The best retirement income stocks aren’t found on Wall Street’s buy lists.
There’s a reason for this – most of the stocks that Wall Street keeps dishing out for their customers do little for shareholders while providing business for brokers.
But my “Pay Me” stocks tend to be focused on the exact opposite.
They tend not to be high-fee generating investment banking customers. And with few new issues, share buy-backs and other shareholder wealth-destroying deals, they’re generally ignored by Wall Street guys looking for the next stock to be added to their buy lists.
Even more, with the continued surge in Exchange Traded Funds (ETFs) and all of the heavy fee and trading income that comes with these structured investments – my stocks tend not to be part of those contrived investment vehicles. And as such – they don’t find themselves on buy lists.
But what each of my stocks do have in common is that they are focused on delivering the goods for investors.
And this is why they’re on my list of stocks that work together to help investors build their retirement income.
They do this in two crucial ways.
Two-Step Stress Test
To make my cut, companies have to prove that they can continue to perform for their stockholders and pass my two crucial tests.
First, they either pay their shareholders well to own them or have a proven track record of successfully reinvesting profits to actually grow their business and stock values.
Getting paid to own stocks is the foundation of The Pay Me Strategy. And when you look at the model portfolio, you’ll see that for most of our overall holdings – dividends are more than ample and have been sustained and even increased for years and years. These are the stocks I place in the Cash Cows section of our portfolio.
Cutting checks is a good sign of credibility of any company. And while it’s not a foolproof method – it works well provided the company passes my stress test to make sure that the checks will continue to come for the years to follow.
But there are a few cases in which our Pay Me stocks don’t pay huge dividends. This doesn’t mean that they won’t work to build a retirement portfolio.
In some very specific cases – companies need to reinvest some of their profits to build and advance their businesses. Those who have proven they can do so successfully become part of what I call the Long Hauler section of The Pay Me Strategy portfolio.
This works for your portfolio if the companies behind these lower dividend paying stocks are using the cash the right way to build their businesses – and deliver results in the form of sustained higher stock prices. Holding and hoping for gains in a low dividend paying stock won’t cut it for your retirement portfolio.
Now for the second crucial requirement I demand of my stocks – each one on my list has to pass my stress tests – proving that it can continue to thrive even if its income statement sees some setbacks or its balance sheet runs into threats.
On the income statement – I look at what could go wrong for revenues and expenses. And then I play the bad news through for quarters to come to see how a company will perform and how dividends will be affected. I don’t look at any Wall Street estimates – nor do I listen to industry hacks – I do my own work so as not to be persuaded or sold by anybody with an axe to grind.
If a company can pass my stress test on its income statement – then it goes through the process of proving how tough its balance sheet is.
This means that I take lower revenues and see how that plays out on debt service. Because even if revenues are fine – debt can still be a challenge even for a successful company. Banks and bond markets can run into trouble – even for good companies in good markets.
So, I look at all of the company’s debt – running from bank lines of credit, term and revolving loans to bonds and even other debt securities. I then look at the plan for rolling the debt over by asking the question – how and why will the company be able to continue to fund its debt. If there’s a doubt – there will be a problem – and the company won’t make my list of stocks for your retirement portfolio.
Continuous Checking
Once a stock makes my cut it doesn’t mean that it gets to stay on my buy list – it has to continue to prove that it’s working to build retirement wealth.
This doesn’t mean that you need to be getting in and out of stocks every month to make your portfolio pay for your retirement. In fact, I’ve held many of my stocks for years – even, in some cases, since they came to the market decades ago.
Because when I find a good stock – I buy and recommend it with the goal of owning it theoretically forever.
However, I review each and every recommendation and holding at least monthly, with the same query – would I buy it all over again and why?
This discipline forces me to start over every month – and in the process helps me avoid one of the worst investing mistakes of all – the “hold and hope” strategy. This is a killer for too many investors.
Either they’ve bought a stock that’s just sagged and are hoping that something happens to enable them to break even – or they’ve done so well that they can’t bring themselves to sell at profit – hoping that something miraculous happens to make the stock resume going up.
But there are plenty of stocks that – month after month and year after year – deliver consistent results that merit continuing to buy and own them.
At their core, companies behind such stocks tend to have the same characteristics.
First, they’re proving over and over again to be focused on shareholders. Providing reliable information to investors and watching costs, while doing their job to bolster business and paying big and ample cuts of the profits in the form of dividends.
Second, they consistently perform those same tasks over and over again. And they not only do it better than their industry peers – but better than alternatives across other markets and even other nations.
One Stock to Buy – And One to Sell
OK – let’s get to a specific stock in the electronics technology industry that fits into our Pay Me Strategy. In this example, I’ll show you a proven stock price performer that beats a Wall Street darling hands down. The Street’s favorite might have more cheerleaders – but won’t score any points for your retirement.
Buy Samsung, Sell Sony
Sony (SNE) has been the go-to company for consumers and investors for decades. Once the industry leader for innovation and quality it’s clearly lost its way over the past decade.
Instead, a new leader has emerged from the rival market of Korea – Samsung Electronics (SSNLF).
click image to enlarge
From aggressive moves to cut costs and push production – to cashing in on massive leaps in technological developments – Samsung has continued to trounce Sony. It’s gotten so bad for Sony, that the Japanese company has actually thrown in the towel on a collection of products and components – contracting with Samsung directly to buy and re-badge products with Sony on the outside – but Samsung quality on the inside.
Yet despite the differences in sales gains for the companies – Samsung keeps soaring at annual rates in the 20-30 percent range vs Sony’s losses running annually at over 20 percent – Wall Street keeps pushing Sony stock with not a single sell recommendation.
But while Sony stock keeps finding fans on the street – the market knows better. And this is why I’ve continued to buy the real winner – Samsung – with its gains for the past decade of over 286 percent, versus Wall Street’s darling – Sony – with its losses of over 69 percent.
Want more? I’ve created a free special report on my top ten retirement income stocks — along with their ten Wall Street counterparts to sell immediately. You can get it when you sign up for a free trial membership to my Pay Me Strategy service.