A Blueprint Plan For Raising Portfolio Income

Low yields have devastated personal savings accounts for the past 10 years. Unless investors can enhance yield on their portfolios in a manner that covers monthly outlays, a growing number of retirees will outlive their nest eggs. This is no time to be a spectator, but rather a proactive income investor taking full advantage of this rapidly changing investment landscape. To that end I want to lay out some major themes and asset classes for income investors in 2017 and beyond:

Written by Bryan Perry

Even if the Fed raises rates three times this year, money markets will pay no more than 2.0% at best. With inflation running above that level, it remains a zero-sum game for savers of cash. With the reflation trade on and the Fed taking a more hawkish tone, income investors have to consider how best to benefit from the tailwinds of the powerful combination of faster economic growth as the Trump agenda moves from the drawing board to Capitol Hill...

Below are some major themes and asset classes for income investors in 2017 and beyond:

1. Blue chip stocks with rapidly growing dividend payouts
2. Closed-end funds and ETFs focused on infrastructure
3. Floating-rate business development companies (BDCs)
4. Commercial finance real estate investment trusts (REITs)
5. Hotel, gaming, office REITs, data center and cell tower REITs, and industrial REITs
6. Short-term corporate and distressed credit debt funds
7. Private equity firms and big-cap bank stocks
8. Covered-call, closed-end technology funds
9. Liquefied Natural Gas (LNG) MLPs
10. Select gas pipeline/transfer/storage/logistics MLPs

In my view, these themes may gain momentum as the year progresses. With current earnings coming in strongly to bolster the underlying stocks in these asset classes, there is growing reason to expect several big income-generating winners this year. An action plan that has your investible capital dedicated for income is, for most retirees, a first and foremost priority and, if it's not, it should be.

While interest rates may stay low for a period during which foreign capital is repatriated and the attractive spreads between U.S. Treasuries and other sovereign debt remains abnormally wide, it's my view there will be an eventual adjustment where rising inflationary trends put upward pressure, gradual as that might be, on bond yields and downward pressure on long-date bond and bond-equivalent bond prices.

I'm not forecasting any major spike in interest rates, but rather investors should consider where the tailwinds are for assets as a result of global reflation that is in the very early stages of becoming a multi-year trend.