Wednesday, October 1, 2014

Look At These Juicy Yields - Are They Really Appropriate For Your Retirement Portfolios?

In my recent article “Look At These Juicy Yields - Are They Really Appropriate For Your Retirement Portfolios?” I provided examples of various high-yielding equity income vehicles in order to raise the reader’s awareness of the true attributes and merit of each.  The real point behind the article was to suggest that investors look beyond a high current yield when choosing income-producing investments for their retirement portfolios.


The samples that I presented were simply representative of the specific type of equity that was being discussed.  I was not recommending, nor was I suggesting that any equity type was inappropriate for retirement portfolios.  Instead, I was suggesting that prospective investors be aware of the potential fundamental attributes of each.  Therefore, I presented long-term earnings and price correlated graphs on each. 

I believe you can learn a great deal from the past, but I also believe we can only invest in the future.  In this regard, knowing how a business has historically performed can provide important clues as to how it might perform in the future.  Of course, a company can change and create a future that might be entirely different than its past.  This is why comprehensive research and due diligence is so important. 

In the comment thread one reader objected to the BDC choice that I included in the article, because he felt it misrepresented BDCs in the general sense because it was the lowest performer.  He further suggested that the BDC Main Street Capital Corp (MAIN) would have been a better choice or he suggested Prospect Capital Corp (PSEC).

This brings up an important point.  As I have often stated in the past, not all companies are the same, and that it is a market of stocks and not a stock market.  In the article referenced above I tried to include examples of very successful high-yielding equity types, as well as some that were not successful.  The objective was to encourage retired investors to look beyond yield by digging deeper into the fundamental attributes of any company they were considering. 

Consequently, I offer this addendum to the article that produces earnings and price correlated FAST Graphs™ on the BDCs MAIN and PSEC.  These companies have relatively short track records as public companies.  Clearly MAIN has been one of the best performing BDCs.  However, I did not utilize it because I felt it did not adequately reflect the true nature of the industry.  The reason I offer it here is to illustrate that it is possible to find good, bad or even ugly companies in every sector or class. 

Prospect Capital Corp
 

Performance with Dividends Declared but Not Reinvested
 

Performance with Dividends Reinvested At the End of Each Quarter (EOQ)

Main Street Capital Corp
 

Performance with Dividends Declared but Not Reinvested
 

Performance with Dividends Reinvested At the End of Each Quarter (EOQ)


This article was written by Chuck Carnevale. If you enjoyed this article, you can read more of his articles here.

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