This from Investment U:

We’ve endured three consecutive weeks of losses for the S&P 500 (.INX). Never fun. But if you’re an income investor, ala Charles Dickens, the worst of times is creating the best of times…

Dividend yields now rest close to 15-year highs. Plus, the premiums from writing covered calls (the only safe options strategy) are significantly higher thanks to the extreme market volatility.

As far as I’m concerned, that’s an attractive one-two income-earning punch we shouldn’t ignore.

So how do we play it?

Not with the usual suspects…

Income Investors: GE Is A Dog at Any Price

There’s something about an adolescent stock price on General Electric (NYSE: GE) that turns most income investors rabid. Much like they were last summer for Bank of America (NYSE: BAC). But I continue to get in arguments with friends and colleagues about this.

I don’t care if GE trades below $20 per share, $15 per share, even $10 per share. It’s a terrible stock to own right now.

I know in some circles, such an utterance is blasphemous. Before you conclude the same, at least hear me out…

First things first…

• Simple businesses make money.
• Investors can understand simple businesses.
• And therefore, stocks of simple businesses tend to perform best (consult Warren Buffett’s track record should you disagree).

But – you guessed it – GE doesn’t pass the simple test.

Its business is all over the place. Last quarter, it logged sales in the following segments: water, security, railroads, oil and gas, media and entertainment, lighting, health care, consumer lending, commercial lending, energy, electrical distribution, consumer electronics, aviation and finally (drum roll) appliances.

Try coming up with an elevator pitch for Jeff Immelt for that mess. Jack of all trades, master of none, perhaps?

To be fair, GE does provide exposure to compelling sectors and trends – like energy and infrastructure, water, and green technologies. But it only accounts for a small portion of the revenue pie. And meaningful growth in these segments will always be overshadowed by declines elsewhere.

Case in point, in the fourth quarter, GE’s energy business increased profits by 27%. A homerun by any measure. Too bad the rest of the team struck out – weakness in other segments caused GE’s overall profit to drop 44%.

Bottom line, even after a 60% stock decline in the last year, GE is still a $137 billion behemoth. Moving that earnings needle, and in turn the stock price, requires over a dozen business segments to be firing on all cylinders, simultaneously. That’s not happening. Not now or anytime in the near future.

But How Can We Turn Down a 9% Dividend Yield?

After considering the above, most GE defenders shove their security blanket – the hefty dividend yield – in my face, saying, “At least I get paid 9% to wait for the stock to turnaround.”

True.

But it could take years for the underlying businesses to turnaround. Moreover, as Bank of America proved, no dividend is immune to a cut.

Last summer CEO Ken Lewis said it was safe. Then in October, he ended the streak of 30 years of increases. And he cut it.

The same fate appears likely for Dow Chemical (NYSE: DOW). Last month CEO Andrew Liveris declared a dividend cut wouldn’t happen on his watch. Fast forward to this week, and he concedes a cut is now possible. Keep in mind, Dow Chemical’s dividend has never been cut since it was first instituted in 1912.

By now, Yogi Berra should come to mind, “It’s like déjà-vu, all over again,” because GE’s Immelt continues to deny the possibility of a dividend cut. He also wants to maintain the company’s coveted AAA rating. Yet, if current conditions persist, and management is desperate for cash, trust me, the dividend will get the ax.

For Income Investors – A Better Alternative Income Investment to GE

It wouldn’t be fair for me to bash GE as an income investment and not offer up a better alternative. So here it is – TEPPCO Partners (NYSE: TPP).

It’s one of the oldest publicly traded energy master limited partnerships (MLPs), with over 12,500 miles of pipeline. (For a thorough overview of MLPs, I recommend this MLP primer.) And it currently yields 11%.

Here are the five main reasons I believe the dividend is safe -

• Its business is simple. It gets paid to transport fossil fuels, based on total volumes, not the price of the underlying commodity. While the price of crude might be off significantly, I guarantee you worldwide demand, and the volumes to be transported, is not. Such a simple business makes it easy to spot breakdowns, and in turn, recognize when the dividend is truly in jeopardy.

