Income Options for Your Portfolio

Greetings!

From time to time, we get the question: how am I able to generate income from my portfolio?  Below are some of the possible income ideas that you could consider including in your portfolio.

Dividend Paying Stocks:  Many companies pay dividends out of their common stock. Frequently these companies are medium and larger sized businesses and are often in the financial and utility sectors.  Dividend paying stocks still inhabit the traits of stocks; therefore, dividend paying stocks could have similar volatility to the markets associated with them.

Preferred Stocks & Convertible Bonds:  Preferred stocks are shares of company stock whereby the company is required to distribute dividends before it can pay dividends to the common stock shareholders. These securities also typically pay a higher dividend rate than common stock. The flip side is that they don’t typically see the same growth that common stocks do as the share prices increase.

Convertible bonds are bonds that are exchangeable for common shares of stock within the same company. They are usually for a predetermined amount of shares and can be exchanged automatically if the stock reaches a target price. These bonds pay income like traditional bonds but can also see additional price movement as the common shares of company stock increase or decrease in value. They will often pay a greater dividend than preferred stock but less than traditional bonds.

While convertibles are bonds, they often follow much of the pattern of the stock market due to their ability to convert to shares of stock.

High Yield Bonds:  High yield bonds typically pay a higher dividend than investment grade, Treasury, and municipal bonds because the companies that issue the bonds are thought to have a higher risk of default.

Intermediate Bonds:  Intermediate bonds of investment grade companies are bonds that are three to ten years from maturity. They often pay a higher yield than shorter-term bonds, but in rising interest rate environments can see their values decrease more than short-term bonds.

Short-Term Bonds:  Short-term bonds are bonds that mature in up to three years. They often do not pay a high yield because of their relatively short time frame and lower risk. While short-term bonds may lose value in rising interest rate markets, they tend to hold their value better than intermediate bonds.

REITs:  Real Estate Investment Trusts are a form of business entity that can invest in real estate and mortgages. They frequently receive favorable tax treatment on the dividends they distribute.  REITs can be public or private. Because REITs collect rent and mortgage payments, they often generate a fair amount of income. In order to receive the favorable tax treatment, REITs must pay at least 90% of the income they receive to shareholders.

These ideas are to be added to a diversified portfolio. Consult an investment professional to determine the appropriate mix of investments for your risk tolerance and time horizon.

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.

Investing in stocks is subject to risk including possible loss of principal. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Investing in Real Estate Investment Trusts (REITs) involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

PWM

Family

As you likely know, I treat my birthday like a national holiday. With this year’s day off, I got to have some one-on-one time with Elise and took her to the horse farm she enjoys visiting. Elise’s love of the outdoors is becoming more evident as she is spending less time with the horses and more time exploring the grounds. With the rain a day prior, Elise decided that she wanted to spend our visit splashing in puddles. Being the thorough girl she is, not a puddle was missed.

Our fur babies, Fenway & Roxy, are doing well too. Also fond of the outdoors, they were thrilled with our recent snowfall. I love seeing our senior dogs act like puppies as they hop through the snow, catch snowballs, and chase each other while wearing huge grins.

I hope you enjoyed this month’s newsletter.

Best Wishes,

Woody Derricks, CFP®, ADPA®

President

CA Insurance License #0C40217