Grab these dividends

banker xThe events in the US Capital are destined for a bad ending regardless of the outcome on the surface. The inability to come to agreement on just about any issue that requires belt tightening or fiscal responsibility is the new hallmark for a dysfunctional leadership. And it’s not as if one party lays claim to the title of “stupid” in this fight.

The Democrat Party loves to spend, that isn’t a secret. But so do the Republicans. It is spending, whether on defense, social programs, farm subsidies, healthcare and the like that drives the politicians to do what they do best: run for re-election.

And I’m going to tell you about a clever little income strategy that’s looking good as a result of all this…

Let’s be clear. Nothing happening in Washington is for the “good” of the people. It’s for the good of the so-called leadership of the US. The goal is to maintain the tightest grip possible to the Whitehouse and at least one house of Congress and to do so by every means possible even if that means stifling economic growth. And, the singular task at which the politicians are succeeding at the most is creating a culture of entitlement and betrothal to government.

Take the current shutdown just as an example. As soon as the checks stopped flowing, those who are suckling at the financial teat of the taxpayer begin howling the loudest.

The national parks are closed, government websites are down, and checks that were once in the mail to a host of leeches are now just blank pieces of paper waiting to be fed into a printer. And they should stay that way. The country is still functioning. Commerce is taking place. States are stepping in to fund their self-interest and in doing so they are unraveling some of the mysteries surrounding where and how much of the US treasure is being spent.

Take for example the Statue of Liberty in New York. It had been closed until this week due to the shutdown. It’s not as if someone draped a massive cloth over the statue. Those who want to see or understand it’s meaning and do so in all of its glory. But those who wanted to climb up in it or walk around the base were out of luck. The State of New York stepped in and decided it was worth re-opening, for now, at a cost of $62,000 per day. The same goes for national parks like the Grand Canyon, at a cost of some $651,000 for seven days, courtesy of the Arizona government.

One would hope that this “new” model of “pay to play” would stick. In a country where deficits and debt are the norm, should the Federal Government really be paying so that others can play? Yes, taxpayer dollars are meant to fund things like National Parks for the greater good. But, there aren’t enough dollars to go around without the Chinese stepping in to buy debt. The longer these types of operations are funded by deficit spending, the less time it will take for the US to plumb the depths of bankruptcy and that might ultimately be what the country needs to rationalize out of control policies for spending money that wouldn’t even exist were it not for the Dollar’s status as the world’s reserve currency.

In the meantime, GDP growth in the US will suffer as will confidence in the US Dollar. This means no sharp rise in interest rates. That means the time is still ripe to take advantage of the high yields available in sectors like Preferred Stocks. Preferred Stocks are instruments that companies issue to raise capital in a less expensive fashion than the bond market. They are senior in obligations to common stocks, but junior to bonds. They normally pay dividends four times a year and can be redeemed at the company’s option at a specified price.

In this case I like the preferred stock of a company called Everbank, the largest US Online Bank. It has a super strong balance sheet, a goring depositor base and does not have the high bricks and mortar overhead of conventional banks. IN fact, they were one of the few companies that were buying up deals from banks that were hurting during and after the financial crisis.

The Everbank Preferred stock is called the Everbank Preferrred Series “A”. The symbol, which varies from brokerage firm to brokerage firm, is EVER Pr A – check with your broker for the symbol they use. At current prices of around $22, the shares are paying a dividend of 7.6% – about 7.5% more that you’re checking account. The shares can’t be called by the company until January 2018 at the earliest and after that point the company must pay you $25 per share to redeem your stock, so that means that there is an upside of more than 10% in capital gains as well as the dividend from current levels.

If interest rates move up, the share price might fall a little from current levels but that should more than be offset by the fat dividends you’ll collect every year and the potential for fat capital gains as well.

To your wealth,

Banker X.

 

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