The Safest 7% Yield in America
Wednesday, August 31, 2011
Printer-Friendly | PDF Version | Whitelist Us  | Also visit StreetAuthority
The Safest 7% Yield in America
-- By Carla Pasternak

This "double-safe" investment offers two layers of security and pays more than three times the yield of a 10-year Treasury bond. (Full Story Below)

Also in Today's Issue...

The Public "WGB Retirement Fund" That's Beaten the Market Nearly 3-to-1
I doubt you've ever heard of the "WGB Retirement Fund." But this "fund" of just 12 stocks has beaten the market for years, nearly tripling the S&P in the process. Even many of America's largest pension funds are investing millions of dollars into the 12 stocks that make up this investment. Visit this link to get all the details... including how you can invest right now.
NEW REPORT REVEALS: The Best 3 Upcoming Stock Market IPOs
It's time for the truth on the IPO market: Large profits ARE available for everyday investors... if you know where to look and how to find the best companies. That's what you'll find in this report -- The Three Best Stock Market IPOs. You'll learn two golden IPO rules... four ways to spot the hottest IPOs... and get these top three current picks. The report is free. Start profiting today.

The Safest 7% Yield in America

One thing is on every investor's mind right now: safety.

As of last week, fears of a global economic slowdown erased close to $3 trillion in market value from U.S. stocks since July 22nd.

And the Volatility Index (VIX) -- considered a measure of "fear" in the market -- reached a recent high of 48 on August 8th, after the S&P 500 dropped 17% in two weeks.

So the question investors have now is how do you protect your money while also earning a decent return? Cash out and stick it in the bank? Purchase Treasury bonds?

Most savings accounts pay less than 1%. And 10-Year Treasury bonds only yield 2.3%.

But I've found a low-risk security, and it's paying more than 7%, making it an attractive alternative to low-yielding Treasuries and bank accounts.

You could even call it a "double-safe" investment because it provides two layers of safety. That doesn't mean it can't lose money, but at this point, it might just be the safest 7% yield in America.

You can see how well this security -- Annaly Preferred 7.875% Series A (NYSE: NLY-PA) -- has held up against the broader market during the sell-off:

At its worst, Annaly's "Preferred A" stock lost about 8% (roughly half the S&P's 17% fall). But at that level, the shares bounced back quickly... while the S&P languished.

So what makes this security hold up in a rough market?

 

These preferred shares are issued by Annaly (NYSE: NLY), a mortgage real estate investment trust or "M-REIT." This company borrows at record-low rates and then invests in a basket of mortgage-backed securities.

But isn't that risky? After all, investors were left with a bad taste in their mouths when mortgage-backed securities tanked in the last financial crisis.

Well, NLY-PA's first layer of safety comes from the fact that its parent company invests in mortgages backed by government-sponsored agencies Fannie Mae and Freddie Mac.

You probably remember during the financial crisis of 2008-09 the U.S. government bailed out Fannie and Freddie. These two agencies still have their problems, but the mortgage securities they issue are considered as credit-worthy as U.S. Treasuries. That's because agency securities are backed by an implicit guarantee from the U.S. government.

Because Annaly's holdings continue to be backed by the U.S. government, its portfolio is all but shielded from credit risk.

But that's not the only factor that plays into the safety of these shares. Its second layer of safety lies in the fact that you're investing in preferred shares, not common stock.

Preferred shareholders have priority over common stock shareholders. In short, they get paid first. And the preferreds also have a $25 par value -- the price at which the company can call them back. Because of that and their set dividend rate (NLY-PA pays $0.492 per share each quarter, for a yield of more than 7%), these securities trade more like bonds than stock.

Meanwhile, Annaly is making more than enough to cover the payment on the preferred stock. The trust reported in its last quarterly statement that it earned $957 million in interest from its portfolio, easily covering the $4.3 million it paid in preferred dividends.

Now, just because I think these securities are safe right now doesn't mean they will be forever. For instance, rising interest rates would increase borrowing costs for Annaly, which would hurt earnings.

But with the Fed announcing plans to keep rates low until 2013 and the enormous cushion between earnings and preferred dividends, I think the safety of these shares will continue well into the foreseeable future. One important note -- the shares do trade at a slight premium to their $25 par value. If called, investors would see a slight capital loss from today's levels.

[Note: Since I first recommended Annaly's preferreds to subscribers of my High-Yield Investing advisory in February 2009, the shares have kept our money safe, paid a reliable dividend through thick and thin, and kicked back a total return of +51.1%. If you'd like to find out more about the investments I'm finding for High-Yield Investing visit this link.]


Good Investing!


Carla Pasternak's Dividend Opportunities

P.S. -- Don't miss a single issue! Add our address, Research@DividendOpportunities.com, to your Address Book or Safe List. For instructions, go here.

Disclosure: Carla Pasternak hold shares of NLY-PA as part of High Yield Investing's model portfolios.


Income Notes

2.6%

The average dividend yield of the companies in the Dow Jones Industrial Average.

All 30 blue-chip companies pay a dividend. AT&T offers the highest current yield of the group at 5.8%.

-- Research Staff


The $1,357 Per Month Dividend Strategy

This strategy can help you earn tens... hundreds... even thousands of dollars each month for the rest of your life -- whether you're 28 or 88... whether you're a millionaire or just getting started... and whether you have an MBA or didn't graduate high school.

Click here to learn more.


Breaking News

Three Simple Signs a Stock is Worth Owning "Forever"

When I'm deciding whether or not a stock is worth owning for the long-run, I look for these three indicators.

Read On...


Use These Income Stocks to Make a Quick Profit in the Next Panic

This high-yield profit opportunity seems to play out every time there's a big sell-off.

Read On...


My High-Yield Advice For This Market

Here's how I'm turning the recent sell-off into an income investing opportunity.

Read On...


 


 

Home | Issue Archives | About Us | Meet the Staff | Subscribe
Premium Content
Research Reports | Media Coverage | Testimonials | Advertise

Dividend Opportunities is a publication by StreetAuthority, LLC, 4601 Spicewood Springs Rd, Building 3, Suite 100, Austin TX 78759 or www.StreetAuthority.com. You are receiving this newsletter because you visited us at StreetAuthority.com and registered to receive our complimentary investing newsletter -- Dividend Opportunities. If you feel you have received this issue in error, please follow the instructions below to unsubscribe or contact us by visiting our web site.

DISCLAIMER: StreetAuthority, LLC is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment advisor. You are responsible for your own investment decisions. All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence and consider obtaining professional advice before making any investment decision. As a condition to accessing StreetAuthority materials and web sites, you agree to our Terms and Conditions of Use, available here, including without limitation all disclaimers of warranties and limitations on liability contained therein. Owners, employees and writers may hold positions in the securities that are discussed in our newsletters or on our web site.

The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase or sale of securities. Our opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. All information contained in this report should be independently verified with the companies mentioned. The editor and publisher are not responsible for errors or omissions.
StreetAuthority receives no compensation of any kind from any companies that may be mentioned in our newsletters or on our web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities discussed in this report or on our web site.

To Unsubscribe
You may choose to stop receiving our Dividend Opportunities newsletter at any time.
Unsubscribe here.

Subscribe for FREE

Subscribe to Dividend Opportunities today and you'll receive a FREE newsletter four times a week, plus a FREE in-depth research report that identifies some of today's highest-yielding securities.

There's absolutely nothing to purchase, we'll keep your email address private, and you can cancel at any time. You truly have nothing to lose, so take advantage of this no-hassle, risk-free offer today!

Click here to subscribe now.