Bonds and real asset companies are what keep the cash coming with more portfolio stability.

by Neil George

The best way to get through a volatile market – or worse – a volatile bear of a market is to make sure that you have lots of cash coming into your portfolio.

This is the core of The Pay Me Strategy that’s proven out over the past many, many years in which the general stock market has done little but to either do nothing at best or at worst destroy too many a retirement portfolio over just the past decade alone.

In the main article I’ve focused on the Cash Cows which form the foundation of the core of cash-generating and cash-paying investments. And as I note in that article – right now you need to make sure that you are really heavy in concentrating on theses members of the portfolio.

Moreover, while you’re focusing on the cash cows – it’s good to understand the two major groupings within this segment of the overall Pay Me Strategy portfolio.

Proven Paper

Bonds are of course the right kind of paper assets. But the paper is only as good as the hard assets behind them. The four closed-end investment companies – AllianceBernstein (AWF), Templeton (TEI), Pimco (RCS) and Western Assets (ESD) invest in the paper bonds of nations around the globe that are the ones with the real economies behind them.

Emerging Champion

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Rather than fretting over debt – these economies are loading up on revenues from their national production and exports of goods and services. Rather than fretting over how much debt that they can afford to borrow – these nations have so much cash assets – that many of them have their own investment arms that take excess capital and deploy it to build up their nations’ wealth.

And yet – the nations located in Asia, Latin American and beyond are still considered the new kids on the world’s economic block. So, they get lower credit ratings – while the old guys – the US, and Europeans get to flaunt their higher – but soon sinking official credit ratings.

The proof of course is in the performance. The bonds that back up these four continue to pay amply and the overall performance of the four collectively continues to keep investor’s retirement portfolios paying for retirement as well as building up value – while the general stock market continues to attack too many investors’s portfolios.

The other major group of paper assets is comprised of the minibonds. As I note in the main article – the 10 mini-bonds along with the mini-bond like preferred of Regions (RFZ) each remain virtually unscathed by the manic-depressive general markets. And more importantly – these collectively along with the global bond fund collection generate so much in dividends that you can ride out nearly any major market calamity that might be coming our way as the US and Europe try to sort out their economic messes.

Real Stuff – Real Profits

Beyond the paper that pays – the Cash Cows also have a small and select collection of companies that while in differing industries – all have substantial real assets behind them that generate the cash to pay bigger dividends.

Otelco (OTT) has a very sticky customer base for its broadband high-speed internet data services, wireless communications networks, cable and other data-fed television and on-demand entertainment along with its traditional land lines. Revenues keep coming – and while its peers around the nation have faced plenty of pain of lost customers – Otelco focuses on making the most of its customers by focusing on their wants and needs.

Moreover, it also knows that its capital is a crucial part of the business – so management has continued to keep a firm eye on attracting and keeping individual shareholder. To do so, it continues to pay its rock-steady dividend which is currently paying over 10 percent while also watching the revenues and the balance sheet risk so that it can keep paying its dividend.

The stock price has and will gyrate – but the performance continues to pay. Keep buying.

Real Player

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WP Carey (WPC) is another example of a shareholder-focused company. The niche of sale-lease-back transactions with the major corporations of the world has built up an great and broad real asset collection of locked in lease revenues for years to come. And while the dividend is a bit less in the 6 percent range – the gains along the way more than make up for a strong real asset performance. Keep owning it.

The other four real asset companies are all in the energy industry. Linn (LINE) and Holly (HEP) continue to be low-cost producers that are very business and financial risk adverse. And with increasing dividends and good balance sheet risk – both can continue to perform even as too many of their peers might well face challenges – keep buying.

Natural Resource (NRP) is right in the thick of the right energy. With nuclear development stalled for now – coal is king for fueling so much of the markets need for power. Royalties keep coming in – and without the operational risks of traditional mining companies – shareholders get all the cash and less of the troubles. Keep Buying.

And last up is a company that is near impervious to even lower petrol prices. Enterprise Product (EPD) merely distributes and processes. And along the way takes it cut on every bit that flows through their systems and networks. Again, with a rising dividend that’s a primary focus of the company’s management commitment – the company is a real asset buy.