June 2021, Vol

JUNE 2021, VOL. 10, NO. 6 Investing for Income Strategies to Boost Your Cash Yield

Wall Street Has No Off-Season ummer is here with its ers and investors really once unexplained coincidence that abundance of financial did detach themselves from the the worst crashes (before 2020) Sfolklore, starting with real world in July and August. struck in October, including the yarn that you can relax So whenever the hoi polloi 1929 and 1987. Again, that because Wall Street kingpins, got the urge to sell, many rich, appears to be accidental: The other assorted moneybags and S&P 500 is more apt to gain all of Europe take extended than fall (let alone fall apart) vacations, and Congress is in in October. That is a prime blissful recess. Political and Which events shout month for quarterly earnings economic news supposedly for you to be wary? releases, and when the news slows, while business deals is positive—and more often wait until Labor Day—hence What should you mark than not, it is—market indexes, the doggerel “Sell in May funds and individual stocks and go away,” which sounds on your calendar? rally. In one of the most com- urgent but implies that you plete research papers on market can safely join the grandees seasonality, published in 2019, and veg out at the beach. ballast-providing buyers were Leuthold Group’s esteemed Well, stock averages did take absent, and thin trading volume strategist Jim Paulsen conclud- some blows this May, but the magnified the losses. That is no ed that all of this dogma and advice is questionable. From longer true now that we have mythology has been increasing- 1999 to 2018, the S&P 500 exchange-traded funds, 24/7 ly pointless since 1970. Paulsen index closed higher at the trading, virtual offices, smart- coined the rejoinder “Stay in end of May than at the begin- phones, laptops on airplanes May and be okay.” Barry Ban- ning of the month 63% of the and worldwide Wi-Fi. nister, the market commenta- time. Only in September have The second reason is the tor for Stifel, wrote last month one-calendar-month S&P 500 declines outnumbered gains in continued on next page ... this century, and by only 53% Inside This Issue... Unless otherwise noted, all prices and related data are as of May 14, 2021 to 47%. Yes, if you type “market The REIT Dream Team Still Has It 3 Ask Jeff 6 We exult over our Dreamers’ long-term and Buffett’s take on bonds; what’s up with seasonality” or some variation recent performance. Suburban Propane; and “solid citizen” medi- into a web browser, you’ll get cal REITS. The Essential Reading and Data Reference List 4 a bunch of results. Many of Looking for data and commentary? Check out What’s New in Cash 7 these reports are resolute that these free sites worth following. Closed-end-fund mergers; real estate buyers stocks fare much better from on the prowl; massive bank bond issues; Timely Tactic of the Month 4 AT&T’s latest. November to May than from Forget Dogecoin. Consider this pooch for May through October. But the growth and income. Flashback 7

two main reasons for that call Kiplinger’s 25 for Income 5 Model Portfolio: Going for the Max 8 deserve the umpire’s challenge. A tender offer draws our attention, but other- The global hunt for yield will not be short- The first is that influential trad- wise no disasters or scandals. circuited.

Copyright 2021 • The Kiplinger Washington Editors, Inc. • 1100 13th Street NW • Washington, DC 20005-4051 • www.kiplingerincome.com 2 Kiplinger’s Investing for Income: Strategies to Boost Your Cash Yield June 2021

