Tags: Tom Hutchinson | dividend | stocks | income

Tom Hutchinson: Turn to Dividend Stocks for Income

By    |   Tuesday, 17 September 2013 08:23 AM

Income investors looking for solid returns should consider dividend stocks, says Tom Hutchinson, author of the Newsmax newsletter "The High Income Factor."

The recent rise in interest rates has thrown up an obstacle for these investors, he tells Newsmax TV in an exclusive interview.

"It makes the bond market particularly treacherous," Hutchinson said. "Rising rates put pressure on all income investments, but as a general group, by far the best place to be going forward is dividend stocks."

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Still, you must discriminate among dividend stocks, he says.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

"In a rising rate environment, bond prices go down and so do the prices of stagnant-growth dividend stocks, because they act just like bonds," Hutchinson said.

"They pay a regular dividend without a lot of growth, and their earnings are somewhat flat and they're going to get hit like bonds get hit."

That includes stocks in the utilities and telecommunications sectors, Hutchinson says.

"You really want companies that can grow earnings and grow the dividend, that's your best defense."

Mastered limited partnerships (MLPs) represent good dividend plays now, Hutchinson says. "Also, multinationals and any individual story, even if it's in one of those other sectors that doesn't offer growth."

Most MLPs are in the buoyant energy sector. "[They're] generally involved in the transport and infrastructure, the piping and storage of oil and gas and don't have a lot of exposure to commodity prices," Hutchinson said.

The K-1 tax forms that you have to fill out as an MLP shareholder are a nuisance. "But I don't think it should hold you back from a good investment," Hutchinson said.

You can use exchange-traded funds (ETFs) and exchange-traded notes to avoid the K-1s. But, "there's some change in the structure to get them in the ETFs, and I don't think the ones I've seen are as good a play as some of the bigger MLPs on the market," Hutchinson said.

He also likes floating rate bank loan funds. "I don't like a lot of them, because a lot of them have shenanigans. They use leverage and things that change the math that makes them conservative in the first place," Hutchinson said.

"But the one I like right now is symbol BKLN [PowerShares Senior Loan Portfolio], and that's the largest ETF."

So what does Hutchinson like about it? "It focuses on the most liquid bank loans," he said.

"The drawback of these things is in a tight market they're not a traditional marketable security, so that liquidity can dry out."

But the PowerShares fund only invests in the largest loans, "and they take extra steps to make sure they have extra liquidity," Hutchinson said.

He also likes energy stocks. "I'm looking a year or two out. Oil prices may be a little on the high side, but I wouldn't be afraid to buy them for the long term," he said.

Editor’s Note: Put the World’s Top Financial Minds to Work for You


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Income investors looking for solid returns should consider dividend stocks, says Tom Hutchinson, author of the Newsmax newsletter The High Income Factor.
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2013-23-17
Tuesday, 17 September 2013 08:23 AM
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