You'll Be Shocked When You see How This Preferred Stock Has Outperformed Buffett

     Income investing is for wimps, right?

     Wrong.

     A portfolio of solid, dividend-paying securities might seems more suitable for widows and orphans, but there are plenty of reasons why an income strategy is beneficial to all investors -- especially in a difficult market like this.

     And there are two main reasons why you should consider income producing investments, right now.

     Reason No. 1: Income Investing Protects Wealth

     You've worked hard to build your portfolio, and whether it's $10,000 or $10 million, it's something to be proud of. It's also something you should be very protective of. You want to shelter your nest egg from the strong winds of a turbulent market.
 
     We all saw what the market can do to even the strongest companies in down years. In 2008, for example, Microsoft (Nasdaq: MSFT) and GE (NYSE: GE) lost -45.4% and -56.3%, respectively. Few companies were immune from the blood-letting. Even Warren Buffett's Berkshire Hathaway (NYSE: BRK-B), the revered company run by the most successful investor in the world, lost -31.8%. Few could escape what was going on in the market.

     But some people actually saw their investment grow. The price of a certain preferred issue opened the year at $12.96 and ended it at $13.02. That may not seem like rock-star performance, but you see, this company also paid out $1.26 in dividends. That amounted to a +9.7% return -- or 48.2 percentage points ahead of the S&P 500 Index!

     If you had 100 Berkshire "B" shares, your position was worth $473,600 at the beginning of 2008. When the bell rang on the final trading day of the year, owning Berkshire would have cost you $152,000.

     Had you owned $473,600 worth of this preferred stock, you would have experienced absolutely NO losses. In fact the value of your investment would have grown by more than $2,000 and you'd have received a nice dividend check for $46,044.18.

     That's the portfolio-protection power of a strong income stock.

     Reason No. 2: Generate a rich income stream (with low risk)

     Take a look around: There are a lot of head-turning dividends. But in this market, you sometimes need to take a second look. For instance, CBS's (NYSE: CBS) yield was sitting at a tempting 20%. It was paying $0.27 per quarter and trading at about 5.15. Then came the news: CBS's profit fell -52% and the company said it would prune the payout back to a nickel. The new annual dividend would be less than the previous quarterly dividend -- and trimmed the new yield to a paltry 3.9%

     CBS investors who bought for the dividend were sorely disappointed. That's because the dividend is discretionary. It has to be voted on each quarter by the board. When the board saw CBS's results, they axed the dividend. With such a drop-off in profits, who can blame them?

     But the preferred shares I mentioned above can't do that. Preferred shareholders always get paid. And if the company directors decide that's not possible in the short-term, then common stockholders can't be paid anything until the preferred shareholders have received any missed and current dividends owed.

     Smart picks like this preferred not only protect your investment, they keep the cash flowing. They have to. Their payout is as close to guaranteed as an equity investor can get.

     Oh, yeah -- I forgot about risk. In the past 52 weeks, CBS shares have lost -79.7% of their value. But our preferred? It has lost nothing. In fact, it's in the plus column even before factoring in dividends.

     But when you add that rich payout into the mix, great things happen. You see, that river of revenue, if reinvested, will double an investor's position in about seven and a half years.

     To prove the point about what a strong return that is, let's look back seven and a half years. The three "strong" companies didn't come anywhere near doubling. Microsoft lost -38.3% in that period; GE plummeted -72.0%. Even Berkshire Hathaway only managed to gain +27.4% during that time -- a meager +3.3% a year on an annualized basis.

     Bottom line: This preferred outperformed Warren Buffett's returns by a factor of three!

     Clearly, income investing is a compellingly effective strategy in all sorts of markets -- for a little or a lot of your portfolio. The fact is, you just can't argue with cash. Buffett himself doubtlessly would agree.

     There's a problem with this strategy, though. You have to be able to find great picks like our preferred stock, as the evidence unequivocally shows that even the bluest of the blue chips can't match its performance.

     Happily, there's a solution. You see, readers of Carla Pasternak's newsletter High-Yield Investing have known about this preferred for years. It's just one of many ultra-safe, super-secure picks she recommends every month, year in and year out.

     Many Happy Returns --


 

--Andy Obermueller
Co-Editor
Global Dividend Opportunities
GlobalDividends.com
839-K Quince Orchard Blvd. 
Gaithersburg, MD 20878-1614

The yield on the 10-year triple-A rated corporate bond has jumped to 6.20%, some 330 basis points above the 10-year Treasury.

-- Andy Obermueller

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