Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Archive for the ‘government bonds’ Category

What’s Next After Income Trusts?

By for Profit Confidential

I’m sure there are quite a few income trust investors who got badly burned in Ottawa’s Halloween “all trick, no treat” surprise last year. So far, we have lamented on the situation long enough. The next thing to do is to find what other income-generating investment vehicles might be suitable for our subscribers..

The first thought that sprung to mind was bank stocks. They are rock-solid, supported by strong profits on top of offering dividends. The only problem is that bank dividends typically generate yields from 2.8% to 3.8%, which pale in comparison to the 6% to 12% that income trusts were offering. But, if you wish to avoid headaches and heartache, bank stocks might not be a bad idea, particularly considering how well these stocks have performed recently.

Another option are quality preferred shares. Over the years, preferred shares have lost the popularity contest to income trusts. The downside to investing in preferred shares is that they offer little in terms of market price appreciation, and they are sensitive to interest rate fluctuations like bonds. However, their quarterly distributions are a much safer bet than common stock dividends, and currently, their yields sit around 4.5%.

Cold chills that Ottawa has sent down the spines of many Canadians have had an effect similar to the intoxicating effect of alcohol — that increasing your consumption only beautifies the ugliest people in the bar. Suddenly, it matters little how uninviting the low interest environment really is, as many Canadians settle for 4% on GICs and similar instruments.

But, there is a way to maximize the “high safety, low returns” rule of the … Read More

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