• The revenue stream is highly reliable. We’re addicted to oil. And no matter how green the world gets, we’ll still consume plenty of it. That means the registers will keep ringing for TEPPCO, and there will always be cash in the till to pay out dividends.

• Management believes in conservative growth. Overdosing on debt to fund expansion is a recipe for disaster. If borrowing costs increase (like now), more cash needs to be set aside to make interest payments. If they jump too high, too fast, something has to give. And most times, it’s the dividend. Thankfully, TEPPCO believes in conservatism. For the past five years, it’s financed 75% of its growth through asset sales and equity contributions. In other words, interest payments won’t threaten the dividend one bit.

• Insiders keep buying. Insiders know best and Dan Duncan, the CEO of the general partner that controls TEPPCO, plunked down $7 million last September, at much higher prices. If the dividend was in jeopardy, he certainly wouldn’t be buying.

• Credit is not a concern. In these distressed markets, we can’t overlook this factor. If a business relies heavily on credit, and is having trouble getting it, look out. No worries for TEPPCO, though. It’s sitting on $600 million in liquidity, enough to fund almost all of its proposed capital expenditures for 2009.

Truth be told, I recommended TEPPCO to subscribers a month ago when it traded around $18. Now we’re up 48%. And we haven’t even received our first dividend payment, yet.

Even after such an impressive move, though, I estimate at least another 36% upside remains.

Here’s why…

• The company sports strong fundamentals: earnings, distributions and its operations are all growing.
• It owns prime assets. Namely, the only pipeline transporting liquefied petroleum gases from the Texas Gulf Coast to the Northeast and the sixth-largest U.S. inland barge operations.

Both make it a prime acquisition candidate.

And history dictates MLPs should only average a 7.83% yield, based on the Alerian MLP Index. To bring its yield back inline with the historical mean, TEPPCO’s stock needs to rally another 36%.

Add it all up and it’s a no brainer. If you want high and reliable income, with the potential for capital appreciation, too, forget GE and buy TEPPCO. Or at the very least, ensure any high dividend-paying stocks you’re considering boast the five qualities above.

Source: Income Investors: Dump GE & Buy This Safer Income Investment Instead

This from Sovereign Society:

One year from now, will the stock market be higher or lower than it is today? “I really have no idea,” Market Analyst David Newman admitted, “nor does anyone else.”

“I could argue either side,” he said, “I could give you excellent data supporting both sides of the debate. I could shower you with charts, graphs and analysis, but in the end, trying to guess where the markets will be one year from now is really impossible.”

David felt particularly discouraged after the Institute for Supply Management released its latest numbers. Bad news, but the markets ended the day up by 258 points. “Maybe it’s not the markets that are confused,” he said, “maybe it’s just me. I would have thought we would see a decline.”

“Trying to guess the direction of the markets on a day-to-day basis is a losing game, but like I said earlier – every market offers up opportunities and this market is delivering us some really great ones.”

“When I’m not sure what direction the market might take in any given day, yet I have money on the sidelines I’d like to put to work, I tend to narrow my research on one or two criteria.”

“If I can find quality stocks that are paying a high dividend and have a low P/E, then I may have found a gem in these markets. When the deal is good enough and I know the company will be around tomorrow… well, then confused markets be damned, I’m in.”

David shared one of his favorite picks for this kind of confused marketplace… “General Electric Corp. (NYSE:GE) – GE is one of only six U.S. industrial companies with a AAA-rated balance sheet and, with 32 consecutive years of dividend growth, it’s always on my radar screen…but now more then ever.”

“Today with GE’s share price at about $17, its dividend yield is a whopping 7.33% and its P/E ratio is just 8.25, much less then the trailing and future S&P 500 P/E predictions. Receiving this steady 7.33% dividend check gives me the luxury of sitting back and waiting for the shares to appreciate. I don’t have to be in any hurry.”

Source: Confused Markets…who cares?

This from Investor’s Daily Edge:

The chart below is only one month old. But in their recent flight toward safety, investors have driven the yield of the 10-year Treasuries down to 2.13 percent – below the three percent shown in the chart.

