As we covered in Tuesday’s email, income producing securities are an excellent match for retirement portfolios.
Q4 hedge fund letters, conference, scoops etc
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It makes sense… In retirement you need to replace ‘working income’ with ‘passive income’, something your investment account can and should provide.
But there’s much more to selecting securities for a retirement account than just picking the highest yielding stocks available. In fact, that’s likely a recipe for disaster.
There are 4 critical categories to measure a potential retirement investment on before buying (or when deciding to sell).
3 of the critical categories are forward looking, and 1 is based in the present. The 4 categories are:
- Income (current metric)
- Growth (forward-looking metric)
- Safety (forward-looking metric)
- Value (forward-looking metric)
Each of these 4 are discussed succinctly in the next 4 sections of this email.
Income
Income is the most straightforward of the 4, but is critically important nonetheless. You don’t have to do any forward looking projections to determine a security’s current yield. It is readily available information.
All other things being equal, the higher the yield, the better. With retirement investing, income is the primary reason for the investment. It’s what your portfolio should be providing you.
But income alone isn’t enough…
Growth
Your portfolio income needs to be growing at least at the rate of inflation for it to provide stable purchasing power.
While inflation matching growth is the minimum you need, what we are really looking for is income growth significantly ahead of inflation. This creates rising income over time.
Growth is a forward-looking metric. Our growth estimates are guided by historical growth. With that said, rapid historical growth is likely to slow. There are also times when poor historical growth may have a high likelihood of improving.
In any case, forward looking growth projections should always consider both quantitative historical data and thoughtful qualitative analysis. We provide 5 year forward growth estimates on all securities in our Sure Analysis Research Database.
Safety
In the growth section, we discussed how a security’s income needs to grow to provide stable purchasing power. Along the same line of reasoning, a security’s income payments should have a low probability of being reduced.
That’s where safety comes in. We want to minimize the risk of a dividend cut or reduction. Like growth estimates, this requires both quantitative and qualitative analysis and is a forward-looking metric. Historical numbers alone are not enough.
We provide Dividend Risk scores on all 450+ securities in The Sure Analysis Research Database. Our Dividend Risk scores are made up of quantitative factors like payout ratios and dividend histories combined with qualitative analysis – like determining safety during a severe recession.
Value
If you find the rare security that offers a mix of current income, growth, and safety, it still might not be a good investment today.
That’s because of valuation. Buying into an otherwise great security when it is trading at elevated prices can be a recipe for disaster. Optimism surrounding a security can turn to pessimism – and send valuations (and share prices) tumbling.
At the same time, buying into undervalued securities creates an opportunity to profit from irrational pessimism surrounding a security (or rarely, the entire stock market).
Valuation is an art, not a science. Fair value estimates should be guided by what has historically been fair value. But qualitative adjustments should be made. For example, a stock that was growing earnings at 20% a year over the last decade but now has much lower growth expectations should not command the same valuation multiple as it did previously.
We have fair value prices and 5 year forward valuation multiple return estimates for all the 450+ securities in The Sure Analysis Research Database.
Putting It All Together
The combination of expected growth returns, valuation returns, and dividend yield gives us expected total returns. This is a concise number that shows how well (or poorly) we expect a security to do over the next several years.
Securities that have high expected total returns, safe Dividend Risk scores, and have high current income make an excellent match for retirement investing.
Our Sure Analysis Research Database is compiled by an 8 person team (soon to be 9 person) of proficient security researchers.
The Sure Analysis Research Database includes more than 450 individual company reports which are updated quarterly. And we will be adding more year after year (our goal is 100+ new securities this year).
Starting the afternoon of 1/28/19, Sure Analysis will cost $329/year. It provides far more in value than it costs at that price.
But there’s a special less-expensive ‘back door’ to benefiting from The Sure Analysis Research Database…
Data from Sure Analysis drives the Top 10 results for our Sure Retirement Newsletter. With Sure Retirement, you get our top 10 4%+ yielding retirement selections each month.
Starting 1/28/19, The Sure Retirement Newsletter will cost $89/year. It is priced to be an absolute no-brainer bargain relative to the value provided.
For those who join before the afternoon of 1/28/19, The Sure Retirement Newsletter is just $79/year.
But we wanted to do even better…
That’s why from now through the afternoon of 1/28/19 (no exceptions), you can join the Sure Retirement Newsletter for just $49/year. And, your price will never increase after locking in this discounted price.
Also, we have a risk-free 7 day trial. You are literally not billed for 7 days. Opt out during that time frame by emailing support@suredividend.com, and you won’t pay a penny (but most people stay on past their free trials because our newsletters deliver serious value).
Note: This offer expires the afternoon of 1/28/19, no exceptions. Enter coupon code Big30 if it doesn’t apply automatically.
The same offer is also available on our Sure Dividend Newsletter. While Sure Retirement focuses exclusively on 4%+ yielding REITs, stocks, and MLPs, The Sure Dividend Newsletter focuses on dividend growth stocks.
These are stocks that have, on average, lower yields than Sure Retirement recommendations, but have (again, on average) better growth prospects.
Thanks,
Ben Reynolds
ValueWalk readers can click here to instantly access an exclusive $100 discount on Sure Dividend’s premium online course Invest Like The Best, which contains a case-study-based investigation of how 6 of the world’s best investors beat the market over time.
