The last time you could get a 7%yield from a CD was in the
1980s. Today, you'd be lucky to find a CD that pays more than
Stocks yield a bit more -- the typicaldividend payer in the
S&P 500 pays a 2%dividend yield . But then there'smarket risk
involved. For people who rely on a steadyincome stream, it's alot
to have to submit to the whims of themarket for a paltry
To be sure, low-risk yields of 5%, 6% or 7% are scarce. But
there's one overlooked corner of the income universe that sports
them in abundance.
It's like a CD -- it preserves yourcapital and still offers a
highly predictable income stream.
But it can yield up to 600% more.
Icall thisinvestment a "CD Killer," but it's actually known by
its more formal name:
An ETD is a specialbond issued by a company to raise capital,
except it's geared toward retail investors like you and me.
Unlike traditionalbonds , which are issued in units of $1,000 a
piece and trade over-the-counter, ETD is typically issued as
"seniornotes " in units of $25 and trade daily on the New YorkStock
Exchange orNasdaq .
As with bonds orCDs , you get yourprincipal back atmaturity .
So, if theface value of anote is $25, youwill get that back when
the ETD matures. Meanwhile, you collect interest payments
quarterly, not just semi-annually as with traditional
Hercules Technology Growth Capital (NYSE:
, a business development company I profiled in my
advisory in February. This company's ETD notes trade as
Hercules Technology Growth Capital 7.00% Notes (NYSE:
Hercules' ETD doles out a quarterly payment of about 44 cents
per note, adding up to $1.75 per note annually. If you were to buy
at the recent price of $25.82 per note, you would collect a
current yield of 6.8%
And unlike long-term bonds, which could be risky if interest
rates start to rise, you don't have hold it forever to get that
superior yield -- it matures in 2019.
Yields like these are not only triple what you can get from an
average S&P 500 stock... They're also more secure.
You see, no payments can be made to common or preferred
stockholders or junior debtholders
until the company pays its ETD holders first.
In fact, companies are legally obligated to pay interest and
principal payments first, so ETD holders are at the top of the food
chain even in the event ofbankruptcy .
Of course, there are a few hitches, so you need to be selective
when you buy an ETD.
As with traditional bonds, the notes can be "called" (or
redeemed) before maturity. If you buy a note at $25.82 and it's
redeemed at the face value of $25 on thecall date (the first call
date in this case is September 30, 2015), you will lose some of
your principal investment. So you want to check that either the
note is trading close to face value when you buy it or the call
date is far enough out for quarterly interest payments to make up
Right now, Hercules' ETD trades at a slight premium to its face
value, so you may want to wait until its price is closer to $25
before buying, as it could dampen your yield if the company decides
to call the notes early. Essentially, the
closer the price is to $25 when you buy notes, the closer
your yield gets to 7%
(which is the note'scoupon rate ).
But even if you did decide to buy this "CD Killer" at today's
note price, its yield-to-call (the net yield you'd collect if
Hercules decided to redeem the notes on the call date) is still a
That still adds up to a 233% larger income stream than a CD
. And that's why I like to call this investment a "CD Killer."
Action to Take -->
By doing your research and finding "CD Killer"investments thatoffer
a far better income/risk proposition than what you would get with a
traditional CD, bond or stock, you can beat the odds and be well on
your way to collecting a comfortable retirement income.
-- Carla Pasternak
P.S. -- Hercules' ETD is just one of several CD-killing
investments that I'm researching. If you're looking for a smarter,
safer and more profitable approach to income investing, then you
need to see my latest research. These investments can hand you a
"second income" 14 times larger than what CDs yield, seven times
more than bonds, and three times more than brand-name Dow stocks.
To learn more about them, go here.
Carla Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of HTGC in one or more of its "real money" portfolios.