Income investing has a place in every investment portfolio, and
can be used as a strategy for diversification.
Just as importantly, these investments can provide a healthy source
of income in periods when the stock market is moving sideways. And
contrary to popular belief, investors can reap big profits in
income generating investments - including fixed income securities
such as bonds.
Given the current market volatility, "safer" income-generating
investments are increasingly considered by smart investors.
Many investors think they are diversified with a mixed portfolio of
equities, including stocks, mutual funds, and ETFs. However, real
diversification can only happen when an investor owns more than one
asset class and has exposure to real estate, hard assets such as
gold, and fixed income securities including corporate bonds,
municipal bonds, and Treasuries.
Many Americans have exposure to real estate through their home
ownership, which is often their single largest asset. But many
investors overlook the importance of income investments, since they
are attracted to the historically superior, long-term gains of
This is a mistake. Classically balanced investment portfolios are
typically allocated 60 percent to equities (stocks), and 40 percent
to fixed-income (bonds). The exact allocation may change based upon
individual circumstances including age, number of dependents,
financial goals, and the number of years to retirement.
While most investors know that income-generating investments should
be included in their portfolio, they may not know where to start.
Here is one such company that I mentioned several months ago to my
Small Cap subscribers and I still think it is a wonderful income
Collector's Universe (Nasdaq: CLCT)
deals in the relatively obscure business of collectibles,
memorabilia, and authentication. But while the industry is obscure,
this company is anything but. It owns some of the most recognized
brands in the industry, including:
- Professional Coin Grading Service (PCGS): Third-party coin
grading service at: www.pcgs.com
- Professional Sports Authenticator (PSA/ADN): Third-party
sports-card grading service and autograph authentication provider
- Professional Stamp Experts (
): Leading third-party stamp grading service at:
With this suite of services, Collectors Universe authenticates and
grades coins, tickets, memorabilia, stamps, and trading cards. In
addition, it also pulls from its vast knowledge base to publish
authoritative price guides, operate the online dealer-to-dealer
Certified Coin Exchange (check it out at:
www.certifiedcoinexchange.com), and hosts conventions.
If you own any collector, or numismatic coins, you've probably
bought coins authenticated by PCGS. There are very few competitors
in this field, and with gold and silver prices on the rise, the
authentication process for rare collector coins should continue to
Collectors Universe made the difficult decision to suspend its
dividend payment on September 26, 2008. The root of this financial
issue was primarily the credit crisis, and an unprofitable jewelry
business that was discontinued in March of 2009. After the worst of
the crisis passed, and management had made significant progress on
the implementation of its strategic plan (which included getting
out of the jewelry business) the Board of Directors approved a
$0.25 per share dividend - this was subsequently increased to $0.30
per share in the company's 4th quarter of 2010 and again to $0.33
in the 2nd quarter of 2011. Each of these represented dividend
increases of 10 percent or more.
While no dividend is 100 percent secure, the decision to divest the
jewelry business and focus on the less capital intensive
collectibles grading and authentication businesses has thus far
proven to be the right move for Collectors Universe. The company
was able to buy back nearly $9 million of its own stock in the
first quarter of 2010, stop bleeding money, and start making it
In the third quarter of 2011 (ending March 31, 2011) Collectors
Universe recorded revenues of $12.6 million, a 17 percent increase
over the third quarter of 2010. Net income was $1.97 million, or
$0.25 per diluted share.
With this company back on track, it has been able to focus on its
coin grading business which grew by 21 percent in the most recent
quarter. At the end of the quarter it was sitting on $21.2 million
in cash and no long-term debt, and it continues to wind down lease
obligations leftover from its discontinued operations - thus
freeing up even more cash flow.
Despite a tough couple of years, Collectors Universe seems to have
been able to emerge a stronger, more focused company. It is still a
tiny small cap stock, but its beta of 1.0 is an indication that
this stock is not as volatile as most in this asset class. And the
strengthened financial position leads me to believe that the
dividend is secure for coming quarters.
Trading volume in this company is thin, only around 33,000 shares a
day. And there is zero analyst coverage so if you buy shares you
will need to be comfortable doing your own research. But if you
are, this one is worth taking a close look at since it offers a fat
dividend, reasonably stable stock price, and double digit