Boost Your Income by 18%—Completely Hands Free

Today, I pay homage to my granny. She’d hate that.

She never wanted to be the center of attention. Not that she was shy; not by any stretch. We were in Acapulco, Mexico when I was about 10 years old, traveling with my mom and a priest. (I mean, it’s almost like a joke: a mom, her son, a grandmother, and a priest walk into a bar…) My mom had made reservations for dinner at some restaurant famous for a cliff-diving show.

Well, the last show of the night is a fire jump, in which a diver plunges into the Pacific while holding a torch. In preparation, all the lights go out. And my granny, indignant at her sudden blindness, stands up and screams, “Turn on the god…n lights! I can’t see a thing!”

Did I mention we were traveling with a priest?

Anywho, my granny would hate that I am making her the center of attention in this dispatch.

I am because of one particular lesson she taught me growing up: Money at work is better than man at work.

Now, I have to tell you my granny didn’t have much money. She and my grandfather raised me (in the 1970s) on my grandfather’s limited Social Security check and her meager income as a purchasing agent (“glorified secretary,” she called it) for a chemical company along the Mississippi River south of Baton Rouge, Louisiana.

I figure that limited income is pretty much why she told me that money working for you is a helluva lot better than you having to claw out a living for yourself.

Which brings me neatly to today’s real topic: retirement income, and dividend income in particular… the subject of my Retirement Income Masterclass this weekend.

I’ve mentioned in the past that one of the smartest financial moves my granny made came in about 1980, when she walked into the lobby of what was then Louisiana National Bank on Corporate Boulevard, and she pulled $20,000 out of her savings account—pretty much the entirety of her savings account—and stuck it in a 10-year certificate of deposit paying 15%.

For the next decade, interest rates continually fell, yet my granny was collecting a 15% return every year on her money. That was about $250 every month in interest payments, which doesn’t sound like a lot in today’s context. But in the context of 1980, that was the equivalent of nearly $1,015 today!

Who among us wouldn’t like an extra $1,000 in monthly income?

Of course, we’re not going to find that kind of income spinning out of a $20,000 investment these days. You won’t find a 10-year CD anywhere, and rates you do find on the three-month to five-year CDs that are common are in the range of nothing to just under 5%. Plop 20 grand into the highest paying CD you can find, and you’ll collect $83 worth of monthly income—in today’s dollars. So, you can afford part of a trip to the grocery store.

Yay!

But there are other options for hoovering up some income from a retirement portfolio… and that’s why I’ve set out, in my Retirement Income Masterclass, to create the kind of income-rich, safety-focused portfolio that my granny would be proud of.

The portfolio I’ve created reflects my granny’s notion of money working for you rather than you having to do all the heavy lifting.

The options we have to create that kind of portfolio today are multifold.

For instance:

• Certain high-yield common stocks dished up by high-quality, often overlooked or temporarily downtrodden companies. Yields of 6.5% to 8% are available here.

• Master limited partnerships, or MLPs, paying out 6.6% to more than 7%, based on services that their clients have to pay for. Like, literally have to pay, whether they use those services or not. That provides a highly visible stream of revenue that flows nearly unimpeded into dividend payments to shareholders.

• Various preferred shares sporting dividend payments of 8% or more. As with MLPs, these are pretty much assured payments because of the way preferred shares are structured.

• So-called “baby bonds,” a class of debt that trades like shares of stock and which right now offers yields of right near 10%. You’re not going to chase a lot of capital appreciation with these, but with 10% annual yield set in stone, I really don’t care about the lack of meaningful appreciation.

• Real estate investment trusts, or REITs, which by law must pay out 90% of their income to shareholders as a distribution. Not all REITs are a bargain these days because yield-chasers have bid up the price, which pushes down yield. But if you look in the right place, you can find yields pushing up against 6% for some really standout REITs.

• Canadian income trusts, which not many Americans pay attention to because the US financial press rarely, if ever, writes about them. But these MLP/REIT lovechilds (lovechildren?) kick off some really juicy yields of 7% to 8% or more.

I go into far more detail on all of these opportunities in my upcoming Retirement Income Masterclass that takes place this Saturday.

I can’t give away anything more here, but I can tell you the cumulative yield on the portfolio I’ve built for the Masterclass is 7.2%. And because of the component assets—particularly the preferreds, baby bonds, and MLPs—the portfolio is less risky than the S&P 500, which by the way is yielding all of 1.3% at the moment.

So, you’re getting five-and-a-half times the yield of the S&P and with less volatility.

Oh, and on top of the more than 8% yield the non-CD portion of that portfolio has collected in dividend payments, the assets have also appreciated cumulatively by about 10% in the past year. So we’re talking about an 18% return on an income portfolio.

Sure, that’s less than the 27% the S&P returned, but the S&P isn’t focused on income or a safety factor to help you sleep at night without worrying about a stock market blow up.

I’m quite happy with that.

And I am certain my granny would be happy with that too… right after she berated me for focusing attention on her.