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What to Do If Washington Takes Your Retirement Dividends Away

Your next strategy depends on your tolerance for risk


BB&T (NYSE:BBT) on July 18 redeemed $2.475 billion in trust preferred and other capital securities, of which $1.525 billion had fixed coupons of 6.75% or higher. $350 million in enhanced trust securities had a coupon of 8.1%, and $575 million paid a whopping 9.6%. The company then on July 25 issued $1 billion in noncumulative preferred shares, with a coupon of 5.625%, callable on Aug. 1, 2017. The preferred shares are rated Baa2/BBB, and were trading at a slight premium on Monday, closing at $25.17.

Wells Fargo (NYSE:WFC) on June 15 redeemed $1.8 billion of trust preferred securities, with an average coupon of 6.31%. The company on Aug. 13 issued $750 million in noncumulative preferred shares, rated Baa3/BBB+, with a coupon of 5.2%.

Pursuing Higher Yields

Cash in on Boomers with Senior REITs
Cash in on Boomers with Senior REITs

There are opportunities out there for investors looking for a higher level of current income, who are willing to take on greater risk than that of bonds or preferred stock.

Energy master limited partnerships can offer attractive yields with some growth prospects. While the following two examples have seen moderate share-price declines year-to-date, in a weak market for energy prices, they both feature attractive yields, with “distributions” (the LP equivalent of dividends) increasing over time, and very strong price performance over the long haul.

Kinder Morgan Energy Partners, LP (NYSE:KMP) is mainly a gas pipeline operator. The partnership shares have a yield of 5.98%, based on the most recently quarterly distribution of $1.23 and Monday’s closing price of $82.23. The company has had a very strong track record for dividend increases over the past several years. The five-year total return for the partnership units was 130% through Monday’s close.

KMP data by YCharts

AmeriGas Partners LP (APU) is a domestic propane distributor. The partnership shares have a yield of 7.68% based on the most recent quarterly distribution of 80 cents and Monday’s closing price of $41.67. APU has returned 79% during the past five years:

APU data by YCharts

Regarding energy prices, Deutsche Bank analyst David Bianco on Monday said “the sharp selloff in oil prices in May-Jun was among the first signals of slowing global growth. The rebound in oil prices since then despite no improvement in China growth, stronger dollar and diminished likelihood of [additional monetary stimulus by the Federal Reserve] is a welcome signal,” since “high oil without [quantitative easing by the Fed] should raise confidence in high price sustainability,” which supports “the Energy sector’s PE.”

Of course, for KMP and APU, the investor’s main focus should be income, with the hope of price stability. The growth prospects are gravy.

This article is republished from The Street and originally appeared here. Read more articles from Philip van Doorn on, including:

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