BB&T recently issued noncumulative perpetual preferred shares with a coupon of 5.625%. This is a decent yield in the current environment, especially when considering that BB&T is in excellent shape, but it is a bitter pill for investors who recently had higher-paying trust preferreds pulled out from under them.
(GE - Get Report)
in June issued $2.25 billion in subordinated noncumulative preferred stock paying a fixed-rate of 7.125% until June 15, 2022, after which the shares will pay a floating rate, based on three-month Libor plus 529.6 basis points. That's a beautiful deal, with one catch: The minimum investment is $100,000.
GE Capital in July issued another $1.75 billion in subordinated noncumulative preferred -- again priced at $100,000 a share -- paying a fixed 6.25% until December 15, 2022, after which the shares will pay three-month Libor plus 470 basis points. This deal perfectly illustrates the dramatic and painful change in the market for fixed rate paper over the course of a month.
Another quality direction you may choose is energy limited partnership shares. Two lovely examples are
Kinder Morgan Energy Partners, LP
AmeriGas Partners LP
(APU - Get Report)
KMP is mainly a gas pipeline operator. The partnership shares have a yield of 6.15%, based on the most recently quarterly distribution of $1.23 and Tuesday's closing price of $80.03.
Kinder Morgan Energy Partners has had a very strong track record for dividend increases over the past several years, and the stock's five-year chart is rather lovely, showing plenty of growth on top of the income:
AmeriGas is a domestic propane distributor. The partnership shares have a yield of 7.58%, based on the most recent quarterly distribution of 80 cents, and Tuesday's closing price of $42.19. Like KMP, APU has been a winner over the past five years:
Of course, these are two extreme examples of income-oriented investments that have also brought home strong growth returns for investors.
You may also consider income-oriented ETFs, REITS, and other income-oriented investment vehicles. It is important to look in the mirror and consider your objectives. Depending on the investment vehicle and the direction of the economy, you could be facing declining share prices when interest rates rise. How will you react? If your objective really is to find a secure stream of income over a very long-term horizon, the movement of interest rates and share prices should not cause you to panic.
Then again, if you are obsessed with day-to-day price fluctuation, you need to rethink your investment income strategy.
Written by Philip van Doorn in Jupiter, Fla.