to fund more utility equity buys but they are getting harder to find. You can also explore REITs or REIT preferred shares. You can get 7%-8% but these are only close to bond equivalents and carry more risk than CD's. The REITs or REIT preferred shares may not lose as much value as GNMA or other bonds when rates rise. My plan is to use a basket approach with 5% buys among several of these bond like equities and stagger my move over time. When the credit union begins to raise their rates and are close to the GNMA's, I can move the balance there. After some period of time (perhaps 24-36 months) and rates have stabilized higher, I can unwind things and go back to the Treasure ladders, Tips, Gnma or just keep the larger balance at the credit union. My biggest concern for this next cycle is inflation and/or a long term debasing of the U.S. $. I plan to keep an extraordinary amount invested in Oil, commodity stocks (minerals) and other equity inflation hedges. Many of these companies also pay pretty good dividends (around 3%). I do own one platinum company (AGPPY)that recently was yielding 6%. It's been 100% higher and 50% lower but never missed paying it's semi-annual dividend. AAUKY was another good dividend payer until they stopped 18 months ago. They do plan to start paying again latter this year. They own a lot of mines that have valuable proven reserves that's an excellent inflation hedge. Their biggest customer is China. Hope that helps. EKS