I have been talking about income stocks this week. Although I know most investors are active in the markets and probably do not think about an income approach to investing, I am sure we all have family and friends who are concerned about producing income from their investments. Even those of us who do not necessarily think of investing for income can admit that we should do so with at least part of our funds.
The most successful traders I know have always said that having a secondary source of income was the key to de-stressing their trading. In spite of today's very low global interest rates, if you are willing to trade some volatility for yield, you can assemble a portfolio that should meet your income needs for years -- if not decades.
I preach patience and discipline all the time when it comes to investing in stocks. When buying equities for income this is doubly important. Make the market work for you, not against you. Buy when the market is down and the general mood is pessimistic, avoid the temptation to chase yield. It can be frustrating, but wait to put money to work until the morning crew on the financial networks looks like they spent the night under the table chugging cheap tequila as the market falls around them. You will never pick the exact bottom, but you will get far better prices and higher yields by waiting to purchase stocks until the fear cycle is in control of the markets.
I want to look outside the normal issues we think of for income. As John Templeton pointed out, you cannot outperform everyone else by doing what everyone else does. The usual income mix of some utilities, drug names and major telecoms will probably do OK, but with a little work, I think we can do better than OK.
Let's start with a stock we talked about last week, BGC Partners (BGCP). With an 11% yield and strong prospects for growth, this stock is a good fit for a diversified income portfolio. Fly Leasing (FLY) is another old favorite worthy of a small position in most portfolios, as it has a 7% yield and a strong management team in place. When the global economy does rebound, this stock could also offer substantial price appreciation and a growing dividend.
Although I recently suggested AT&T (T) as a blue-chip income stock, when it comes to telecom stocks, that real opportunity of conservative income investors is in the second-tier telecom stocks. There are still many smaller telecom and wireless stocks serving parts of the country that have the same cash flow and dividend-paying capability as their larger brethren. While the larger telecom and wireless companies will only grow as fast as the economy allows, the smaller companies offer an opportunity for appreciation through takeovers or mergers in the years ahead.
Consolidated Communications (CNSL) is worth considering. The company has operations in Illinois, Pennsylvania and Texas. Like most telecommunication companies today, the company is seeing sluggish results in the landline markets and a very competitive wireless marketplace. Internet and data revenues are growing and should drive revenue and profit growth going forward for the company. At its current price, the stock is yielding 8.30%.
CenturyLink (CTL)is the third largest telecommunications company in the country but it doesn't gain the attention its larger rivals do from investors. The company is still integrating the April acquisition of Qwest but it appears to be on track to complete the merger process. Qwest gives CenturyLink access to some corporate and government markets for telecommunications service the company did have prior to the deal. Qwest also give the company a stronger presence in the Internet and Internet television marketplace. The company also recently purchased Savvis, which offers a leading cloud computing and hosting service -- the company gained a strong foothold in this very fast growing marketplace.
The faster-growing markets should offset the declining landline business and allow the company to increase the top and bottom line as well as the dividend in the future. At today's price, the stock yields 8.1%. So investors are definitely getting paid while they are waiting for the growth potential to be reflected in the stock price.
Putting together a successful income portfolio requires patience, discipline and a willingness to think a little differently from other investors. If you are willing to do the work, even the most conservative investor should be able to meet his income needs in the stock market and not have to worry about the 0-yield fiscal policies that are currently in place.