... continued from previous page that “the lesson is not to sell in following, particularly if you The Federal Reserve’s com- May, but to curb your enthusi- own individual securities. ments. It seems as if every asm” until Halloween. investor is standing by with However, dogma and Earnings season and profit fingers on the keyboard when mythology are stubborn adver- announcements. If you own a the Fed’s Open Market Com- saries. And that brings us to stock or units of a partnership, mittee issues a statement, holds the point of this story: Which some of your fellow travelers a press conference or releases events do shout for you to be will get cold feet just before minutes of a past meeting. wary? What announcements the announcement, or they’ll Nobody wants to be caught should you mark on your calen- throw a fit that day or the next napping if the Fed departs from dar? The post-COVID pattern day by cherry-picking one cau- its expected script. For you of 2021 is unusual, and many tious CEO phrase, weak sales and me, though, the right move individual investments now in Brazil or something. Often, on Fed days is to do nothing appear unsustainably expen- there’s a pattern for issuers. much. Expect a downward sive—or at least they did until For example, shares of 3M bounce in the Dow Jones in- the May retreat. We are not and Starbucks are famous for dustrial average around 2 P.M. ready yet to prophesy whether falling before and on the earn- eastern time, when the bank the second half of 2021 will ings date—and then recovering posts its words—whatever they be better than, worse than or vigorously prior to the next write—usually followed by a similar to the first half. That is quarterly go-round. At times, bump-up the next day. our mission in July’s letter. But a sound company discloses in any event, always watch the legitimately negative news, but December and January. Mar- it is generally wiser to add to a kets used to dive in December

EDITOR EMERITUS position after a pre- or post- from heavy selling to realize Knight A. Kiplinger announcement price dip than to tax losses, thus creating bar- CHIEF EXECUTIVE OFFICER: Denise Elliott gains for the new year. But the SENIOR VICE PRESIDENT, CONTENT: Sarah Stevens try to game it or finesse it. DENNIS PUBLISHING LTD NORTH AMERICAN spread of tax-deferred ac- CHIEF EXECUTIVE OFFICER: Randy Siegel Dividend decisions. Once it was counts, a durable bull market EDITOR: Jeffrey R. Kosnett COPY EDITOR: Frederic Fane Wolfer a given that if a company cut that makes losses scarce, and ART DIRECTOR: Natalie F. Kress dividends or merely failed to greater foreign ownership of SUBSCRIBER SERVICES U.S. assets mute these effects. TELEPHONE: 800-544-0155 raise them after a long string of E-MAIL: kiplingerinvestingforincome@emailcustomer boosts, the market would rebel. service.com And COVID fostered wide- What about bonds? There are EDITORIAL OFFICES 1100 13th St., NW, Suite 1000, Washington, DC 20005 spread panic that dividends some timing tales here. Spring-

REPRINT SERVICE everywhere—not just from air- time is thought to be weakest PARS International Corp. for municipals, though the rea- TELEPHONE: 212-221-9595, ext. 322 lines and theme parks—would E-MAIL: [email protected] be crushed and not return. sons are murky. Jason Brady, TO ADD ONLINE ACCESS GO TO Instead, we learned that if a a bond-fund manager and www.kiplinger.com/go/getdigital dividend-trimming company head of Thornburg Investment Kiplinger’s Investing for Income (ISSN# 2167-6240) Published monthly; $204.00 per year including first-class gives convincing reasons that a Management, says the first postage. cash crunch is temporary, or it calendar quarter is riskiest for Copyright © 2021 by The Kiplinger Washington Editors Inc., 1100 13th St., NW, Suite 1000, Washington, DC 20005. prefers to attack its debt, share- bonds in general because there holders will be accepting, and is often a bulge in new-bond Kiplinger’s Investing for Income is carefully you should stay put unless you issuance. But “it is not worth checked financial journalism; it is not personal- ized counsel on investing, taxes and law. We need every dime of income. getting exercised” about the ef- suggest that you consult with qualified profes- Utilities, real estate investment fects, which are small. We are sionals in those fields for advice tailored to your individual needs. trusts and energy pass-throughs not fans of market timing with are no longer compulsory sells stocks and certainly not with The Kiplinger Washington Editors, Inc., when a dividend is cut unless fixed income for individual is part of the Dennis Publishing Ltd Group. there is a bankruptcy filing. savers and investors.

