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Help me Build an INCOME PORTFOLIO
Old 04-12-2010, 07:49 AM   #1
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Help me Build an INCOME PORTFOLIO

I want to setup an income portfolio that will generate 8-10% annual income solely from dividends (About $400-$500 per month). This I want to do by putting high dividend stocks, closed-end funds and Mutual Funds. I don't want to trade very often. So these equities should be well established.
The things in my mind are---
1. How many equities should I put---5-10 or 10-15?
2. How many mutual funds vs Stocks vs closed-end funds? and finally
3. Which Equities?
I have an Annuity which is adding 6% every year. I have not started withdrawing money from it. My goal (or desire) is to create a Parallel Home grown Portfolio from which I can withdraw 8-10% per year without depleting the principal. Sounds challenging. But I want to try.
Please help me put together such a portfolio.
Raj Singh.
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Old 04-12-2010, 08:02 AM   #2
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I believe what you are attempting to do is not possible without taking on far more risk than most here would be willing to accept.
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Old 04-12-2010, 08:21 AM   #3
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I don't believe in income only portfolios - they don't survive well after inflation over a long period.

Also, it's unreasonable to expect to draw much more than 4% (inflation adjusted annually) out of a portfolio over a long period.

An annuity can pay out at a higher rate since you are part of a larger pool of investors.

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Old 04-12-2010, 12:38 PM   #4
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Getting 8% is going to be extremely hard. Going for 6% is doable. You are going to need to focus on debt, MLPs, stocks in Utility, Telecom, and Tobacco sectors. In a few years you may be able to add REITs back into the mix.

Some individual stocks to look at: T, VZ, PM, MO.

Some ETFs: XLU, PFF, HYG

When REITs recover: VNQ

Unfortunately I know little about MLPs because the tax issues have kept me from considering them.
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Old 04-12-2010, 03:42 PM   #5
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Quote:
Originally Posted by rsingh6675 View Post
I want to setup an income portflio that will generate 8-10% annual income solely from dividends (About $400-$500 per month). This I want to do by putting high dividend stocks, closed-end funds and Mutual Funds. I don't want to trade very often. So these equities should be well established.
The things in my mind are---
1. How many equities should I put---5-10 or 10-15?
2. How many mutual funds vs Stocks vs closed-end funds? and finally
3. Which Equities?
I have an Annuity which is adding 6% every year. I have not started withdrawing money from it. My goal (or desire) is to create a Parallel Home grown Portfolio from which I can withdraw 8-10% per year without depleting the principal. Sounds challenging. But I want to try.
Please help me put together such a portfolio.
Raj Singh.
I would "start" by finding a CD or bond paying close to the 8% you are looking for and putting 50-75% of your eggs in that basket.

I would then add dividend paying stocks, bond funds, and possible some other diversifiers into portfolio. But diversifier in this sense is used loosely, its really other investments which have a lower yield, but a decent yield, to attempt to reach your objective.

I do not think the 8% return could be sustained over more than 5-10 years though. Eventually either inflation would creep in, interest rates would change, or the investments would tank. Meaning I think you have an unrealistic objective.

Here are my thoughts on returns and creating objectives which can be met:

5% income is possible with bonds and stocks- this is living on the edge, but with right mix, could probably be sustained for 15-20 years without much issue.

4% income is very possible- a 60-40 portfolio (stocks-bonds) and 40-60 portfolio could both meet this objective based on taste. The higher the equity position, the more likely the objective is met for a longer period of time.

3% income is possible from 100% dividends in portfolio (meaning no bonds are needed). Even with a volatile total return, the actual dividend payout should be constant, or close to constant, most of the time. I did a survey on this board a while back and everyone which was a dividend investor was getting better than a 3% yield (at the time), so my conclusion is that if a dividend portfolio is built, I could expect 3% payouts from my initial investment.

2.5% is the "lowest acceptable" return. I state this because this is about the historical dividend return of the S&P 500- meaning you can invest in an SP 500 fund, be "reasonably" diversified and get 2.5% payout and also beat inflation with that return, while growing principal and actually ending up with more real dollars than you started with.
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Old 04-12-2010, 03:48 PM   #6
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100% beaver cheese futures should do it. More if you add leverage.
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Old 04-12-2010, 04:07 PM   #7
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100% beaver cheese futures should do it. More if you add leverage.
That's Venezuelan Beaver Cheese, if you please.
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Old 04-12-2010, 05:06 PM   #8
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I'm sorry to inform you, that your opportunity to earn "guaranteed" 10% annual returns, ended when Bernie Madoff went to jail.
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You're asking a lot
Old 04-17-2010, 05:13 PM   #9
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You're asking a lot

What you're requesting is possible, but probably challenging. I know some high yielders in the High yield bonds REIT, MLP, and BDC groups, but all would be subject to rising inflation costs. You're likely to see those yields drop from where they are now.

You should probably hedge this. Put 25% in something very stable, like BND, and buy more of the high yielders if they get above, say 12% yield. I would say that shouldn't keep you trading too frequently. Here are some ticks I would try:

PHK
GOOD
PSEC
LINE
NLY

A couple of these are showing cracks in the their net income, I really can't promise you success with this. Good luck.
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Old 04-17-2010, 05:58 PM   #10
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rsingh6675, all your posts have the same theme: How do I do the impossible?

About the only way to achieve what you want is to get a job that pays $400 to $500 a month. Of course, you will probably need to earn more than that in order to net $400 to $500.