That rate doesn’t even keep up with the rate of inflation.

On the other hand, parts of the stock market are throwing up some hefty yields. Take a look at these…

Source: Wachovia/Bloomberg/FactSheet market data as of November 28, 2008.

Most of these companies are master limited partnerships (MLPs). They have to give shareholders 90 percent of their cash earnings every quarter. So the better they do, the better you do.

They’re offering anywhere from 10 percent to over 26 percent yields (coming from some of the exploration and production MLPs). Of the categories above, I really like the large-cap pipeline MLPs. Their revenues come from fees. They don’t go up and down with the huge swings in the price of oil and gas.

That makes a big difference. Though we’re using 4-6 percent less fuel now than at this time last year, the price of oil has dropped 74 percent and the price of natural gas 26 percent. The revenues of these big and well-established companies are very stable. And so are the dividend checks they give out.

It’s a great alternative to the measly returns of government bonds.

Source: Outlandish Yields from Solid Companies

This

I’ll be the first to concede the going’s tough. That almost every “time-tested” strategy that worked well in bull markets is sputtering and collapsing.

But is it so bad we’ve given up on turning a profit? And just resigned ourselves to preserving our principal, right?

WRONG.

This week the Treasury sold $32 billion in 4-week bills at a yield of ZERO percent.

That’s not a typo. Investors actually clamored for the opportunity to lend the government their money in return for absolutely no return. In fact, investors bid $126 billion at the auction, more than four times the amount available.

As Michael Franzese, the head of government bond trading at Standard Chartered explains, “I have never seen this before… It’s all about capital preservation for the turn of the year, not capital appreciation.”

Forget unbelievable. It’s idiotic. What investors are essentially saying is that absolutely no better opportunity exists in the market right now – that survival is their paramount goal of investing, not profiting. But ignore what the lemmings are doing. Their folly is creating endless (and historic) opportunities for us to increase our wealth. Of course, simply telling you that will not suffice…

6 Market Investment Opportunities Right Now

Let me share with you a short-list of market investment opportunities I’m researching and taking advantage of on a daily basis. If nothing else, it should make you think twice before you follow the $32 billion worth of stupid money…

• International Stocks: Forget decoupling. It was a farce. The United States caught a cold… and international markets caught pneumonia. The offshoot? International markets are the cheapest on the planet – despite much stronger growth prospects than in the United States. For instance, the average Russian stock trades for just three times earnings! South Africa and Brazil are the next cheapest at six and seven times, respectively. An easy way to capture upside here is to rebalance your portfolio by adding money to your diversified international funds or investments. One of my favorite options here is the Templeton Emerging Markets Fund (NYSE:EMF), run by the best international manager around, Mark Mobius.
• “Free” Stocks: Hundreds of stocks trade below their cash balances, making them essentially free. Some will of course, burn through that cash faster than my wife on a shopping spree. So we can’t buy blindly. But that’s not the case for all of these stocks. One compelling opportunity I recently presented to my subscribers is Immersion Corp. (Nasdaq:IMMR) – a leader in haptic technology. Forget cash on hand, its patent portfolio is worth more than the current stock price.
• Income: Dividend yields rest at 15-year highs. Of course, not all dividend-paying stocks are created equal. Many will slash or suspend payments just to survive the downturn. But others won’t. The master limited partnership (MLP) space is rife with opportunity. Investors seem to forget these companies aren’t impacted by the price of oil and gas. They just get paid to transport it. The price of oil might be off 70%, but demand is not. My favorite play here is Kinder Morgan Energy (NYSE:KMP). It just increased its dividend and currently offers investors an attractive 8.7% yield.
• Munis: We all know there are NO guarantees in investing. But I can guarantee taxes are going up. How else will the government fund the billions upon billions in new spending? Especially, at a time when tax receipts will plummet. Thanks to a drop in corporate profits and the loss of 1.2 million taxpayers to unemployment. No surprise, the herd is piling out of munis ($7.4 billion so far this quarter) at exactly the wrong time. Their folly is creating attractive tax-free income yields and upside for us. For instance, the Vanguard Intermediate Tax Exempt Fund (VWITX) currently sports a 4.25% yield. That’s tax free and equivalent to earning 6.5% (based on a 35% tax bracket).
• Real Estate: Pricing remains completely irrational for real estate investment trusts (REITs). Some closed-end funds are off as much as 90%. Dirt is cheap – but it isn’t that cheap. This is a once-in-a-lifetime rebound opportunity. If nothing else, capitalize on the unstoppable trend of homeowners converting into renters by considering an apartment like Equity Residential Properties (NYSE:EQR).
• Short selling: An economic recovery won’t save every company. Plenty will remain in the tank, or worse, end up on the courthouse steps. Yet, most investors overlook the simple strategy to profit from these collapses – selling short. But they shouldn’t. In these markets it’s one of the few strategies consistently booking winners. That’s why I’ve been using it for my subscribers. Just last week, we booked a 50% winner in The New York Times Company (NYSE:NYT), for example.

