Five Income Investing Strategies Championed by Wall Street Veteran

Five income investing strategies championed by Wall Street veteran Bryan Perry show the power of dividends to produce potent profits.

The five income investing strategies championed by the Wall Street the veteran were presented at the recent FreedomFest conference in Memphis, Tennessee, providing powerful paths to propel portfolio performance. Perry, who spearheads the stock-focused, high-income Cash Machine investment newsletter, shared his five income investing strategies during two presentations at the conference’s Global Financial Summit.

The five income investing strategies are aimed at identifying finding stable stocks in an unstable market, enhancing knowledge to limit fear, reducing risk through diversification, discovering the beauty of non-correlated asset classes and steering clear of yield traps. The first of those five income investing strategies are tenets of Perry’s Cash Machine investment newsletter.

Paul Dykewicz interviews Cash Machine leader Bryan Perry at a MoneyShow.

The income investing landscape is complicated by the following challenges, Perry told FreedomFest attendees:

• Global central banks are fighting inflation with a goal of reducing it to 2%
• The Federal Reserve’s 0.25% rate hike on July 26 to a target range of 5.25%-5.50% — the highest level since early 2001 — could be the last this year, before the U.S. central bank may start to cut the Fed Funds Rate in 2024 to further flatten the yield curve
• China’s post-pandemic economic reopening is not appearing as robust as expected

Five Income Investing Strategies: Find Stable Income Stocks in an Unstable Market

To attain the goal of finding stable income stocks in an unstable market, Perry created a high-yield portfolio. He seeks to select stocks and funds with the following attributes.

• High-quality business fundamentals
• Earned income from organic growth
• Responsible use of leverage
• Active, dynamic sector rotation
• Swim with the tide

Five Income Investing Strategies: Enhance Knowledge, Curb Fear

To enhance knowledge by curbing fear, Perry spoke of the importance of understanding each high-yield income investing asset. Perry cautioned that there is “no such thing” as a casual trade.

To pursue this priority of enhancing knowledge, Perry said he takes the following actions:

• Drills down and performs solid due diligence
• Calls company leaders or portfolio managers, when needed
• Assesses why each holding fits into the overall high-yield portfolio
• Constantly checks and validates that investing themes remain intact

Five Income Investing Strategies: Reduce Risk Through Diversification

“There is no substitute for a broad array of holdings in many different sectors,” Perry told attendees. He shared the value of sometimes using exchange-traded funds (ETFs), exchange-traded notes (ETNs) and closed-end funds (CEFs) in conjunction with individual stocks.

In compiling Cash Machine‘s portfolio, Perry said he prefers:

• 20-25 holdings to offer a good balance
• Not putting any more than 5% in any one position
• Use of high-yield investing as a dynamic opportunity that allows quick portfolio pivots, if needed

The current Cash Machine portfolio features these diverse choices and their respective current dividend yields:

• Utilities and Energy: 8.23%, 6.50%, 9.86%, 9.86%, 11.66%, 20.78%
• REITs
• Preferred Securities: 9.95%, 6.18%
• Convertible Securities:
• Equity/index covered call CEFs: 9.46%, 11.26%
• Energy master limited partnership (MLP) ETFs: 7.94%
• Mortgage real estate investment trusts (REITs):
• Investment management companies: 14.80%
• Private equity:
• Business development companies (BDCs): 14.18%
• Electric vehicle (EV) automotive stocks: 5.10%
• India fund: 10.35%

Five Income Investing Strategies: Discover the Beauty of Non-Correlated Asset Classes

Counter levers help uncertain investing landscapes even out volatility, Perry warned. For portfolio protection, he uses non-correlated assets.

Among the various portfolios in Cash Machine, one has been the most successful recently. That is the Extreme Income Portfolio, where all 13 positions are profitable.

Bryan Perry

In navigating a daily “tug-of-war” between the inflation and deflation camps, Perry spoke of aiming to:

• Strike a good balance between defensive and offensive assets
• Be careful not to bet the ranch on a single sector, no matter how good it appears
• Maintain genuine offsetting assets

Five Income Investing Strategies: Steer Clear of Yield Traps

Even though Perry screens to find high-yield assets, the practice can be “dangerous” to one’s financial health if not done well, he cautioned. If an investment looks like “smoke and mirrors,” it probably is just that, he added.

One risk is that rising yields can reflect dropping underlying stock prices, Perry said. Investors need to give heavy scrutiny to any managed income distributions, he continued.

“Look out for one-time payouts that skew yields,” Perry said. “Avoid semi-annual dividend payers.”

Perry counseled that the current Cash Machine portfolio structure consists of:

• 29 income-generating holdings with a blended yield of 10.5% accompanied by capital gains of 10-15% per year
• 10%+ average dividend yield on reduced market risk
• Recommendations based on macroeconomic and interest-rate trends that are “ideal for strategic high-yield investing.
• Mainly domestic assets

“Market conditions for high-yield assets are improving,” Perry told FreedomFest attendees. “Volatility cannot be fully avoided but can be reduced.”

The timing of when to reduce market exposure and apply hedges into strength is a key skill, Perry continued. Avoid the mistake of complacence by becoming proactive when markets look vulnerable or frothy, he added.

Perry proposed using hedging strategies when necessary to offset risk without sacrificing income. His strategies have helped to provide double-digit-percentage returns in his Cash Machine portfolio and he discussed he plans to keep doing so.

Beware of risks and shelter investments when needed, Perry counseled. Current risks that Perry said bear watching include:

• The stock market is beset with a number of converging forces that are pulling and pushing on investor sentiment.
• Heavy spending by Congress versus the Fed raising interest rates is causing peak uncertainty.
• No one knows when inflation will come down to a level that is acceptable to the Fed.
• The war in Ukraine appears to be dragging on.
• Stubbornly high energy costs risk putting Europe into recession.
• Reopening of China’s economy could be complicated by a new virus or a wave of COVID cases.

The following are examples of possible events that could cause extreme volatility, Perry cautioned:

• The Dow is seeing point swings of several hundred points a day.
• Potential for “black swan” events has the market trading with peak uncertainty conditions.
• Russia’s President Putin may get desperate and use thermobaric, non-nuclear weapons.
• China could trigger President Biden to send troops, if Taiwan is invaded.
• The Iran deal could cause Israel to launch attacks on strategic targets.
• A large-scale credit default event within China or Europe is the number one concern of institutional global fund managers.
• More regional banks could fail as commercial real estate loan defaults rise.

Watch out for Lingering Political Risk

Those interested in the five income investing strategies shared by Perry can pursue them by following the Cash Machine investment newsletter, Income-producing stock strategies featured in Cash Machine may hold special appeal to fend off political risk due to Russia’s unrelenting invasion of Ukraine that recently has attacked the important agricultural port of Odessa and the nation’s grain storage facilities, causing food shortages, exacerbating a humanitarian crisis, limiting the neighboring country’s exports and raising the price of grain to benefit the economy of the grain-producing aggressor.

With Russia’s President Vladimir Putin waging deadly attacks against civilians in Ukraine, the value of following the five income investing strategies to protect against political risk may hold special appeal. With Ukrainian forces starting to make a little progress in its recent counter offensive, political risk warrants watching.

Watch this video to hear more of my thoughts.

Paul Dykewicz, www.pauldykewicz.com, is an award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.