Regular StreetAuthority readers have probably heard us talk
about "ForeverStocks " before. These are stocks of solid,
blue-chip companies that pay rising dividends and hold
sustainable competitive advantages. The idea is that you can
essentially buy them, forget about them, and hold them
In the first part of this article, we talked about threefunds
based on the same principle. These funds are the type of holdings
that could form the core of anydividend investor's portfolio.
These "Forever" funds are made up of the most solid, stable,
dividend-paying stocks on themarket -- companies like
None of these fundswill make you rich overnight, but that's
not the point. These funds are designed for the investor who'd
rather spend time golfing or playing with the grandkids instead
of nervously trackingticker symbols or trying to predict what the
Federal Reserve might do next.
In today's article, we're going to take a look at two more
funds that take a slightly different approach from the three
mentioned in the previous article. One is afund that focuses on
dividend stocks outside the U.S. The other is a fund that tracks
one of the most excitinginvestment opportunities to come along in
years: master limited partnerships (MLPs).
PowerShares InternationalDividend Achievers (
PID allows investors exposure to solid dividend-paying companies
overseas. The fund weights holdings bydividend yield . To
qualify, companies must have raised dividends for at least the
past five years.
The portfolio's current top five holdings are
Teekay Offshore Partners (
Teekay LNG (TGP)
TELUS Corp. (TU)
Vodafone (Nasdaq: VOD)
. These five make up 19% of the overall portfolio.
StreetAuthority expert Elliott Gue has had Teekay LNG in his
portfolio since April 2011. So far, readers are up over 33% on
When you take a closer look at these holdings, it's easy to
see what they all have in common: solid yields in the 4% to 6%
The fund has performed well over the past three years, up 23%
(not including dividends).
PID is well diversified across market sectors, with energy
making up 20%, telecom 16%, health care 14%, financials 12%
andconsumer staples 12%.
PID also serves as another form ofdiversification .
Byinvesting in overseas firms it offers exposure to profits in
currencies other than the dollar. Earning profits in euros and
British pounds can help serve as ahedge against any future
weaknesses in the U.S. dollar.
One strike against PID is its relatively highexpense ratio of
0.52%. While this expense is more thanoffset by the current 2.2%
dividend yield, it still makes PID more expensive than the three
funds I profiled in the first part of this series.
JPMorgan Alerian MLPIndex (AMJ)
AMJ is a closed-end fund that tracks the 50 largest MLPs on the
Unlike acorporation , a masterlimited partnership is
considered to be the aggregate of its partners rather than a
separate entity. MLPs combine the tax advantages of apartnership
with theliquidity of a publicly tradedstock .
MLPs allow forpass-through income , meaning that they are not
subject to corporate income taxes. Instead, owners of an MLP are
personally responsible for payingtaxes on their individual
portions of the MLP'sincome ,gains , losses, and deductions. This
eliminates the "double taxation " generally applied to
corporations (whereby the corporation pays taxes on its income
and the corporation's shareholders also pay taxes on the
The fact that MLPs are not subject toincome tax means that
morecash is available for distributions. This generally makes MLP
units worth more than similar shares of a corporation.
AMJ allows investors to earn a high yield across a wide
variety of MLPs without the tax headaches that come from
investing in individual MLPs. Regular MLP investors must fill out
aSchedule K-1 document for every state in which the MLP operates.
But AMJ distributions are reported on a single 1099 form, making
things much easier come tax time eachyear .
The MLPs in AMJ's portfolio operate primarily in the energy
industry and are involved in the exploration, production,
transportation, and processing of oil and natural gas.
This sector of theeconomy has been covered extensively by
StreetAuthority expert Nathan Slaughter in his newsletters. He
Spectra Energy Partners (SEP)
last November, and so far his subscribers are up almost 50% on
the recommendation in just eight months.
This sector of the U.S economy has been booming over the past
three years, and AMJ's share price has been booming right along
with it, up 49% during that time.
By law, MLPs must distribute at least 90% of income to
investors. So as you might expect, AMJ currently boasts an
attractive dividend yield of 4.5%. And because the MLPs in the
portfolio rely more on thevolume of energy moving through the
system than the prices of the commodities themselves, the overall
portfolio is much less volatile than thecommodity market for oil
and gas as a whole.
AMJ charges an annual expense ratio of 0.85%, which is high
compared with the other funds we've looked at butpar for the
course for MLP index funds.
Because AMJ became a closed-end fund in 2012, there are a
limited number of shares available. Thedownside to this is that
now the shares are more likely to trade at a premium tonet asset
Risks to Consider:
Although PID can help investors diversify by investing in
overseas companies, the fund's holdings are heavilyweighted
toward European holdings. Further financial troubles in the
European Union could have a negative impact on PID's value.
AMJ is an exchange-tradednote (ETN), which exposes
investors to thecredit risk of the underlyingissuer . In this
instance, if JPMorgan Chase were to go bankrupt, AMJ shares
could drop to zero.
Action to Take -->
PID and AMJ are greatinvestments for investors looking to
diversify their holdings. For both funds, it is best to wait
until net asset values are close to even or (even better) selling
at a discount before purchasing shares.