Copyright 2021 • The Kiplinger Washington Editors, Inc. • 1100 13th Street NW • Washington, DC 20005-4051 • www.kiplingerincome.com June 2021 Kiplinger’s Investing for Income: Strategies to Boost Your Cash Yield 3 The REIT Dream Team Still Has It

he bulk of the 157 publicly traded, estate funds, active or passive, have performed property-owning real estate investment close to as well as our group has. Ttrusts are successful. The few clunkers So, then, who are these paragons? To are me-too outfits in untimely or overcrowded re-introduce everyone: segments. You can choose among 19 sometimes Alexandria Real Estate (ARE, $173.83, yield 2.5%, redundant REITs centered on supermarkets and five-year average return 15.2%). It owns biotech and strip malls, but alas there is only one REIT that other scientific real estate in academic hubs such owns and develops cold-storage food warehous- as greater Boston, San Diego and San Francisco. es and just two refurbish and lease single-family American Tower (AMT, $246.76, 2.0%, 20.1%) homes (both subsectors are performing well). owns and develops cellular and other towers, There is a running debate about whether which it leases to multiple occupants world- small or large REITs have better growth poten- wide. And now here comes 5G. tial. For a while, the smalls had the edge, but not Americold (COLD, $38.36, 2.3%, three-year average lately. Eight of the 11 members of our Dream return 23.9% (an exception to our usual five-year average Team are in the S&P 500, so our group sits as this REIT is not five-years-old)) is the one and only squarely in the big-cap real estate universe. public cold-storage REIT. That said, we exult over the Dreamers’ long- Apartment Income REIT (AIRC, $44.58, 3.9%, 5.1%) term and recent performance, and we recommend spun off some buildings and changed its name all 11 unconditionally as keystones of a BHCG and symbol, but it is still the class of the category. (buy, hold, collect and grow) strategy. The group Digital Realty Trust (DLR, $148.88, 3.1%, 12.4%) is well diversified. Although retail landlords has more competition than before in data cen- Simon Property and Realty Income were crushed ters, but it still boosts dividends nicely, and at the outset of last year’s shutdowns, the shares earnings should improve. of American Tower and Digital Realty arguably Duke Realty (DRE, $44.95, 2.3%, 16.6%) is in the benefited because in the depths of the pandemic sweet spot, owning warehouses, manufacturing the most-functional areas of the economy were space and industrial/logistics parks. Occupancy digital and online. Both AMT and DLR reached is close to 100%, and so is rent collection. all-time-high prices and raised dividends last Lamar Advertising (LAMR, $102.28, 2.9%, 13.4%) spring and summer, despite trepidation about the cut dividends from $1 a quarter to 50 cents last length and depth of economic collapse. American March out of fear (or too much caution) but Tower’s five-year annualized dividend growth quickly restored the payment to 75 cents as the of 19.5% is the group’s the top percentage boost outdoor advertising business returned to normal. over that period. The stock is $10 above its pre-COVID high. Even so, the dividend picture has been tepid. Prologis (PLD, $114.65, 2.2%, 21.3%) is compa- But the Dreamers’ total returns are boiling over, rable to Duke Realty but is international. as befits a REIT galaxy that has evolved from Realty Income (O, $65.34, 4.3%, 4.3%) slumped “bond proxies” into tax-advantaged growth last spring but is a dividend machine. It’s companies with a mandate to pay out 90% of always worth buying on dips. net income. When we averaged the one-year and Simon Property Group (SPG, $122.18, 4.3%, –4.5%) five-year returns of the Dreamers, they shined just needs people to go shopping again. If you against both indexed and actively managed owned it before COVID, we hope you stayed: realty funds. For the 12 months ending May The shares are up 147% from a year ago, though 14, our 11 REITs show a return of 49.7% (and, still 40% off the peak set in 2016. yes, the comparison is off a battered market). Welltower (WELL, $73.22, 3.3%, 4.5%) remains But, more important, their five-year-annualized our favorite nursing-home and senior-housing return is 12.0%. The National Association of REIT. It is cutting ties with weak tenants and still REITs’ five-year average is 6.5%, and few real has a nice yield despite a 2020 30% dividend cut.

