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Don’t Fear the Fed — Buy Income on the Dip

The next pullback is around the corner; use that as a chance to buy these 3 income stocks


Bond yields are starting to bump up on the expectation of the Fed being in the latter stages of fiscal stimulus, but the effect on stocks has been very minimal — and for good reason.

The telegraphed move by the Fed to eventually discontinue the buying of Treasury and mortgage bonds at the pace of $85 billion per month sends a message that the Fed has more confidence in the macroeconomic data regarding future economic growth, as well as in the idea that further stimulus will only continue to see diminishing returns while risking monetary inflation.

That being said, the big question going around is whether Ben Bernanke can actually orchestrate an exit to QE without sending the stock market into a tailspin.

It’s not that the Fed will actually pull the punch bowl any time soon — but if the market perceives it will as we get further into the May-August time frame, with all its negative connotations, then a correction of sorts is very likely in the cards.

Against the backdrop of a corrective phase for stocks that could trim 3% to 5% off their year-to-date gains, investors will see an opportunity for very attractive entry points to select high-yield names. Keep an eye on these three names for when the time is right:

BlackRock Floating Rate Income Strategies Fund

Along with the rest of the floating-rate sector, the BlackRock Floating Rate Income Strategies Fund (NYSE:FRA) has now moved into a favorable category with the recent uptick in interest rates. With higher long-term interest expected during the next few months, you should consider adding this name on a pullback. Yield: 5.77%

Kayne Anderson Energy Total Return Fund

The Kayne Anderson Energy Total Return Fund (NYSE:KYE) has pushed up and been a strong performer of late alongside the rebound in oil prices. It is a collection of the leading energy-related master limited partnerships, offering a way to cast one’s net over the entire sector without having to cherry-pick. However, I’d like to see a decent pullback before I’d be an interested buyer. Yield: 6.28%

Healthcare REIT

Healthcare real estate investment trusts remain in overbought territory following the higher reimbursement rates announced from Medicare, but a correction in the sector is way overdue — so be ready to pounce on Healthcare REIT (NYSE:HCN) when it does. Yield: 4.03%

Bryan Perry is editor of Cash Machine, a newsletter focused on dividends and income investing. His newest service, Extreme Income, also focuses on dividend investing with “income boosters” like momentum plays, option strategies, and more.

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