Investors have become all too familiar with the increasingly difficult task of scouring the investment universe for income-generating securities. Bond investors have been forced farther and farther out the yield curve or down in credit quality to obtain yield. To make matters worse, the situation is not likely to change until 2015. Prior to the market meltdown and ensuing Federal Reserve zero interest rate policy, many investors could still get very solid yields from CDs or Treasury bills. Those days are long gone.
The Income research team at UBS has done the scouring for investors. They have researched the entire asset class universe looking for the top income and yield ideas that investors can safely buy for their portfolios now. This follows some of the same strategies as the UBS Dividend Ruler stocks. Now they have assembled their top ideas from the Dividend Ruler stocks, preferred securities, closed-end funds, real estate investment trusts (REITs), master limited partnerships (MLPs) and more. In a recent report, they highlighted their top names to buy broken out by asset class.
Intel Corp. (NASDAQ: INTC) is a top name to buy from the Dividend Rulers list. The company has been able to keep its position as the largest semiconductor company in the world for many years. In a volatile industry, the legendary chipmaker kept its business strong by constant innovation. Its advanced chip-design capabilities, huge research and development budget and visionary management were essential success factors. Investors are paid a very nice 3.9% dividend. The Thomson/First Call price target for the stock is $23.75, but Intel closed Tuesday at $24.07
Clorox Co. (NYSE: CLX) is another top-yielding, conservative name for the Dividend Rulers list. This stock is a growth and income favorite and was highly touted recently by CNBC’s Jim Cramer. Investors are paid a 3.3% dividend. The consensus price target for the stock is $84.50, but Clorox closed Tuesday at $87.39.
UBS also recommends the preferred stocks of major companies. These securities trade on the large exchanges and typically pay dividends on a quarterly basis. They often have call features that allow the company to buy them back at a pre-determined price. One name that looks very solid is the Wells Fargo & Co. (NYSE: WFC) 8% perpetual preferred, which has a symbol of WFC PR J. Trading near $28, the security yields 7%. Another solid pick is the HSBC Holdings 8% perpetual preferred. Trading near $27, it yields 7.4%. Most investment advisors can give investors solid research and guidance on buying preferred securities.
W.P. Carey Inc. (NYSE: WPC) is a top pick at UBS in the REIT area. The company provides long-term sale-leaseback and build-to-suit financing for companies. It invests in the real estate markets across the globe. The firm primarily invests in commercial properties that are generally triple-net leased to single corporate tenants including office, warehouse, industrial, logistics, retail, hotel, R&D and self-storage properties. Investors are paid a very handsome 5.2% distribution. REIT distributions may contain return of principal. The consensus price target for the stock is $74. It closed Tuesday at $66.06.
Home Properties Inc. (NYSE: HME) is another top REIT to buy. The company recently did a large secondary offering that has brought the price in and offers a good entry point. The company is engaged in the ownership, management, acquisition, rehabilitation and development of residential apartment communities. Investors are paid a 4.6% distribution. The consensus price target is posted at $67. The stock closed Tuesday at $61.18.
Two Harbors Investment Corp. (NYSE: TWO) is a top name to buy in the battered mortgage REIT sector. UBS has a Buy rating on the stock, which invests in mortgage backed securities. Investors are paid an outstanding 11.4% distribution. UBS has a $10.50 price target for the stock. The consensus was not available. Two Harbors closed Tuesday at $9.74.
Western Asset Investment Grade (NYSE: IGI) is a top pick for investors in the closed-end fund asset class. This top fund maintains a solid portfolio of 80% investment grade bonds. Those are bonds typically rated BBB or better. Investors are paid a very solid 5.95% dividend paid quarterly. No consensus price target was available. The fund closed Tuesday at $20.20. Investors again can get solid advice on closed-end funds from a financial advisor.
Access Midstream Partners L.P. (NYSE: ACMP) is a top MLP name that is also a solid income bet. The company owns, operates, develops and acquires natural gas, natural gas liquids (NGLs) and oil-gathering systems and other midstream energy assets in the United States. Investors are paid a 4% distribution. MLP distributions also may contain return of principal. The consensus price target for the stock is $53. The stock closed Tuesday at $51.06.
Energy Product Partners L.P. (NYSE: EPD) is another top MLP name for income investors. The company will to raise its distribution yet again for the 37th straight quarter. With a dominant position in the growing U.S. NGL market, and plans to expand into gasoline exports, the company is an MLP leader. The consensus price target for the stock is $68.50. Investors are paid a nice 4.4% distribution.
The years of frustratingly low yields are closer to the end than the beginning. However, it remains important for investors to carefully research income ideas. When rates do start to rise significantly, longer dated income securities can drop significantly in price. The UBS names are good ways to have solid current income and protect against principal loss in the future.