Copyright 2021 • The Kiplinger Washington Editors, Inc. • 1100 13th Street NW • Washington, DC 20005-4051 • www.kiplingerincome.com 4 Kiplinger’s Investing for Income: Strategies to Boost Your Cash Yield June 2021 The Essential Reading and Data Reference List

hen we praise a or weekly when you use bonds record date and payment date. downtrodden in- or bond funds for scheduled vestment class, or income and cannot miss a pay- Correlations. Portfolio Visualizer Wpan a once-thriving category, ment. But with fresh money (www.portfoliovisualizer.com) our judgment is often about to invest or reinvest in, say, a has many tools, and one of the timing or relative valuation. junk fund, it is best to enter most useful allows you to see Every category has peaks and when junk is quoted at a wider the correlation between any two valleys. So, we watch and spread rather than a super- symbols over 12, 24, 36, 48 or interpret ratios, yields, inter- tight one. One reference is the 60 months. This helps when you est-rate spreads, premiums or Tracking Bond Benchmarks think you are overconcentrated. discounts to net asset value, chart at the Wall Street Jour- It is also enlightening. We typed and other variables. Readers nal’s Markets tab; click through in UTES, a utility exchange- then ask where they can track www.wsj.com. Eaton Vance’s traded fund, and VNQ, a REIT this data and find relevant Monthly Market Monitor (go index fund. For five years, the commentary. The granddaddy to www.eatonvance.com and correlation is 0.60, which means of all databases is the Federal scroll down to its individual in- utilities and REITs move to- Reserve Economic Database vestor area) goes back further. gether much of the time. But (FRED), which is maintained over the past 12 months, it came by the Federal Reserve Bank of Intelligence on real estate up as 0.21—which means a bad St. Louis (www.stlouisfed.org). investment trusts. Alex Pettee’s day for one is usually offset by FRED is the ideal first stop Hoya Capital (www.hoyacapi- a good day for the other. That is for any daily datapoint, chart, tal.com) has both REIT-wide diversification. graph or statistic. Below, I’ve data and a daily report on vari- listed several other free sites ous trusts and sectors, as does Your brokerage account’s perks. that are worth bookmarking the National Association of If you have a Charles Schwab and following. (There are also REITs (www.nareit.org). account, for example, you many sites that offer free trials have free access to some Ned and promotional prices). Dividend raises and cuts. If Davis Research (www.ndr. you know a security’s record com) tables and commentaries, Closed-end-fund premiums and date—the deadline to qualify which often include comments discounts. To buy CEF shares for the next payment—then about relative bond spreads cheap and sell them dear, or grab it. Marketbeat’s (www. and other trading tips. Fidel- keep track of when a fund marketbeat.com) daily dividend ity’s and Schwab’s research is expensive compared with announcements show amount, queues are worth exploring. its actual assets, turn to two sites: Closed-End Fund Center (www.cefa.com) and CEF Con- Timely Tactic of the Month nect (www.cefconnect.com). While the weird and inexplicable Dogecoin gets headlines, another canine deserves true love. ALPS Sector Dividend Dogs ETF (SDOG, $55.36, yield 3.1%) has more Bond spreads. Bond pros look than doubled the total-return score of Vanguard Dividend Growth so far in 2021, 25.2% to buy securities at a high (“wide”) yield advantage over to 11.3%, and for the past 12 months it leads Vanguard’s ace dividend fund 76.3% to Treasury debt of the same 43.0%. Credit a general ardor for high yields: Sector Dogs owns the five highest-yield- maturity and take gains or cut ing components within 10 of the 11 S&P 500 sectors as ranked each December. SDOG losses when this spread nar- is good for both growth and income, and it has the low costs of an ETF. This is not the rows (“tightens”). We do not first time we have given this dog a bone, and it likely will not be the last. recommend doing this daily

