I Am Banking On Rate Cuts With Big Dividends

seekingalpha08-01

Rate changes bring ripple effects across the market, it's time to plan how to boost your income with them.We look at 3 sections of the market to dig deeper into.Build income goals, leverage money to ...

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Richard Drury Co-authored by Treading Softly. The hardest choice you'll make is usually the next one. It certainly won't be the last one because that's settled now. Do you ever get tired of “adulting”?Long Duration Bonds and Fixed-Rate Preferred Securities Long-duration fixed income — those with no set call date in the case of preferreds or maturity dates far off into the future for bonds — move most violently with rate changes. This is because their yields are always adjusted to the overall risk of the market. If you can get a Treasury note for 5%, you won't accept buying a new bond at 4%; the risk-free option gives a better yield!","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"TRINL":"TRINITY CAPITAL INC 7.00% NOTES DUE 16/01/2025","IGIB":"iShares 5-10 Year Investment Grade Corporate Bond ETF","BK4585":"ETF&股票定投概念","BK4588":"碎股"},"translate_title":"我指望降息并获得巨额股息","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"IGIB":1,"TRINL":1},"content_text":"Rate changes bring ripple effects across the market, it's time to plan how to boost your income with them.We look at 3 sections of the market to dig deeper into.Build income goals, leverage money to achieve your dreams, and don't dream about money alone.   Richard Drury Co-authored by Treading Softly. The hardest choice you'll make is usually the next one. It certainly won't be the last one because that's settled now. Do you ever get tired of “adulting”? The constant struggle to evaluate choices and know what to do next. Life rarely gives you cut-and-dry choices. There is no real moral ground to debate concerning whether you'll wear pants or shorts today, or if you like mustard on hotdogs or not. So we're left to the nebulous gray area. The zone where right and wrong isn't a factor, but “better” or “worse” becomes a matter of opinion. When it comes to the financial markets, every type of investing has its benefits and drawbacks. Rewards and risks are ever-present. The reason we developed and espoused our Income Method is because it's designed to limit risks and emphasize rewards that help you achieve specific goals. What are those goals? The beauty of this framework is that it recognizes your goals will be as unique as you are. So it's less a question of what are the goals because they are not universal, one-size-fits-all goals in the market. What are your goals? I strongly recommend moving away from overly simplistic portfolio value or monetary figure goals — like having $1 million socked away for retirement, and moving towards setting sub-goals that recognize income as a tool and not an end in itself. While having $1 million is nice and a major accomplishment, it doesn't answer the key question of what will you do with it? This is why I put the market and its movements into a pivotal part of my goal structure, not allowing it to become the structure itself. I set annual income sub-goals to allow me to afford my ultimate goal, my dream retirement lifestyle. That lifestyle and annual income target to afford it will be as unique as you are. Thankfully, we can all take similar steps to achieve those goals. Today, I want to highlight sectors in the market that you should consider looking more closely as to benefit from the coming rate cuts. Let's dive in! Long Duration Bonds and Fixed-Rate Preferred Securities Long-duration fixed income — those with no set call date in the case of preferreds or maturity dates far off into the future for bonds — move most violently with rate changes. This is because their yields are always adjusted to the overall risk of the market. If you can get a Treasury note for 5%, you won't accept buying a new bond at 4%; the risk-free option gives a better yield! The only way to adjust the available yield is to adjust its interlocutory trading price. Short-duration or near-maturity bonds and term preferreds are isolated from interest rate changes, as they are often pegged at PAR until maturity. Trinity Capital Inc. 7.00% Notes due 01/16/2025 (TRINL) is a great example of this: Seeking Alpha Over the last year, TRINL has been largely unmoved by potential hikes or cuts because it is a lot closer to its maturity date. Data by YCharts Comparing 5-10 Year Investment Grade Corporate Bonds (IGIB) to the Federal Funds rate, you can see an inverse correlation. As rate hikes arrived, the price rapidly sold off, and bond prices adjusted for the new risk paradigm. And the reverse phenomenon is also historically true. So, while prices are depressed and cuts are incoming, it's a great sector to dig deeper into REITs Real estate investment trusts have had a miserable last few years: Data by YCharts These “lost years” have hit many income investors' portfolio values hard, and those with stop-loss orders felt compounded pain by realizing significant losses and losing income due to the sale of dividend-paying assets. REITs are readily viewed as “bond alternatives” and, as such, trade heavily based on expected interest rate movements. When rates were pegged near zero, they enjoyed a time in the sun. Now that rates have been rapidly hiked and remained high, REITs have struggled to retain those advances and largely trade at discounted prices. This is set to reverse as rates are cut to a new normalized level in the future. Thus, a diligent investor can buy outstanding income opportunities today and see strong capital gains as rate cuts arrive. Utilities Often forgotten when it comes to interest rate changes, utilities can be hit hard when hiking cycles begin. Utilities are typically pre-determined monopolies, but they are also very capital-intensive businesses. They are forced to outlay massive amounts of capital to upgrade infrastructure, produce more power, and maintain reliability. Data by YCharts Many utilities saw the benefit of cheaper debt to fuel growth and, thus, more earnings during the zero-rate period. Now, with higher rates, growth is forced to be stalled as the returns are smaller. Unlike REITs, utilities have benefitted from the AI craze and continued rapid demand growth for data and cloud computing. These are all energy-intensive applications that allow utilities to see earnings growth and help stabilize their share prices vs. other opportunities. Utilities will enjoy falling rates as they spur overall increased economic activity. This means more demand for their primary product and cheaper debt to refinance or grow their footprint. Overall, utilities can be considered a less immediately rewarding sector, but also a less wildly swinging sector to invest in for income. Conclusion What do you do next? When it comes to growing your portfolio's overall income generation to finance your dream retirement, we need to focus on buying discounted sectors that will benefit from future economic changes. This way, your dollars are most effective in producing returns and income back into your portfolio. At this time, long-duration fixed income, REITs, and utilities present highly attractive sectors to dig deeper into to locate income opportunities for your portfolio. All three have been beaten down by the recent rate hiking cycle, and are primed to benefit when rates fall again. I hope you take time to plan and dream what your retirement will look like. Dream big, plan early, and then make a realistic income goal to finance it. Don't let money or your need to acquire it be the myopic focus of your working years. Money is a tool; leverage it to achieve your dreams.  That's the beauty of my Income Method. That's the beauty of income investing.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2456483414"}