10 stocks for income-hungry investors

Two concerns of income investors are the protection of capital and falling cash rates.  These issues combined create a conundrum, as low cash rates giving poor returns force investors to move further along the risk spectrum in order to match or exceed their cost of living, meaning that their capital will be at greater risk than it would have been sitting in a term deposit or high-interest account.

The way the Rivkin Investment Team combats this issue is by creating portfolios of stocks that issue both income as well as the potential for capital growth.  This way, even when markets fall, investors are still paid income while they wait for a recovery.  We call these ‘Blue Chip Portfolios’ and, as you’ll see from the results below, the performance of these portfolios has been outstanding.

How does it work?

When the Rivkin team hunts for high-income stocks, invariably we find two distinct characteristics.  First, these stocks have usually been heavily oversold, which makes their dividend high in respect to their share price, thus offering a high ‘dividend yield’ or income return.  Second, most of the time these companies represent sectors with very steady cash flows, hence they have relatively reliable dividend payout policies.  Typically you will find nice (uninteresting!) companies like banks, insurers and property trusts in this strategy.

Because these stocks have a high probability of paying out dividends and also recovering in price, investors will typically experience the benefits of both growth and income.  And because we target ‘franking credits’ as well as cash dividends, the returns are tax effective. 

Past performance

Returns are compounded and exclude brokerage. Past performance is no guarantee of future returns (see chart).

In addition to the four years of actual performance that we can illustrate here,The Rivkin Investment Team conducted 22 years of back-testing against this strategy prior to putting it forward to Rivkin Local members.  Let’s consider some of the significant events that took place over this period:

  • 1990 Australian interest rates peak at 17.5%
  • 1991 The Soviet Union Collapses and Japan’s economy crashes, marking the beginning of ‘The lost decade’
  • 1997 Southeast Asian Economic Crisis
  • 1999 The euro currency comes into use
  • 2000 The tech boom bursts
  • 2001 September 11 attacks, Enron fraud is exposed
  • 2005 Chinese and Indian growth continue to accelerate
  • 2007 The Global Financial Crisis begins, marked by the US subprime housing crisis
  • 2008 The ASX 200 continues to punish investors, eventually putting in a six-year low in 2009

Despite the global economic ups and downs, the Rivkin Blue Chip strategy averaged a 14.5% return as at our 22-year testing, conducted in January 2008.

When should you invest?

Rivkin Blue Chip Portfolios are issued at the beginning of each quarter.  The October Blue Chip Portfolio has just been published and is available to all Rivkin Local members.  The process of investment is simple; you just allocate an amount of money, divide it by 10 and then put your trades on.  You’ll only need to rebalance the strategy once per year, leaving you with time to focus on other Rivkin Local trades that are designed to grow your capital over a shorter time period. 

Call us on 1300 748 546 to find out more about our Blue Chip Portfolio.

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