a trading strategy
This message is written for retired investors. April 26, 2008.
Today [the 26th] is the last day to buy some of the MLPs - where you have to be a holder of record on the 30th - and receive the May distribution.
But if you are reading this news too late to buy those MLPs [see one of my distribution updates for those 'dates'], don't feel blue. Next week is a great 'trade up' week.
I know that there are some out there holding on to slow growth MLPs that would like to trade to a higher growth MLP - but they [you?] do not want to surrender the yield. Here is a strategy to lessen that pain.
This could be particularly attractive to retired investors who live on their dividends and distributions. Next week you can sell a lower growth MLP [examples: DEP, OKS, TPP] and trade up to some of the higher growth MLPs [examples: MWE, NGLS, SGLP, WPZ] and get paid two distributions in May instead of just one.
Afraid of living on less money come the next distribution come August? Then pair your purchase of a lower yielding MLP with a purchase of a higher yielding growth BDC [business development company]. BDCs - with their price volatility - still scare me a bit. But I have 1% holdings in ACAS and NGPC. BDCs make loans that have a higher risk component than banks - but BDCs [I believe] have a limit on leverage at 50%. Both ACAS and NGPC have decent records for dividend growth. Both would be great as a portion of you Roth IRA holdings if you are already withdrawing funds. NGPC yields over 9% and ACAS over 13%.
Note; There are other good BDCs besides ACAS and NGPC. I feel OK suggesting them because if they did go down, I would literally feel your pain as a co-owner. There is an IV BDC board - but it does not get much traffic. And there is a BDC research group for those wanting a lot of information. Due your own due diligence.
I do not like BDCs so much for what they 'are' - but I really like BDCs for what they allow me to do with asset allocation. I hate bonds [low yields and not div growth]. But I am old enough that I should worry about capital preservation as much as capital appreciation. Each slice of my portfolio that contains 1% of ACAS makes me comfortable having another 4% slice of low yielding no-growth bonds. In the same way, each 1% slice of 7% yielding MWE makes me comfortable having another 2.5% slice of low yielding no-growth but ultra-safe bonds.
If one over allocates to BDCs, then you are just adding risk. Pair your purchase decisions to control risk. Don't go over-board on BDCs.
But I hope you retired guys are planning to have more cash flow in 2010 than in 2007. Cause you know our prescriptions will cost more, our steaks and bread will cost more, our utilities will cost more. The time to purchase inflation protection is now. And a great time to do it is next week. Next week is trade-up week.
And if you need more time to do due diligence, then at least be ready for the next trade-up week in August - and start getting ready right now.