Have you ever been traveling somewhere and opted for a scenic
route to make your trip more enjoyable? Many of the world's
savviest investors also travel a different path in an effort to
avoid a lackluster performance in theirinvestments .
Because they are willing to go off the beaten path in the quest
for superior returns, they follow a different set of rules. That's
why many of these investors want to get paid two ways --
withcapital appreciation (buy low, sell high) andcash flow
(dividends). To accomplish this, they often seek outinvestment
opportunities few know about.
market 's best dividends. In fact, some of these "
Secret Wealth Investments
" are FORCED by the government to pay out 90% of their profits to
Here are five types of "
Secret Wealth Investments
" worth considering for your portfolio...
1. Real estate investment trusts (REITs):
REITsoffer investors an opportunity to gain access to a real estate
portfolio without the headache of being alandlord . REITs typically
include high-quality commercial properties, ranging from apartment
buildings and office complexes, to health care facilities and
shopping malls. Because REITs have no investment minimums, they
allow large and small investors an easy way to participate
incommercial real estate .
The best part: REITs must pay out 90% of its operating profits
as dividends in order to be exempt from having to pay corporate
incometaxes . As a result, most REITs pay frothy dividends.
With so many REITs available, I've narrowed down my favorites to
two choices. With a 5%dividend yield ,
W. P. Carey Inc. (
is engaged in providing long-term sale-leaseback and build-to-suit
financing for companies. I like this REIT because it has a very low
lessee default rate (less than 2%) and has done well through good
and bad economies. I also like
National Health Investors Inc. (
, which also sports a 5%yield . It invests in income-producing
health care properties primarily in the long-term care industry.
With an aging population, senior housing and long-term care are
going to be in high demand for many years to come, so National
Health should be able tocapitalize on this trend.
2. Master limited partnerships (MLPs):
Investors keep searching high and low for better yields, but many
miss the boat on MLPs. Few investors have a good knowledge of MLPs,
because they have the stigma of being too mysterious and complex.
Butinvesting in MLPs isn't that difficult. Like a traditional
stock, these investments trade on public exchanges, having
outperformed the S&P 500 in 11 of the past 12 years.
Take a look at the five-year chart below…
From 2008-2012, the average annual return for MLPs was nearly
13% compared to less than 2% for the S&P 500. Today, the
average MLPs yield close to 7%, which is more than three times the
current average yield of the S&P's 2.2%. Almost all MLPs are
pipeline businesses makingmoney from the processing or transport of
oil, natural gas or coal. Thanks to strict environmental
regulations, they don't face much competition. And because they
transport these commodities rather than explore them, they are
theoretically less affected by ongoing volatility incommodity
One MLP worth a closer look is
Linn Energy (Nasdaq: LINE)
, which acquires, exploits and produces from oil and natural gas
properties in the United States. What I love about this MLP is its
hefty 8% dividend yield steady cash flow, especially since I'm
verybullish on natural gas.
3. Business development companies (BDCs):
ABDC is a form of publicly-traded privateequity that loans money to
small and upcoming businesses. In return for taking the risk of
loaning the money, these startups pay the BDC interest, often
alsooffering an equity stake.
Because they are required to pay regular dividends, income from
BDCs is generally more stable than that of regular dividend-paying
stocks, especially during the ups and downs of theeconomy . They
also have a diversifiedasset base, typically consisting of a
portfolio of 50 or more loans/equity. Because of this nature, BDCs
have plenty of capital available for growth.
Triangle Capital Corp. (Nasdaq: TCAP)
, which pays a healthy 9% yield, is a good place to start. It holds
debt instruments and makes direct equity investments in each of the
companies it loans to. Within its portfolio, youwill find companies
such as Ambient Air Corp., a market leader in commercial heating
and cooling systems, and Ann's House of Nuts, a growing trail mix
food company. With a very strong portfolio of up-and-coming
companies, Triangle Capital is worth considering.
4. Preferred stocks:
These stocks tend to pay sizable dividends typically greater than
those of commonshares . They have characteristics of debt
instruments as well asequities . One of the major advantages of
apreferred stock is the prioritydividend payout. This means
preferred shareholders get dividends before the common
shareholders. Dividends payout on preferred stock is very similar
tocoupon payments on abond . Preferred stocks don't have amaturity
date likebonds , but they do have apar value , which is used to
figure out the payouts.
Two preferred stocks options on my radar include
iShares S&P U.S. Preferred StockIndex (
, and exchange-tradedfund with a 6% dividend and
PreferredPlus Trust SerFAR 1 T (
with a 7% payout. Both of these stocks provide investors with a
diversified pool of preferred stocks and attractive yields.
5. Closed-endfunds (CEFs):
They aremutual funds with a limited number of shares (or units),
and differ from traditional open-ended funds, which
consistentlyissue new shares. Shares of CEFs trade on the open
market at a premium or discount to itsnet asset value (NAV ). The
key to investing in CEFs is to buy shares at a discount. Why
closed-end funds sell for discounts is a bit mysterious, as share
prices are dictated by supply and demand rather than the underlying
asset values. One reason could be that many investors factor in
their estimate of a fund's future performance and often undervalue
Virtus Total Return Fund (
, a hybrid stock andbond fund with acurrent yield of 5%, a 12%
discount from NAV and strong management team make this one of my
top picks. I also like
First Opportunity Fund (FOFI),
which is the only CEF that has significant holdings inhedge
Action to Take -->
For investors looking to build wealth and generate a healthy
dividend income along the way, these five investment niches are
certainly worth a closer look and even a position in every
investor's portfolio. They may be a bit off the beaten path, but
often deliver above-average performance. The stocks I mentioned
above are a great place to start your research.