Dividend Payers

I am not a big believer in stocks.  Even 100 year old companies can go out of business.  Look at GE, it is a great company with tremendous earning power.  But because half of it is a bank, it is in trouble now.  You can buy GE now for less than thirteen dollars a share.  That may be a great investment a year or two from now.  Also, you are paid a dividend of about eight percent while you are waiting.

Mortgage REITs

I was more interested in mortgage REITs that buy guaranteed  Fannie Mae paper and repo it several times to increase their leverage and make the spread.  They are paying over 13% per share on the spread.  As long as they can borrow they can earn the spread.  They have to pay it out.  So you are getting 13% on paper backed by the government.  I held NLY through its December payout, then I sold it as the price dropped.  There is no point holding a stock for 13% dividends if it drops 15%!

Another play on Fannie Mae paper is Hatteras Financial, HTS.  It is paying almost 16% I still have that in the account because it is up so much since I bought it.  They buy short term Fannie Mae paper and repo it.  They match the duration of their funds better than Annaly does.

Their next payout will be in March, so keep an eye on these two.

Using Margin to Increase Return

You can actually earn much more than their nominal yields.  If you hold them in your account and use margin this is how the arithmetic works.  If the stock pays 13% and you leverage two to one.  You have to pay, say, 8% to your broker so you will earn 13 + (13 -8) = 18% on your money.  If you leverage three to one, you will earn  23%.  That is a very good return.

Master Limited Partnerships

Linn Energy, LINE is also paying close to 16%.  They have sold their production forward for the next three years so they know what prices they are getting for their gas.  Tht means that their payout is pretty secure.  It is a master limited partnership so the payout creates some complication when paying taxes.

To avoid those problems you can buy KYE which owns MLPs so they have all the tax complications and their payout to you is a simple dividend.  They are paying 14.7% now.  It is a little mysterious what particular MLPs they own.  They give you information on their top holdings.

Cash Rich Companies

Biovail, BVF, pays out over 13% and have a lot of cash on hand to continue paying out.  The problem with them is, they don’t know what business they are in yet.  They are looking around for something to do.  So watch this one carefully.  Set tight stops.  Their next payout is in March also.