ftentimes, Kip Income 25 members draw attention for price swings, and this time we have a few as usual. But several O25ers are also in the spotlight this month for off-the-price- charts developments. One is Realty Income’s giant acquisition of rival triple-net-leaser VEREIT, which looks like a coup. Another is the tender offer in progress for half of the shares of Eaton Vance Floating Rate Trust. At first, the agreement calls for higher distributions, but you will soon need to decide whether to tender your shares for 99% of net asset value. It is usually best to take such an offer, and we shall name a replacement. Valero Energy chartered tankers to hold oceans of gasoline stranded by the Colonial Pipeline shutoff, but VLO gained 12% anyway, tops in the 25, followed by Magellan’s 8.0% rise and 7.6% by AT&T. Annaly gained 3% as it ascended to 25 $9 for the first time since it crashed to less than $4 in 2020. Others for Income were mostly flattish or slightly down, but no disasters or scandals. Utility stocks Price Yield Frequency

American Electric Power (AEP) Traditional electric company serving 11 eastern and southern states $86.76 3.4% quarterly AT&T (T) Wireless-service giant that grew out of the former SBC 32.24 6.5 quarterly American Water (AWK) Largest investor-owned water utility, serving 16 states 152.83 1.4 quarterly National Grid (NGG) British national gas and electric utility that also operates in New York and New England 65.78 4.8 semiannually Xcel Energy (XEL) Central states electric system that emphasizes wind energy 71.72 2.6 quarterly High-yielding open-end bond funds

Baird Core Plus Bond (BCOSX) A rare general bond fund that usually beats its benchmarks handily $12.30 2.0% quarterly Dodge & Cox Global Bond (DODLX) A mix of domestic and foreign corporate bonds, mostly denominated in U.S. dollars 11.92 2.2 quarterly Fidelity Capital & Income (FAGIX) Creative and aggressive junk bond fund 11.21 2.9 monthly Hotchkis & Wiley High Yield (HWHAX) Boutique high-yield fund that concentrates on small companies 11.37 4.7 monthly Loomis Sayles Bond (LSBRX) Go-anywhere investment-grade bond fund 13.42 2.8 monthly TCW Emerging Markets (TGEIX) A higher-quality approach to emerging markets, with all debt in hard currency 8.17 4.9 monthly Closed-end mutual funds and ETFs

AllianceBernstein Global High Income (AWF) High-yield corporate bonds and government bonds from emerging markets $11.89 6.6% monthly BNY Mellon Municipal Bond Infrastructure (DMB) A leveraged closed-end fund that likes transportation and hospital bonds 14.81 4.3 monthly Eaton Vance Floating-Rate Income Trust (EFT) One of the oldest floating-rate loan funds, with a team of five veteran managers 14.22 5.4 monthly iShares U.S. Preferred ETF (PFF) This exchange-traded index fund spreads your money in more than 303 preferred stocks 38.31 4.8 monthly Nuveen Municipal Value (NUV) This non-leveraged closed-end is an alternative to the BNY Mellon Infrastructure fund 11.27 3.3 monthly Pimco Corporate & Income Strategy (PCN) An unusual mixture of high-yield corporate, muni and foreign bonds 18.04 7.5 monthly Real estate investment trusts

Annaly Capital Management (NLY) Borrows cheaply to reinvest in government-guaranteed mortgage securities $9.13 9.6% quarterly Digital Realty Trust (DLR) Developer and operator of data centers in the U.S., Canada, Europe and Asia 148.88 3.1 quarterly Realty Income (O) Landlord to chain stores and restaurants, also known for 606 straight monthly dividends 65.34 4.3 monthly Welltower (WELL) Develops and owns assisted-living facilities, hospitals and medical labs 73.22 3.3 quarterly Energy investments and partnerships

Brookfield Infrastructure Partners (BIP)* Owns toll highways, ports and transmission lines $52.72 3.9% quarterly Magellan Midstream Partners (MMP)* One of the largest pipeline carriers of gasoline, diesel and chemicals 49.08 9.0 quarterly Suburban Propane Partners (SPH)* Propane distributor normally yields substantially more than junk bonds 14.87 8.2 quarterly Valero Energy (VLO) World’s largest independent refiner, known for large dividend increases 81.21 4.8 quarterly

Funds in italics pay tax-exempt income. Investments with an asterisk (*) are partnerships. Prices and yields as of May 14, 2021. SOURCES: Fund companies, Morningstar Inc., Yahoo.

