Income investing should balance high growth secured income sources with dividend paying stocks, bonds and REITs using a top down strategy
Surging fast to the finish line, we should look at the addition of dividend paying stocks (DPS) to balance out a highly profitable diversified portfolio machine of onshore and offshore real estate in emerging markets, bonds and REITs.
DPS include common and preferred stocks. The company pays out dividends to stockholders in accordance with the proportion of their shareholding. Key items to look for in the right DPS for good income investing are:
1) The company distributes 40-50% of the annual profits as dividends and reinvests the rest back into the company for improvement and or growth.
2) A dividend yield from the company of 4-6% is considered good.
3) The company should have three years consecutive positive profit and no losses.
4) The company has a track record for increasing dividends to shareholders
5) Company should have a high return on equity (ROE) with little or no corporate debt.
What are some of the income investing fundamentals to be added to the equities selected for our secured and high profit portfolio? One should definitely include the following techniques to shore up the returns as follows:
A. Dollar cost averaging – This is where instead of investing a lump sum amount in each stock you want to purchase, you ease into it by investing equal portions that add up to the total over a period of time. For example, you want to invest $15,000 and you chose to invest $1250 every quarter over a 3 year period. What this does is it averages out your cost of purchase over that period as the share price is fluctuating. The result is that you usually purchase more of the stock using this technique and as a result will profit more.
B. Utilize the Age Old Rule for investing in Bonds as indicated earlier
Again, let’s review what we have decided can be a well balanced portfolio of asset allocation that is secured through collateral, guarantees, emerging (boom) markets and diversification:
1. Syndicated Real Estate in US / offshore emerging markets and mortgage notes investing where a proactive real estate investment management partner mobilizes and implements investments under a corporate entity owned by the investors
2. Investing in Bonds
4. Dividend Paying Stocks
Some of the most popular questions in income investing are about the percentage of investment portfolio in asset classes selected. It is really a personal choice depending on interest, knowledge, risk appetite, how much volatility you can tolerate. The simplest approach recommended is dividing them equally (splitting) amongst your asset classes. For real estate, bonds, stocks and REITs this would be 25% for each class.
What percentage of the portfolio may optimize this mix of assets we consider top tier? Let’s just say this again, if your investment can be secured by collateral that can be retrieved in the worst case so that your principal is returned and you earn an expected and satisfactory return, it makes the most sense to invest mostly in this asset class. This is why the right mix of real estate in emerging markets and mortgage notes are selected as the top tiers in the portfolio. A top down approach based on security and profitability would logically indicate a much heavier weight for emerging market real estate and mortgage notes, REITs, bonds and Dividend stocks in that order.
Perhaps for ideal income investing, 70% Allocation for emerging markets Real estate and mortgage notes and 30% for Bonds, REITs and Dividend Paying Stocks can be compared with an equal sharing of classes 25% each as indicated above:
a) 70% of 60% for real estate in emerging markets (REEM)= 42%
b) 30% of 60% for mortgage notes (MN)= 18%
c) 40% of 40% for REITs = 16%
d) 30% of 40% for Bonds = 12%
e) 30% of 40% for Dividend paying stocks (DPS) = 12%
Using average yield rates of 30% for REEM, 12% for MN, 12% REITs, 5% Bonds and 7% DPS, let’s look at the estimated annual yield from option 1 versus the simple splitting the asset allocation equally:
Option 1 average annual yield is 18.12%. Recommended splitting is 13.5%. Option 1 is better.
An income investing portfolio of real estate in emerging markets, mortgage notes, REITs, Bonds and dividend paying stocks in that hierarchy heavily top down favored will help you win. Your pro-active real estate investment management team can help, contact our adept team today
How to Invest
Secured > Real Estate
Investing > Income Investing