By cutting the federal funds rate to a range of zero percent to 0.25 percent, the Fed has forced rates on short-term Treasuries, short-term certificates of deposit, and money market accounts into the gutter. You can’t earn squat on these safe, cash-like investments so where can you turn for the income you need? Words: 540
In further edited excerpts from the original article* Mike Larson (www.moneyandmarkets.com) goes on to identify three alternatives that are worth considering:
Income Alternative #1: The Energy Sector’s Master Limited Partnerships (MLPs)
We’ve seen a sharp rally in the price of all kinds of energy products yet consumers and businesses never completely STOP using energy, regardless of the cost. That means the industry still needs to store and transport gas, oil, and other petroleum-based products around the country each and every day and that’s where energy Master Limited Partnerships, or MLPs, come in. These companies own many of the storage and distribution networks that energy companies use to get their products to market.
They get paid whether energy prices rise or fall and because of how they’re organized (in the corporate sense), they spin off handsome dividends. It’s not unusual to see yields of 5 percent, 6 percent, 7 percent, or more in the sector.
Don’t get me wrong: MLPs still trade like stocks. So there’s definitely price risk involved but I believe they’re a solid alternative for yield-starved investors.
Income Alternative #2: Utilities
Another sector that offers juicy yields is utilities which include natural gas providers, electric companies, and even telecommunications firms. These businesses clearly aren’t recession proof so when the economy tanks, so does demand for power and telecommunications services but the swings are typically much less severe than what you see in housing, technology, or manufacturing. Even during the worst downturns, those core businesses still tend to spin off healthy amounts of cash.
Again, you don’t have to look very hard to find handsome dividend yields in the sector. Many leading utilities yield at least 5 percent or 6 percent and that’s better than you can get anywhere on the Treasury curve.
That’s not all, either. I’m seeing a heck of a lot of healthy stock charts in the sector, with breakouts all over the place. Buy the right stock at the right time and you can earn a juicy yield AND rack up some capital gains.
Income Alternative #3: Foreign Fixed Income Securities
You don’t have to keep all your fixed income money in the U.S. if you don’t want to and, in fact, you probably shouldn’t because foreign yields are much more attractive than those offered here in the U.S. Bottom line: you can earn higher yields AND [sometimes] get a currency “kicker” by investing in foreign, fixed income securities. Foreign dividend-paying stocks are another alternative. Many yield much more than their U.S. counterparts.
* http://jutiagroup.com/2009/12/04/where-to-look-in-a-world-starved-for-yield/ (Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil.)
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