Copyright 2021 • The Kiplinger Washington Editors, Inc. • 1100 13th Street NW • Washington, DC 20005-4051 • www.kiplingerincome.com 6 Kiplinger’s Investing for Income: Strategies to Boost Your Cash Yield June 2021

specialized care facilities such as nursing homes and Alzheimer’s residences, and seniors’ luxury living. Health REITs consistently pay a high- Ask Jeff er dividend yield than prop- Readers are invited to send questions about income investments to erty REITs in general, but the [email protected]. I’ll answer you personally if there’s no space shares and earnings are subject here for a published reply. to sharper ups and downs because of unpredictable govern- Dear Jeff: is Suburban doing about this? ment policies and reimburse- Warren Buffett says bonds They already cut dividends, so ments, unemployment (which are dead money, have a bleak that cannot be the whole story. takes people off insurance), future and are a terrible invest- Pat and local economic issues. ment idea. What exactly is So far in 2021, the subsector’s Buffett’s concern? And do you Dear Pat: average 5% return is below agree? After plunging from the $20s the REIT average, but its one- Ronald to below $10 during last year’s year bounce of 56% is higher general pandemic-inspired than the average. The two you Dear Ronald: crash, Suburban’s units (it is named, Physicians Realty and A few weeks ago, Buffett, who a partnership) have held in a Medical Properties Trust, are is 90, knocked today’s puny narrow range of $12 to $16, solid citizens with 5% yields yields on Treasury notes and with a couple of runs at $18. and consistent dividends. bonds in the context of his New entrants at $14.65 get an long career, during which a 8.2% yield, and with market Dear Jeff: T-bond was as apt to pay more prices and demand for propane For those of us worried about than 6% instead of less than up, this strikes me as a good inflation, are the leveraged 2%. He asserted that it is silly deal. The year-to-date 17% closed-end funds WIA and to commit savings to, say, a return does not compensate WIW safe? ladder of long-term Treasur- longtime shareholders for the Jim ies on today’s terms and that still-smoldering 2020 capital interest rates overall are like- losses, but it is too late to sell. Dear Jim: lier to trend up than go back As for adding value in other Basically, these are aggressive down. But Buffett overlooked ways, Suburban periodically TIPS funds with some regular other reasons to own bonds and acquires smaller, local distrib- Treasury bonds as a base, so other debt securities, including utors when it can cut costs and you should not get hurt. The diversification, tax-free income add volume. It also refinances funds have had a fine few from municipals and the vari- its debt at lower interest rates weeks as savers who embraced ous ways besides interest-rate when possible. the inflation-breakout theme movements that bonds can pro- scouted for a way to combine vide worthwhile returns. So, Dear Jeff: TIPS with a 3% monthly dis- while I agree about avoiding What do you think of medical tribution. The Western Asset T-bonds in individual portfo- REITs as the economy fully re- people are smart, and this is a lios, I would not exit all fixed opens? I am interested in DOC clever idea for a fund. I doubt income, and I would continue and MPW, among others. the returns will continue to to watch for opportunities. Douglas be as strong as at present, but you will get paid well, and Dear Jeff: Dear Douglas: the credit quality is tops. Plus, I am out of patience with Medical real estate is a wide both CEFs sell at a good dis- Suburban Propane and its category that includes hospi- count to net asset value. Good stalled price. What, if anything, tals, medical office buildings, thinking.