Or, if you are old enough, you might be able to buy a single premium immediate annuity that pays out at that rate.
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Old 04-17-2010, 09:40 PM   #11
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Rising interest rates is what I meant to say, not inflation. These companies all earn money by borrowing it and then getting a higher interest rate on what they invest it in, or loan to other businesses.

At this time, it is possible to get these numbers. I'm earning what you're seeking right now. In the longer term there's no way to guarantee the stability.
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Old 04-22-2010, 12:03 PM   #12
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So... you are talking about a portfolio worth about $60,000 - $75000...?

The only dividend stocks I have yielding around 8% at current prices are CPNO, CTL, FGP, WWE. I bought them when the prices were substantially lower, but I'm fully invested.

If you go a little lower: look at RAI, EDE also.

I have more money invested in this than you are talking about - I think I diversified over 10 -12 stocks. I watch them, but I also bought a lot lower so I'm in it for the dividends. I sort of set up a little mini-mutual fund of my own. But I was definitely looking for dividends and preferably with capital gain potential on the stocks - in most cases I achieved both.

You do have to be willing to watch this stuff and take some risk. If not, stick to mutual funds and assume a probably MUCH lower return.

I took into account how solid the company was, where it was in its 52 week range, and how long it had been paying at least the current dividend.

This should not be construed as investment advice - just some stuff to look at. YMMV, also your comfort with risk.
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Old 05-14-2010, 06:08 AM   #13
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The few times I have chased very high dividend/interest (reits, junk bonds) I have lost principle big time. You can get by with a minimum 3 stocks (25K each) that will get you close to the dollar amount but not the %. As an example, T, AEE, AWF. You can then sell covered options on some of these to increase the return. I agree with most folks here that 8-10% with no risk is not in the cards.
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Old 05-14-2010, 06:44 AM   #14
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The trick in carrying companies for yield is in monitoring their earnings releases for issues in the income statements. Dividends ultimately are paid from earnings, and earnings come from positive net income. Understanding the basics on how to read a financial report is critical if you're to try to maintain them on your own. Avoid companies that frequently sell assets or dip into stored cash to pay dividends, aka "return of capital". I strongly recommend reading "Warren Buffett and the Interpretation of Financial Statements" by Mary Buffett, it helps you spot problems.

Now, if you happen to find a nice stable company that has taken a dip in price, feel free to back up the truck, but do take your profits when things correct themselves.
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Old 05-14-2010, 06:51 AM   #15
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Point of order: dividends are paid out of cash/cashflow, not accounting earnings.

Always follow the cash, not the earnings.
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Old 05-14-2010, 08:11 AM   #16
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Both are needed. I've got a thing for closely monitoring what it costs a company to run their business and I've found income statements tell me more than cashflows, although you do need to use those to verify what you think might be happening. At any rate, accounting knowledge is important. I think if we say much more about it people's eyes glaze over and they'll overlook this important information.
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building an income portfolio..risk first, return second!
Old 05-15-2010, 05:38 PM   #17
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building an income portfolio..risk first, return second!

Hi all. While I am new to this forum, I have been investing for north of 25 years. I would like to take a shot at OP’s question.

First, you do NOT get 8-10% income with NO risk. NO WAY. PERIOD. But hey, there is risk in every investment, even an insured savings account (rewind to fall 2008 for a refresher here…). If you want a higher reward, take more risk. YOU MUST COME TO GRIPS WITH RISK FIRST; RETURN COMES SECOND.

There are several ways to think about this. First idea is so-called “dividend champions”, those companies which have a long history of increasing dividends at a rapid pace. A 4% yielder now could be 8% in 5-10 years. Think JNJ, MCD, and there are others. You wouldn’t start out at 8% but would get there in the not too distant future.

There are also mortgage REIT’s like NLY, CIM (which I own…for now…), and others. In the market collapse they got killed, and dividends were crushed. NLY went to ten cents a quarter dividend, and they recently cut their payout. They are likely to get hit further as prepayments on mortgages are received, and they have to reinvest these at current low rates. So while I own one of these, it is small and I may be selling soon. Not an area to go into, in my opinion.

There is one other to look at: PCEF. This is an ETF which tracks an index of income closed end funds. It is fairly new, but is paying monthly at about an 8.3% rate, so this is something to look at. It is fairly volatile, and that needs to be taken into account. It has fairly good volume so you could exit if needed. I own this, and plan on buying more as it seasons a bit.

All just my opinions, but there may be a way to skin this cat; just consider your risk tolerance first and foremost.

Jim
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Old 05-28-2010, 11:16 AM   #18
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Invest in MLPs. That will get you ~10% distributions. Use those distributions to buy safer assets and increase the size of your portfolio (IE mostly bonds and some broad cheap index funds) I think this will work, just dont come after me if it doesnt cause I'll be broke too
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Old 05-31-2010, 10:30 PM   #19
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Hello All

Let me introduce myself, I am Mike who has just joined here. I came here to get some portfolio tips and suggesting. I think this is the best place to get good ideas... Thanks a lot for your suggestions........
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Old 05-31-2010, 10:35 PM   #20
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Invest in MLPs. That will get you ~10% distributions. Use those distributions to buy safer assets and increase the size of your portfolio (IE mostly bonds and some broad cheap index funds) I think this will work, just dont come after me if it doesnt cause I'll be broke too
i'm an mlp supporter too. there are even some that are suitable for ira's now - that dont run afoul of the irs ubti rule.

nsh and kmr are my two favorites. buy on dips. looks like the US could be heading for more slow down....so could get a decent entry price.
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