cabot investors conference 2013 alternatives to bonds for safe income robin carpenter, moderator...
TRANSCRIPT
Cabot Investors Conference 2013 www.cabot.net
Alternatives to Bonds for Safe
IncomeRobin Carpenter,
ModeratorChloe Lutts Jensen
Roy Ward, Jacob Mintz
Cabot Investors Conference 2013 www.cabot.net
Why Seek Alternatives?Bond Yields Are Down by
Half 10-Year T-Note Index
Cabot Investors Conference 2013 www.cabot.net
The Current Income Menu
• Treasury Bonds• Municipal Bonds• Investment Grade Corporates• High-Yield Corporates (so-called
“Junk”)• Preferred Stock• Common Stock• MLPs & REITs• Buy-Write (Options)• Annuities
Cabot Investors Conference 2013 www.cabot.net
Income Risk Issues• Safety of principal• Volatility• Appreciation• Accessibility• Call-ability• Reinvestment
rates• Taxes• Inflation
Cabot Investors Conference 2013 www.cabot.net
A Value Screen with Yield
• Current ratio greater than or equal to 1.5 • Long-term debt/working capital greater than 0% and less than 110%• Earnings per share positive for each of the last 5 years• Indicated dividend positive for coming year • Dividend maintained over the last 12 months• 12-month EPS greater than EPS five years ago• Price/book ratio less than or equal to 1.2 • P/E among the lowest 10% of the universe
Yield (June) = 5%, 10-Year Return = 15%, YTD = -5%
Cabot Investors Conference 2013 www.cabot.net
Potential Characteristics of Income Investments
• Low- or High-Yielding• Unlikely to Lose Value• Capital Appreciation
Potential• Dividend Growth – Another
Story
Cabot Investors Conference 2013 www.cabot.net
Potential Characteristics of Income Investments
Cabot Investors Conference 2013 www.cabot.net
Treasuries, Investment-Grade Bonds & Funds
Cabot Investors Conference 2013 www.cabot.net
Treasuries, Investment-Grade Bonds & Funds
High-Yield Bonds
Cabot Investors Conference 2013 www.cabot.net
High-Yield Bonds
Preferred Stocks
Treasuries, Investment-Grade Bonds & Funds
Cabot Investors Conference 2013 www.cabot.net
High-Yield Bonds
Preferred Stocks
MLPs & REITs
Treasuries, Investment-Grade Bonds & Funds
Cabot Investors Conference 2013 www.cabot.net
High-Yield Bonds
Preferred Stocks
MLPs & REITs
Treasuries, Investment-Grade Bonds & Funds
Cabot Investors Conference 2013 www.cabot.net
High-Yield Bonds
Preferred Stocks
MLPs & REITs
Dividend Stocks
Treasuries, Investment-Grade Bonds & Funds
Cabot Investors Conference 2013 www.cabot.net
High-Yield Bonds
Preferred Stocks
MLPs & REITs
Safety-First Stocks, Utilities
Treasuries, Investment-Grade Bonds & Funds
Cabot Investors Conference 2013 www.cabot.net
High-Yield Bonds
Preferred Stocks
MLPs & REITs
Blue Chips
Treasuries, Investment-Grade Bonds & Funds
Safe Stocks, Utilities
Cabot Investors Conference 2013 www.cabot.net
High-Yield Bonds
Preferred Stocks
MLPs & REITs
Dividend-Paying Growth Stocks
Treasuries, Investment-Grade Bonds & Funds
Safe Stocks, UtilitiesBlue Chips
Cabot Investors Conference 2013 www.cabot.net
High-Yield Bonds
Preferred Stocks
MLPs & REITs
Energy Stocks
Treasuries, Investment-Grade Bonds & Funds
Safe Stocks, UtilitiesBlue Chips
Growth Stocks
Cabot Investors Conference 2013 www.cabot.net
High-Yield Bonds
Preferred Stocks
MLPs & REITs
Telecoms, Insurance, Utilities
Treasuries, Investment-Grade Bonds & Funds
Safe Stocks, UtilitiesBlue Chips
Energy Stocks
Growth Stocks
Cabot Investors Conference 2013 www.cabot.net
High-Yield Bonds
Preferred Stocks
MLPs & REITs
Treasuries, Investment-Grade Bonds & Funds
Safe Stocks, UtilitiesBlue Chips
Energy Stocks
Telcos, Insurance, Utilities
Growth Stocks
Cabot Investors Conference 2013 www.cabot.net
ETFs for Income
• SPDR S&P Dividend ETF (SDY)
• iShares MSCI USA Minimum Volatility (USMV)
Cabot Investors Conference 2013 www.cabot.net
Buy Writes/Covered Calls
• A Buy Write or Covered Call consists of Buying or Owning a Stock and Selling (i.e., shorting) a Call Option on that Stock
Cabot Investors Conference 2013 www.cabot.net
QQQ
• Buy 100 Shares of the QQQ at $76.00
• This is a capital outlay of $7600
• Sell 1 September 76 Call for $2.00 or $200
Cabot Investors Conference 2013 www.cabot.net
Profit and Loss Graph
QQQ Buy Write at September Expiration
-250
-200
-150
-100
-50
0
50
100
150
200
250
72 73 74 75 76 77 78 79 80
Stock Price
Pro
fit
and
Lo
ss
Cabot Investors Conference 2013 www.cabot.net
Yield at September Expiration
• Stock at $76 or above, we have created a Yield of 2.6%
• We do this 12 times a year, we have created a Yield of 31.2%
Cabot Investors Conference 2013 www.cabot.net
NFLX
• Buy 100 Shares of NFLX at $250
• This is a capital outlay of $25,000
• Sell 1 September 250 Call for $16 or $1600
Cabot Investors Conference 2013 www.cabot.net
Profit and Loss Graph
NFLX Buy Write
-600
-400
-200
0
200
400
600
800
1000
1200
1400
1600
1800
230 235 240 245 250 255 260 265 270 275
Stock Price
Pro
fit
and
Lo
ss
Cabot Investors Conference 2013 www.cabot.net
Yield at September Expiration
• Stock at $250 or above, we have created a Yield of 6.4%
• We do this 12 times a year, we have created a Yield of 76.8%
Cabot Investors Conference 2013 www.cabot.net