What’s New in Cash Flashback Odd closed-end-fund mergers. Watch for consolidations of multiple funds into a sole Business development companies, which are tax-exempt survivor. The Guggenheim group is going to fold high-yield lenders and financiers that occasionally own GGM, the Credit Allocation Fund, and GPM, the some equity in their client companies, are among the stars Enhanced Equity Fund, into GOF, Guggenheim of the market recovery. Despite losing 5% over three days Strategic Opportunities I. The company says this in May, the VanEck Vectors BDC Income ETF (BIZD) has a will allow the first two funds’ total assets of $600 year-to-date return of 24% and a stunning one-year rise million to participate in the freer, go-anywhere of 73% after taking some lumps last March and April. BDC investment policies of the $900 million Strategic dividends (the primary attraction) normally range from fund, but there’s a rub: Shareholders of GGM and 8% to 12%. We feature this category from time to time, GPM will get new shares in the combined fund and the largest, Ares Capital (ARCC), is a fixture of our Go- ing for the Max model portfolio. Ares’ five-year annualized at net asset value, not the 19% premium at which return of 12% shows that just because an investment has GOF currently trades. Seems like a win for the a high yield, it is not necessarily dangerous or low quality. house. We have seen similar deals—Pimco just In fact, several BDCs are rated investment grade (although proposed a three-way merger—and tender offers their clients rarely are). But there are booms and busts, and for discounted CEF shares. Your first inclination the 45 BDCs are famous for enormous variations in their should be to check around for another fund. performance and for occasional gross mismanagement. Real estate bottom-fishing. In a positive sign What is our experience, then, in calling this quirky sector? Two recent references were positive and accurate. In for office and other lagging REITs, private and March we proclaimed BIZD our Timely Tactic, and since institutional funds are raising enormous sums February 12 it has delivered, with its net asset value up to target distressed or discounted towers and from $15.13 to $16.54. And in January we said that the even street-level retail space in New York and troubles of 2020, when half of the BDCs cut dividends, other big cities. Several public REITs in this area, were over, and so “the yield advantage looks comforting such as Boston Properties (BXP) and S.L. Green at a time of economic optimism.” We noted that BIZD had (SLG), never cut or skipped dividends, and now then gained 17% over the past three months, a sign of their shares are climbing. One might infer that health, and that after the well-known BDC Apollo Invest- there’s a buyer on the prowl for almost anything ment (AINV) cut its quarterly dividends from 45 cents to 31 still lingering at a discount. cents, its share price bounced from below $8 and has risen ever since to $14.57. And we “sensed brewing bidding wars” Massive bank bond issues. Bank of America, for Gladstone Capital (GLAD) and FS KKR (FSK) because Goldman Sachs and J.P. Morgan floated a com- of their 9% yields. So far this year, GLAD is up 25% and bined $34 billion worth of new bonds late in FSK is up 33.2%. April—at decent yields, such as 2% for eight You might say, Okay, this was like shooting fish in a years by J.P. Morgan, which is rated A-minus barrel. Most sectors are still recovering. Looking back over by S&P and A2 by Moody’s. If you compare the years, though, we have generally supported the BDC this deal to a CD from the same places, you concept as a wise satellite to any core bond and income will choose the bonds. We would. portfolio because the difference between BDCs’ cost of capital and the double-digit interest rates they charge is so wide The AT&T restructuring. Just before our that even with some inevitable defaults and write-offs, the deadlines we read, alongside everyone else, spread covers the dividends. Plus, there is another reason to of AT&T’s proposed exit from the media busi- include this category: According to Closed-End Fund Advi- ness and a reorganization that may result in a sors, which calls BDCs an alternate type of closed-end fund, dividend cut. To those who are curious about BDCs are almost entirely uncorrelated to all other invest- whether this is a sell signal, we will delve into it ment classes, including bank-loan funds, REITs, and U.S. and next month. T does need cash to build out its 5G international stocks and government bonds. If you want network, but this is a welcome admission that its something that really does zig when others zag, this is it. media strategy is not working.