Remember this is just my short-list. The key takeaway is simple – investment opportunities abound.

Granted, we might have to work harder than normal to unearth them. But we certainly don’t have to resign ourselves to handing over our hard earned capital to the government for nothing in return. After all, that privilege is reserved for our tax dollars.

Source: 32 Billion Reasons The Average Investor Will Fail

This from Whiskey & Gunpowder:

There has never been a better time than right now to buy stocks. I know what you’re thinking — it sounds strange considering the enormous volatility in the market. But, I’m not talking about just any old stocks. I’m talking about stocks that produce real income.

In these manic times, you need to keep one important idea in mind when stock shopping: dividend yields. If there is one proven way to make money during any market condition, it is investing in companies that offer low, growing dividends. In fact, 97% of all gains in the S&P 500 over the last 80 years have come from reinvested dividends, according to one study.

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The Deficit Time Bomb

Well, Election Day has come and gone…and our deficits are still there…and growing…

Those deficits are going to wreak more havoc on the economy and individual savings than can be properly imagined.

We’re still offering solutions in our “Personal Bailout Bundle” and it’s still exclusive till Dec 21. Don’t miss out. Just click here to read more.

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If you are sitting on a huge pile of cash in a nice big home that you own outright, go ahead and reinvest your dividends. But if you worry about your bills, dream about helping your kids out more, or just wish you could eat dinner out a few times a week, those dividends can be the best solution.

Take a step back and analyze the situation. When you invest in a dividend-paying stock, you have the option to put those payments back into more stock or cash those checks to boost your lifestyle.

But there is a third option that most don’t even know about…

DRIPing Money into Your Retirement Savings

Many dividend-paying companies offer Dividend Reinvestment Plans, or DRIPs. These plans allow you to “set it and forget it.” Just buy some shares, set up the plan, and let the company do all the hard work. If all things go well, your money — and your stake in the company — will increase and be waiting for you when you retire.

Most investors, however, have no idea that they are allowed to split their investment. Instead of putting all of your shares in the DRIP, you can actually allocate some to pay you via dividend checks and others reinvested. That gives you both the spending power of dividends now and a savings element to work for you until you need it.

Think it can’t get any better? Well, many companies make their DRIPs even more enticing.

Certain companies allow you to both receive dividend checks in the mail and buy more shares for a discount. If you are enrolled in these companies’ DRIPs, your dividends will actually buy you up to 10% more stock every payment.

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The End of Cheap Oil

You wouldn’t think so. After all, oil prices just plummeted…

But the fundamentals are clear as day. Oil is destined to get a lot more expensive.

It’s going to change life in the U.S. and the world…forever…but you can protect yourself and prosper… Click here to take advantage of oil’s temporarily lower prices.

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Matched Gains Without Working a Day for the Company

Here’s how it works:

You want to invest in Company A. That company wants you to reinvest your dividends back into more shares. So, they offer — as a benefit for signing up for their DRIP — a market discount on every purchase. Company A will take your shares and sign you up for this plan. When the dividends come out, they’ll reinvest them by buying more shares for you at a 10% discount to the market price.

