Worried that the fiscal cliff tax hikes will take a big chunk of your dividend earnings? Join the club.
Before you flee to cash, though, take a deep breath; you have several options to minimize your losses and even make some dividend gains. Let’s take a look at three of them:
GAMCO Global Gold Natural Resources
If it looks like we’re going to sail off the fiscal cliff and currencies are going to devalue, you’re going to want to be long gold and other commodities — and GAMCO Global Gold Natural Resources (NYSE:GGN) is the way to go.
GGN is a gold and precious metals closed-end fund run by none other than legendary investor Mario Gabelli.The fund’s current yield is 10% and it pays monthly.
GGN seeks high current income with capital appreciation through investment in equity securities issued by gold and natural resource industries and through the use of an options strategy. It currently uses about 9.25% leverage to generate this handsome payout.
BreitBurn Energy Partners
There’s a mad rush into tax-free bonds because of the fiscal cliff’s potential impact on ordinary income tax. With that in mind, I’m seeing money flow into master limited partnerships (MLPs), which is tax-free income because they write off the depreciation, depletion and amortization that goes with limited-partner status. It’s an excellent place to be if Congress doesn’t get their act together.
In this area my pick is BreitBurn Energy Partners (NASDAQ:BBEP), a very straightforward MLP focused on the acquisition, exploitation, development and production of oil and gas properties. The stock has been in a strong uptrend after the company posted earnings well above consensus estimates, announced a substantial increase to its 2012 capital program and raised its quarterly distribution to $0.46 per share.
This type of company is right in the sweet spot for investor favor and energy favor — a barrel of oil is the world’s reserve currency, after all. It’s a 9.5% yielder that has been a bit volatile over the past few months, but has stayed between $17-$20 in the past few weeks.
Dreyfus Strategic Municipals
For people who just want to just wait it out, state government general obligation bonds (GOs) are any state’s premier credit and senior to all other state-issued debt. Dreyfus Strategic Municipals (NYSE:LEO) which has a great yield of about 6%, is an investment-grade fund with holdings in GOs across the nation — and it’s invested in areas that are absolutely essential: transportation, health care and education. That means you can just sit back and collect your 6% yield as this whole thing passes.
The latest on the fiscal cliff seems to be centered on how Congress will stall and stall until the last hour, coming to some kind of decision to extend out the year-end spending cuts and tax increases only if public pressure warrants.
Unfortunately, we are stuck with a Congress that is not pro-active, but is instead reactive when it comes to dealing with crisis. It’s already October, and we still haven’t heard much of a plan — which is why the best thing to do is to prepare for the worst and enjoy the dividends along the way.
Bryan Perry is editor of Cash Machine, a newsletter focused on dividends and income investing. As of this writing, he did not own a position in any of the aforementioned securities.