Cabot Investors Conference 2013 Alternatives to Bonds for Safe Income Robin Carpenter, Moderator...

Cabot Investors Conference 2013 www.cabot.net

Alternatives to Bonds for Safe

IncomeRobin Carpenter,

ModeratorChloe Lutts Jensen

Roy Ward, Jacob Mintz


Why Seek Alternatives?Bond Yields Are Down by

Half 10-Year T-Note Index


The Current Income Menu

• Treasury Bonds• Municipal Bonds• Investment Grade Corporates• High-Yield Corporates (so-called

“Junk”)• Preferred Stock• Common Stock• MLPs & REITs• Buy-Write (Options)• Annuities


Income Risk Issues• Safety of principal• Volatility• Appreciation• Accessibility• Call-ability• Reinvestment

rates• Taxes• Inflation


A Value Screen with Yield

• Current ratio greater than or equal to 1.5 • Long-term debt/working capital greater than 0% and less than 110%• Earnings per share positive for each of the last 5 years• Indicated dividend positive for coming year • Dividend maintained over the last 12 months• 12-month EPS greater than EPS five years ago• Price/book ratio less than or equal to 1.2 • P/E among the lowest 10% of the universe

Yield (June) = 5%, 10-Year Return = 15%, YTD = -5%


Potential Characteristics of Income Investments

• Low- or High-Yielding• Unlikely to Lose Value• Capital Appreciation

Potential• Dividend Growth – Another

Story


Potential Characteristics of Income Investments


Treasuries, Investment-Grade Bonds & Funds



High-Yield Bonds


High-Yield Bonds

Preferred Stocks



High-Yield Bonds

Preferred Stocks

MLPs & REITs



High-Yield Bonds

Preferred Stocks

MLPs & REITs

Dividend Stocks



High-Yield Bonds

Preferred Stocks

MLPs & REITs

Safety-First Stocks, Utilities



High-Yield Bonds

Preferred Stocks

MLPs & REITs

Blue Chips


Safe Stocks, Utilities


High-Yield Bonds

Preferred Stocks

MLPs & REITs

Dividend-Paying Growth Stocks


Safe Stocks, UtilitiesBlue Chips


High-Yield Bonds

Preferred Stocks

MLPs & REITs

Energy Stocks



Growth Stocks


High-Yield Bonds

Preferred Stocks

MLPs & REITs

Telecoms, Insurance, Utilities



Energy Stocks

Growth Stocks


High-Yield Bonds

Preferred Stocks

MLPs & REITs



Energy Stocks

Telcos, Insurance, Utilities

Growth Stocks


ETFs for Income

• SPDR S&P Dividend ETF (SDY)

• iShares MSCI USA Minimum Volatility (USMV)


Buy Writes/Covered Calls

• A Buy Write or Covered Call consists of Buying or Owning a Stock and Selling (i.e., shorting) a Call Option on that Stock


QQQ

• Buy 100 Shares of the QQQ at $76.00

• This is a capital outlay of $7600

• Sell 1 September 76 Call for $2.00 or $200


Profit and Loss Graph

QQQ Buy Write at September Expiration

-250

-200

-150

-100

-50

0

50

100

150

200

250

72 73 74 75 76 77 78 79 80

Stock Price

Pro

fit

and

Lo

ss


Yield at September Expiration

• Stock at $76 or above, we have created a Yield of 2.6%

• We do this 12 times a year, we have created a Yield of 31.2%


NFLX

• Buy 100 Shares of NFLX at $250

• This is a capital outlay of $25,000

• Sell 1 September 250 Call for $16 or $1600


Profit and Loss Graph

NFLX Buy Write

-600

-400

-200

0

200

400

600

800

1000

1200

1400

1600

1800

230 235 240 245 250 255 260 265 270 275

Stock Price

Pro

fit

and

Lo

ss


Yield at September Expiration

• Stock at $250 or above, we have created a Yield of 6.4%

• We do this 12 times a year, we have created a Yield of 76.8%

Cabot Investors Conference 2013 Alternatives to Bonds for Safe Income Robin Carpenter, Moderator...

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