Buy quality income stocks worth holding for decades.
Regardless of the market, certain sectors offer excellent income.
We discuss two high-quality picks with 7-10% yields.
When it comes to Investing, I prefer simplicity and straightforwardness. AI and cryptocurrency are not trends that interest me. I want my approach to be durable so that it will work long after I'm gone.
This is best illustrated by an agricultural example: plant a seed, watch it grow, then harvest the crop. By adhering to these criteria, My Income Method is open to anyone. I don't simply offer folks fish; I teach them how to fish.
I'll talk about two income generators today that ought to be part of your portfolio for a long time. Let's start!
Pick #1: CSWC - Yield 10.5%
Capital Southwest (CSWC) is a BDC that focuses on lending to lower middle market companies with annual EBITDA in the $3-20 million range. CSWC provides investments in debt and equity, offering a stable and predictable income from the loan and significant upside potential from the equity position.
The COVID pandemic has been advantageous for CSWC, allowing it to thrive in a favorable lending environment with rising interest rates, more than doubling the size of its portfolio. As interest rates rise, CSWC's income increases while liabilities remain fixed, which has led to record earnings last quarter and a dividend increase with a supplement payment. CSWC is becoming more efficient, with operating expenses declining from 4.9% to 1.9% of assets since 2016.
Recently, CSWC received an investment-grade rating from Moody's on its notes, ensuring continued access to cheaper capital and improving returns for shareholders. With leverage at 0.88x, below management's target range, and new debt issuance in June, CSWC is expanding and likely leveraging up slightly into the 0.9s. CSWC is a great BDC to own now and in any environment for the long term.
Pick #2: EPD - Yield 7.5%
Enterprise Products Partners L.P. (EPD) is a MLP that has announced a 2% increase in distribution last month, marking 25 years of consecutive hikes. This is a remarkable achievement given the volatile nature of the energy sector, where many companies have failed, cut or eliminated their distributions, or even gone bankrupt. EPD has survived and thrived by following a diversified strategy across natural gas, NGLs, oil, petrochemicals, and refined products, which protects its cash flow during downswings in any one commodity.
Additionally, EPD has a conservative balance sheet, with only 11% of its debt maturing in the next three years and an average maturity of just under 20 years. By using long-term debt, EPD can take advantage of low interest rates without impacting its bottom line. EPD has fully self-funded all cap-ex and reinvestment with cash flow from operations for the past five years, meaning it doesn't need to issue equity or debt to grow.
EPD is raising its distribution, buying back equity, reducing debt, and fully self-funding growth, making it a lower-risk investment. With a well-covered payout ratio of just 52%, a high yield, and frequent hikes, EPD is competitive with companies that have been Dividend Aristocrats with 40-50 year track records of dividend hikes. EPD is a strong and low-risk company that has achieved an impressive milestone and is likely to continue to thrive in the future.
In retirement, you shouldn't have to constantly manage your portfolio. You deserve to enjoy each day and have the financial freedom to do so. That's why I developed the Income Method, a reliable source of income for retirees and those seeking financial independence. With the ability to leverage the market, you can earn exceptional income for years to come.
Don't let financial limitations hold you back from experiencing all life has to offer. The Income Method offers a beautiful solution to this problem. Enjoy your retirement without worry.