With worries about higher taxes, higher inflation and higher interest rates, income investors have to look a little harder for worthy plays. These factors are barriers for investors, especially in fixed-income vehicles. As yields go up, bond prices go down, and unfortunately, a lot of people got trapped last year in the bond market thinking that we were headed for a major double-dip recession.
Here are three high-yielding income investments I like right now:
1. Convertible Fund NCV
Investors should consider convertible bonds and convertible stocks that benefit from the forces mentioned above.
Convertible investments basically allow you to own a bond that is convertible into the common stock of the company, i.e., convertibles typically start as a bond, and then as the stock appreciates to a certain point, there is a conversion feature built into the bond. So if the stock moves up to that point, the manager can convert that into common stock and sell it.
For instance, I made a lot of money in Apple (NASDAQ: AAPL) convertibles. Currently, I’m interested in the exchange-traded fund (ETF) AGIC Convertible & Income Fund (NYSE: NCV). NCV throws off a 10.4% dividend every month. It’s a great income investment for people looking for a diversified portfolio, because in addition to the income, the net-asset value is improving, because it owns preferred stocks that are convertible into the common stock. So as the common stock moves higher with the market, the preferred follows suit. This is unlike a straight preferred, which has a 25-year maturity and behave more like a bond.
This way, we can be a part of a resilient stock market now by being in convertible bonds and convertible preferred stocks. That’s how you get your cake and eat it too in the preferred world.
2. Deep Water Driller SDRL
I also like a couple of shipping stocks that are in the deep-water drilling space. One you may not be familiar with is SeaDrill (NYSE: SDRL).
It was formed in 2005, but they have the most advanced drilling equipment in the world and, therefore, they command the highest day rates and they don’t do any drilling in the Gulf of Mexico. SDRL primarily drills off the coast of Norway and in Asia.
The stock is trading around $36.50 and pays a 7.5% dividend yield. You’re just not going to find a yield that high in any of the big drilling stocks like Transocean (NYSE: RIG) or Diamond Offshore Drilling (NYSE: DO).
3. Shipping Stock SFL
Ship Finance International Ltd. (NYSE: SFL) is another shipping stock I like, and it pays about 7.3%. SFL has double-hull tankers for transporting crude oil, while also operating in the dry bulk shipping space, in addition to jack-up rigs and chemical container ships for finished goods. This ability to ship diversified cargo means they carry freight both ways, which is important.
SFL also does a lot of financing for other companies in the shipping business, and I think that as the global economy continues to rebound, the shipping business will remain strong.