It’s as if the company was matching 10% of your investment just like an employer-based 401(k). Here’s the best part: Most companies will let you split your shares into half “pay now” and half “reinvest for later.” So you are collecting current income from half your dividends, while saving for your retirement through an employer-like “matched gains” program with the other half.

From your perspective, it’s exactly like working for the company without ever lifting a finger. You are basically treated as a long-term employee. Better yet, at the end of the day, you still own all of your shares. And shares of companies that offer consistent dividends and DRIPs typically increase in value over a few years. Even in this market.

And you can do this with as many different companies as you want.

There are already over 1,000 DRIPs, most of which allow you to split your shares, and a few hundred of these “matched gains” retirement plans. Many more are jumping on this bandwagon.

It benefits you by giving you current income as well as retirement savings, and it benefits them by stabilizing their share prices.

Who Cares What the Shares Cost?

Of course, you don’t have to do any of this. You can simply invest in a dividend payer and just take your paychecks for life. That’s fine. Either way, you’ll certainly ease your stresses and strains while the economy is floundering.

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Get Gold Cheap… Before It Takes Off Again

Gold is giving you another chance to get in for the inevitable ride up at a bargain.

Here’s how to get it at a discount and multiply those gains.

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Income investing gives you options like these that “buy low, sell high” strategies don’t. Perhaps most importantly, income investors benefit from a completely different outlook on the market. They are not worried about share prices. They don’t even mind when prices drop. It just allows them buy more stock.

The most important focus for these investors is the dividend. As long as a company pays its dividend, especially if it continues to grow, the investor is usually happy.

Investing like this is much easier than trying to time the market and worrying about the economy. It actually solves both problems. It gives you a two-pronged attack on today’s hectic market.

Source: The Best Secret Savings Account

This from The Smart Profits Report:

Believe me, there are times I’m sure the last thing you want to hear about is the stock market. Sometimes, that’s true for me, too! And I understand that with each day that your portfolio losses grow, that’s when panic and/or depression sets in. When I was a rookie investor, I felt that way, because I didn’t think there was anything I could do.

But take it from me: At times like this, you must avoid panicking at all costs.

The thing is, markets are not one-way streets. And although it’s tough to argue that fact when we’re in a midst of an extreme correction that can only be compared to a 100-year flood, events like this can happen and we simply have to deal with it.

So this is not the time for a pity party or complaining. Here’s why…

Picking Through The Rubble For Strength And Extreme Value

While the stock market looks like a tornado has whipped through it over the past few months, lurking in the rubble are companies trading at valuations we haven’t seen for decades.

What’s more, they’re good, solid companies. True survivors that will allow you to recoup your losses as the market bounces back. And while it’s important to note that this may take some time, if you don’t have a horse in the race, you have no chance of winning, or even placing.

So where does that leave investors like you and me? What’s the best way forward?

An Investor’s Best Friend

Over the past few months, one investment strategy has risen to the top of the pack.

In fact, people whom I never thought would embrace it are now raving about its benefits. But understand that this is a strategy for those who can look beyond the hype and promise of home run, triple-digit return promises and instead towards something that many investors crave right now: Steady, consistent income.

And it’s a strategy that has taught me that there are ways to benefit from volatile and even falling markets – perfect for the current climate.

I’m referring to covered call investing.

In a nutshell, the strategy has two parts…

1. You buy shares of a company.
2. You sell call options against your shares.

What does this accomplish? First, it allows you to reduce your basis in the share price by collecting a special “dividend” (known as a premium) from the proceeds of the options that you sold.

In a flat or range bound market, you can do this over and over again, consistently reducing your original cost and setting yourself up for big returns in the future. Here’s how it works…

The Breakdown Of A Covered Call Trade

Let’s say you like General Electric (NYSE: GE).

You buy shares of GE at the current price around $17.

Against this position you sell GE $20 call options that expire in January 2009.

What this means is that you’re obligated to sell your GE in January at $20 if – and only if – the share price is over $20 at the time. If not, you keep your GE shares and any proceeds you received for selling the option.

