This article originally appeared on RealMoney.com on Sept. 4, 2014 at 2:42 p.m. To read more content like this AND see inside Jim Cramer's multi-million dollar portfolio for FREE... Click Here NOW.
We know there's collateral damage to any central bank intervention that's meant to drive growth or slow inflation. Always has been; always will be.
Right now, the radical actions being taken by European Central Bank (ECB) boss Mario Draghi are taking yields around the world down to levels where you can't really make money with your money using the usual fixed income alternatives. His rate cut today -- as well as his pledge to keep rates down to historic lows -- is driving money into our bonds. So, despite the strength I described earlier, the market is not getting the real spike in interest rates that we should have seen by now.
Sure, we can bemoan the Fed's largesse, as some do. Even as I think there's little inflation in the system, it really is time for the Fed to stop trying to keep rates down with its bond buying. If I were Fed Chief Janet Yellen or Treasury Secretary Jack Lew, I would be a seller, not a buyer. These rates are only available because of the deflation precipitated by the almost total lack of demand in Europe along with German insistence on inflation being stopped by any means necessary. This is the polar opposite of what Draghi wants.
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I am not here to debate interest rate strategies, though. I am here to help. I know many of you need income, particularly those who are retired. I know that certificate of deposits (CDs) and other fixed income securities are offering returns that are just preposterous for those who need fixed income to support their lifestyles. We can throw up our hands and say, "I give up there's nothing to do," or we can work hard for alternatives, as my writing colleague Matt Horween points out. It's time to roll up our sleeves and work for that yield without taking too much risk.
Where do we go? Let's build a diversified yield portfolio. I would start with Verizon (VZ) . Why? Because it just boosted its dividend today, from $0.53 to $0.55, which gives you a terrific 4.3% yield. That's much better than Treasuries, even before you factor in the favorable tax treatment. We like companies that have enough growth that they can increase their dividends, and Verizon's amazing wireless division will give us that.
Next up? Last night we heard from Royal Dutch Shell's (RDS.A) , (RDS.B) CEO, Ben van Beurden. I hope you were as impressed with him as I was. He's giving you a 4.7% yield and a dividend boost is in the cards, as he follows through with his disciplined plan to invest with better returns and knock out profligate spending, which he will detail in tomorrow's analyst meeting. I know oil's been headed down, but not so much that it hurt that dividend growth.
How about Kinder Morgan (KMI) ? I can't harping on this one, but let's understand each other. You get a 5% yield and a commitment to grow that distribution for 10% for the next five years. It's a pipeline company that's more of a toll road than an oil company, so I am not concerned with the diversification issue vs. Royal Dutch.
How about a real estate investment trust (REIT)? We have heard from the incredibly bankable Debra Cafaro that she has committed Ventas (VTR) , the senior housing real estate company, to a path of consistent growth with higher returns. Growth plus a 4.3% yield without a lot of economic sensitivity? I like that.
Finally, a pure utility with growth? That's Dominion Resources (D) . We just heard from CEO Tom Farrell last night about how his gigantic pipeline and natural gas export projects will give you growth for years to come. I'll take it along with the 3.4% yield.
Okay, there is risk; these are stocks, not bonds. But we aren't stretching the risk and we are boosting the reward at levels I find comfortable. Verizon, Royal Dutch, Kinder Morgan, Ventas and Dominion make up your five-card stud dividend portfolio.
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