Where Retirees Can Find 12% to 21% Yields Right Now
January 21, 2019
These Stocks Pay Up to 21%
Are you sick and tired of low interest rates?
Certificates of deposit pay next to nothing. Bonds yield only three or four percent a year.
Sure, rates have ticked up a little recently, but they’re still nowhere near high enough—at least, not enough to fund a comfortable retirement.
Thankfully, there’s an answer.
Wall Street has prized this little-known market niche for its safe distributions. And right now, retirees can earn yields ranging from 12% to as high as 21%.
Regular readers know I love America’s big bank stocks. Firms like Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC), and JPMorgan Chase & Co. (NYSE:JPM) serve as the country’s “financial toll roads.” They earn a fee every time someone transfers money, services debt, or saves for retirement.
All of these activities ad up to a seriously big industry. Today, America’s financial sector has accumulated more than $10.0 trillion in assets. Last year alone, the country’s five largest banks earned $84.7 billion in combined profits.
This has created some lucrative income streams for investors. Bank of America Corp (NYSE:BAC), for instance, has returned more than 100% since we wrote about it for paid Retirement Riches subscribers in 2016. Moreover, the company’s distribution has more than doubled over that time.
These traditional banks still have a place in any income portfolio, but as longtime readers know, there’s another type of financial institution worth considering.
“Alternative banks” is the name we give to a group of firms called mortgage real estate investment trusts (REITs).
REITs are pretty simple to wrap your head around. First, they borrow money at low interest rates from depositors. Then they invest that money in safe, higher-yielding investments like residential mortgages.
Given that house payments are often the last thing skipped in an economic downturn, these mortgage loans tend to be exceptionally safe. Moreover, most lenders purchase insurance from the government, so even if a homeowner defaults, it’s “Uncle Sam,” not investors, on the hook for the losses.
Where these firms differ from traditional institutions is how they operate. Alternative banks have no ATMs, no tellers, and no branches. They operate virtually without any brick-and-mortar locations.
For this reason, alternative banks make far more money than traditional banks. It’s not uncommon to see firms earning mid- to high-teen returns on investors’ capital each year. And thanks to a unique arrangement with the government, these institutions pay no taxes on profits.
Most of this income gets paid out to investors.
In exchange for their tax benefits, alternative banks must pass on all of their income to unitholders. As a result, these firms pay out some of the highest upfront yields around.
|
Company |
Market Cap |
Yield |
|
Ellington Residential Mortgage REIT |
$139.0 Million |
14% |
|
Ladder Capital Corp |
$1.8 Billion |
13% |
|
Anworth Mortgage Asset Corp |
$430.0 Million |
13% |
|
New York Mortgage Trust Inc |
$1.0 Billion |
13% |
|
Western Asset Mortgage Capital Corp |
$442.0 Million |
12% |
(Source: Yahoo! Finance, last accessed January 17, 2019.)
This presents a profitable formula. One of my favorite alternative banks, Annaly Capital Management (NYSE:NLY), for instance, has delivered a total return of 750% since 2000. That has beaten the pants off of the broader stock market—with a lot less risk.
Don’t get me wrong, traditional bank stocks will do just fine over the coming years. These investments will pay out steady dividends, which is why I continue to cover them for readers and subscribers.
But for those willing to do a bit more homework, it’s possible to start earning yields up to 21% right now through “alternative banks.”