If GE closes below $20 at expiration in January, you can sell another option and collect more money and continue to lower your cost. The caveat here is that if GE closes above $20, you still only get $20. The loss of the upside is the price you pay for the safety of lowering your downside.

The money you receive for selling the option(s) is called the premium. For example, if GE January $20 options are trading for $1, you will receive $1 for each share that you own and have sold an option against it.

Remember, options trade in contracts, with each contract equal to 100 shares. So if you own 100 shares of GE, you can sell one call option contracts. At $1 per contract, you will receive $100 – 1 contract x 100 shares per contract x $1.

So let’s say you sell just one call option against your 100 shares. With the $1 premium, your cost in GE is now $16 and your upside is $4 – the difference between the strike price and your cost. The extra dollar you picked up is like an extra 6% dividend ($1 divided by $16 (your cost).

But I like to put my own twist on this. It’s not exactly the conventional way of covered call investing – but it’s a big reason why my Strategic Income service has managed to notch up a 70% win rate over the past 11 years. Here’s what I do…

An Even Better Way To Trade Covered Calls

Instead of selling a call option above the price at which you buy the underlying shares, you sell it below that price.

My rationale is this: We’re essentially saying to the market that we want to own GE shares… but we want to own them at a lower price. Our price. Here’s how it works.

~ We buy GE at $17

~ We then sell the January 2009 $15 calls against the position.

For doing so, we’ll automatically get $2 back – known as the “intrinsic value” ($17 minus $15.) But we’ll get more.

For time and risk, we’ll pick up an extra $1 to make the total premium $3 ($2 intrinsic plus $1 for time and risk). That lowers our original cost in GE to $14.

So we stand to make $1 profit on the trade, as long as GE closes above $15 in January. If this happens, our return is about 7% in a couple of months – a full $2 below the current price.

You see how this works? We’re not betting that the shares are going higher… we’re actually saying that if they go nowhere or even lower, we still stand to make money as long as the shares are above our cost of $14 ($17 purchase price minus $3 premium received).

Three Chances To Win In A Market Like This? I’ll Take It!

The bottom line here is that we have three chances to win…

1. If GE shares rise, we win.
2. If GE remains flat, we win.
3. If GE shares fall – but not under $14 – we win.

I don’t know about you, but I like those odds – especially in a market like this.

But what happens if GE slides under $14?

Well, since our cost was lower than the $17 we paid for the shares, there is an excellent chance that we’ll be able to sell more options and reduce our cost even further, while increasing our upside potential.

Source: The Best Investment Strategy For A Market Like This… The Truth About Covered Call Investing

This from Today’s Financial News:

Income investors have little to cheer about these days, with profits plunging and dividends getting slashed, but there are some glimmers of hope.

When a long-term stalwart Blue Chip like General Electric (NYSE:GE) steps out its corporate front door and tells investors to plan on their dividend payments throughout the next year, investors pay attention. When that $0.31 per quarter dividend leads to a yield of over 10%, smart investors call their brokers and grab some shares.

Instead of seeing their holding increase in value today, GE shareholders are seeing a 7% decline so far today [Thursday]. It marks one of the greatest buying opportunities you will see in your lifetime. Shares have not been this cheap in over a decade.

GE is one of the strongest, most stable companies in America. Yes, its financial arm has gotten it into some hot water, but let’s not forget this a mega-conglomerate we are talking about.

The company has more than enough bullets in its holster to see its way through a strong recession. GE is about far more than finance. It is well positioned in strong industries like healthcare, energy development and water filtration.

But even if Wall Street continues to focus solely on GE’s finance business, it will soon learn the error of its ways. Just yesterday, the FDIC gave the company a shot at significantly lowering its borrowing costs by backing $139 billion of its debt. It is a move that assures GE will not permanently falter due to the temporary credit crisis.

GE’s revenues will fall over the next few quarters and profitability will suffer, but investors that buy now will not care one bit as they are cashing those hefty dividend checks.

Strong companies like this do not pay huge dividends often. Take this opportunity to lock in the income stream while you still can. As soon as sentiment turns around, you can bet investors will be lined up to get their hands on shares of this great American company.

Source: Income investing: Dividend opportunities during a recession