Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
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Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Special Securities Legally Bound to Pay Yields of up to
16.0% |
Published:
September 15, 2008
At
around $1,000 a piece, regular bonds can be cumbersome for
individuals to invest in. Moreover, since they don't trade on
a major exchange, you may have a hard time finding out their
exact trading prices, which can vary from broker to broker.
The solution to this expensive, illiquid market: PET (preferred
equity traded) bonds.
PET bonds are one of the most overlooked investments in the
income universe. They emerged over the past decade to make bonds
easy to access for income investors. They're simply corporate
bonds packaged into affordable $25 units. They have a ticker
symbol, and you can buy and sell them like stock throughout the
trading day. Most of them trade on the New York Stock Exchange
where their prices are publicly quoted.
In the pecking order, PET bonds rank as "unsecured" debt. They
stand behind debt that's secured by assets, but ahead of equity.
In other words, you get your interest payments before common and
traditional preferred share dividends in case of bankruptcy or
insolvency.
Some PET bonds rank as "subordinated" while others count as
"senior" debt. Senior debt is more secure since it
gives you first right to the company's assets ahead of both subordinate debt
holders and equity shareholders. However, senior debt is
generally taxed at your regular income tax rate of up to 35%,
while subordinate debt qualifies for the reduced 15% tax rate.
High Yields -- And Secure Total Returns
The nice thing about PET bonds is that while they offer you high yields
(we've found some investment-grade PET bonds yielding up to
16%!), they also offer secure total returns amid a rough market. As you know, price
and yield move in opposite directions. As a result, there are
lots of high-yield securities floating around the market these
days since the major exchanges have been pummeled.
But most PET bonds have held their value through the turmoil. That's
because investors know they can count on their payouts -- and in
most cases a return of principal -- no matter what happens in
the broader market. As safe havens in a time of turbulence, they
have also held their value amid expectations of higher
interest rates.
More Good News about PET Bonds
Another plus for this overlooked asset class: Unlike conventional bonds, which pay interest only
once or twice a year, PET bonds produce a regular income stream.
Most dish out payments every three months. Some even pay
monthly.
As bonds, many PET bonds enjoy another handy feature -- they
mature. Most mature 30 years from the issue date, and you get
back your $25 principal. Depending on when you purchase the
bond, you may wait a few years to get back your original
investment, but meanwhile you do have some downside protection.
PET bonds typically can be called before maturity -- but that's
unlikely in times like this when credit is so hard to come by.
The Search for the Best
With more than a hundred PET bonds to choose from, you can't
just reach for the highest yield since high yield and
high safety can often mix like oil and water. For that reason,
we've carefully hand-picked only the highest-yielding issues
that are also proven performers. . .
Important Note: In the remainder of this article,
High-Yield Investing
editor Carla Pasternak covers some of her favorite PET bonds.
The picks feature yields of up to 16.0%. In order
to view the remainder of this article, you'll need to subscribe
to our premium income newsletter --
High-Yield Investing. After you subscribe, you'll
receive immediate access to this full article, as well as our
monthly
High-Yield Investing
newsletter and a host of
additional premium content. Please visit one of the following
links to continue.
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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receive in-depth guidance on today's leading income investing
opportunities each month, plus access to several model portfolios,
please subscribe to Carla Pasternak's premium newsletter -- High-Yield
Investing. |
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