The Dow and S&P 500 have nothced new all-time highs in recent sessions, including Tuesday’s. But cross-currents are rocking the boat, making investors unsure of which moves to make and uncertain of which stocks to buy today — if any at all.
Mixed Market Signals
Despite a brisk rally Friday and Monday, the small-cap Russell 2000 index is still struggling to get back on a consistent winning path (after sliding 9.2% from its March peak). Likewise, the recent Nasdaq bounce has yet to prove its staying power.
Most puzzling, perhaps, bond yields remain locked in the downtrend that began in early January. The benchmark 10-year Treasury closed at 2.61% on Tuesday, more than 40 basis below where it stood at year-end. If the economy is supposed to be heating up after the winter freeze, why are my bonds and preferred stocks ringing up such robust gains?
In a confusing environment like this, with so much contradictory evidence, many investors feel paralyzed. But there’s a better way through. Instead of trying to predict “the market’s next big move,” focus on a few things you know with a high degree of certainty.
For instance, if you can find a stock to buy that throws off a generous, secure cash payout, and you can grab that investment at an attractive discount to its recent highs, you’ve got an odds-on winner.
Stocks to Buy Today
In recent communiqués, I’ve harped on W. P. Carey (WPC), a real estate investment trust (REIT) that specializes in triple-net-leased properties. Carey boasts a wonderful, simple business model: Acquire commercial buildings and lease them to creditworthy tenants, who take responsibility for paying the taxes, insurance and basic upkeep. Escalator clauses in the leases help offset future inflation.
Yet WPC is trading more than 20% below its manic 2013 high. The stock yields a plump 5.8%. Even better, the trust has raised its dividend 52 quarters in a row, right through the depths of the Great Recession — the strongest possible testimony to Carey’s management skill and financial soundness.
If you’ve simply got way too much cash burning a hole in your pocket and you’re looking for more stocks to buy today, you might consider shifting some cash into high-yielding FS Investment Corp. (FSIC). FSIC, a so-called business development company (BDC), makes loans to smaller, private U.S. enterprises that tend to be underserved by banks.
Most of FSIC’s loans carry a floating interest rate, so you’re protected against the risk of a broad upturn in market rates. Furthermore, FSIC sometimes obtains an equity interest (stock or warrants) in companies it lends to — potentially an additional source of return.
With more than $4 billion of assets, FSIC is one of the larger players in the BDC space. However, the company isn’t yet widely followed on Wall Street, having listed on the NYSE in April.
As a result, I think the shares are trading at a slightly lower price (higher yield) than they deserve. Currently, FSIC pays monthly dividends at a rate of $0.07425 per share. That works out to a lush 8.8% yield at Tuesday’s closing price of $10.07.
In fact, FSIC has also announced plans to pay two special 10-cent distributions, in August and November, which will bring your money home even faster.
What’s the main risk here? If the economy were to implode, some of FSIC’s loans would undoubtedly go sour. However, the Franklin Square team has compiled an excellent long-term track record for credit analysis. Frankly, I trust their judgment far more than I do the collective wisdom of most of the nation’s large banks. Pay up to $10.20 for FSIC, a Niche Investment outside our model portfolio.
Note that dividends paid by both FSIC and WPC are generally taxed at “ordinary” rates (not the special low rate for qualified corporate dividends). Hence, you should, if possible, hold these investments inside a tax-sheltered retirement account.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won nine Best Financial Advisory awards from the Specialized Information Publishers Foundation.