Income Issues Hanging Tough Through Market Turmoil
By: Tim McPartland,
News headlines basically scream “Worst Stock Market Start in History,” referring to the first days of trading in 2016.
Undoubtably, the first half of January 2016 has been tough for many investors as common stocks slid. Fortunately for many income investors, this huge common stock downdraft has left many, if not most, preferred stocks and baby bonds relatively unscathed.
Seasoned income investors generally no longer panic at such times. Instead, the wise watch interest rates more closely than the day-to-day moves of individual stocks. Interest rates have moved in a range of 2.15% to 2.27% (based on the 10-year treasury) — showing no signs of market panic.
But that fairly tight range of rates should not be interpreted as inflicting no harm upon income investors. Indeed, many of us own a limited number of common stocks and real estate investment trusts (REITs) whose share prices have fallen.
However, the best advice probably is to keep collecting dividends unwavering by maintaining our current positions.
We have executed most of the plan for the 2015/2016 Blended Income Model I wrote about on Jan. 1. We sold the General Finance baby bonds (NASDAQ:GFNSL) and purchased Aqua America (NYSE:WTR), a large position in Gladstone Commercial term preferred stock (NASDAQ:GOODN) and REIT Diamond Rock Hospitality (NYSE:DRH). We have not purchased the Tsakos Energy Navigation Series D preferred stock (NYSE:TNP-D) yet, although we still plan to buy it. We will let the dust settle a bit prior to the purchase of that one.
With the above repositioning in the 2015/2016 Blended Income Model Portfolio we are left with a cash balance of almost $70,000 (about 14% of the total portfolio). We will not hesitate to put this money to work if a panic occurs in the income investing area that creates bargains to buy.
But thus far, there has been no panic, nor any genuine bargains. By bargains, we are referring to quality preferred stocks or baby bonds that fall by 20% or more during a panic rush to the exits. We ARE NOT referring to any energy or shipping issues which may well have fundamental reasons to fall without much potential for long-term survival.
In summary, no one knows what the next week will bring in investing. But given our viewpoint that the U.S. and global economies will face headwinds all year, we will not be looking for strong and lasting bounce backs in the stock market. We are prepared for bargains if they appear and won’t be making any panic sales, even if the markets worsen.
As always, good luck to all. Remember the sage advice, “This too shall pass.”