Copyright 2021 • The Kiplinger Washington Editors, Inc. • 1100 13th Street NW • Washington, DC 20005-4051 • www.kiplingerincome.com 8 Kiplinger’s Investing for Income: Strategies to Boost Your Cash Yield June 2021 Model Portfolio: Going for the Max espite all the chest-beating over higher and so dismiss this as a one-time-only bounce inflation expectations and an accompany- from the depths of the pandemic shock and crash. Ding higher range for interest rates, it is True, to a point. Returns of 60% are unusual. But evident that people are not ready to quit paying the portfolio’s regular success from year to year up for riskier investments with big, steady cash underscores our conviction that investor senti- distributions. A sign: Daily trading volume in ex- ment got interrupted, not crushed, by COVID. tra-high-yielding names such as Annaly, Phillips And as the U.S. and the world return to more 66 Partners and Suburban Propane is up strongly consistent growth with still-moderate inflation from two and three years ago, and it’s especially and interest rates, competition to collect 5%-to- heavy of late. That is not the whole story, of 10% yields will not ease. If you are in, you have course, but this action is consistent with what we a head start. continue to hear from investment strategists—to wit, any reluctance (or shame) about relying on Aberdeen Global High Income (BJBHX, $8.96, current maximum-yielding securities has gone the way yield or distribution 4.2%, one-year total return through of the wood-paneled station wagon, the Betamax May 14 18.6%) holds medium- and high-yield and the nine-inning complete game. corporate bonds from a range of borrowers. That, plus the bounce in energy prices and healthy business conditions, explains Max’s Annaly Capital Management (NLY, $9.13, 9.6%, 68.8%) substantial 8.9% total return for the period from is returning to its original playbook of investing January 15 through May 14, for an annualized in government-guaranteed home mortgages. gain of 26.6%. The global hunt for yield, or whatever you call it, will not be short-circuited Ares Capital (ARCC, $18.19, 8.5%, 56.6%) lends to because 10-year Treasury bonds now pay 1.7% emerging and midsize businesses of many kinds. instead of 1.5%. It’s likely that many of these investments will not blink if the 10-year T-bond Compass Diversified Holdings(CODI, $25.45, 5.9%, goes to 2.5%, provided the still-healing econo- 67.5%) is a holding company that owns and advises my fosters higher and secure cash flows, be- assorted consumer and recreational brands. cause it is cash flow that underwrites the interest and dividends. And though this four-month Global X Super Dividend ETF (SDIV, $14.17, 7.0%, 60.3%) period’s return was not as gigantic as the 13.4% invests in 105 small and midsize companies. Max delivered between September and January, eight of the 10 selections here rose in principal iShares S&P Preferred Stock ETF (PFF, $38.31, 4.8%, value, and none cut distributions—except for 19.9%) is the oldest and largest preferred stock index the usual seasonal decline in the SPDR interna- fund. tional dividend fund’s payout in the winter. This session’s best performer, with a 20% Principal Real Estate Fund (PGZ, $14.63, 6.8%, price gain plus dividends, is Principal Real 42.2%) is a leveraged closed-end real estate credit Estate. We do not suggest this fund as your fund. only real estate income investment—please own individual REITs—but its 26% leverage and SPDR S&P International Dividend ETF (DWX, $39.98, deep discount to net asset value are still at their 3.5%, 34.2%) is a large-cap counterpart of Global X. timeliest. Another big recent success, as we have pointed out elsewhere, is Annaly, which is Suburban Propane Partners (SPH, $14.87, 8.2%, up 10% this time, plus dividends. As everything 18.7%) distributes fuels. is working, there are no changes. You may notice that all of the funds, trusts Vanguard High-Yield Corporate (VWEHX, $5.95, 4.2%, and partnerships show monster one-year returns 14.8%) is a low-cost domestic junk-bond fund.