Investing Topics: Investment Strategy

Investors looking for big, safe yields from real estate investment trusts (REIT) will be better served focusing on company-specific stories instead of buying exchange-traded funds (ETF).

Volatility sparks fear among investors but also creates opportunities. The October issue of Conrad’s Utility Investor highlighted four ways for readers to profit from an unsettled market:

• Picking up high-quality international equities on the cheap, thanks to the strengthening US dollar;
• Buying when dividend-paying stocks sell off because of misplaced fears about the end of easy money;
• Taking advantage of uncertainty and panic in the energy patch to add to positions in high-quality producers and midstream operators; and
• Buying US utilities that have pulled back because of election-related fears.

Our strategy has already produced some happy returns.

Last week, the Federal Reserve ended its bond-buying program. Here's what this long-awaited policy shift means for dividend-paying stocks.

October can be a dangerous month for the market, but this volatility usually moderates and stocks rally through year-end. The Dow Jones Utilities Average has posted a gain in 37 of the past 45 fourth quarters and we're betting on that seasonal strength once again.

Conventional wisdom holds that October is a dangerous month for stocks, which means that investors must think unconventionally to get ahead.

An unsettled market has  rewarded patient investors who kept some powder dry with a number of buying opportunities. Opportunity No. 1: International Intrigue: A strengthening US economy and the Federal Reserve’s push to rein in six years of easy money have boosted the greenback’s value relative to foreign currencies, placing many of our favorite international stocks on the bargain counter. Snap them up now. Opportunity No. 2: Irrational Fear of Rising Interest Rates: The prospect of a stingier Fed has also raised concerns that US interest rates will head significantly higher, undermining returns posted by dividend-paying stocks. I tackle this myth head on and highlight several high-quality telecoms, water companies and electric utilities that have pulled back to favorable price points. Opportunity No. 3: Oil’s Retrenchment: Oil prices have also plummeted of late, fueled by surging US production and elevated refinery outages. This pullback has panicked weaker hands, giving savvy investors an opportunity to buy rock-steady integrated oil companies and first-rate pipeline owners. Opportunity No. 4: Politics as Usual: Uncertainty related to upcoming US elections has likewise unsettled the market and contributed to the market’s recent weakness. We’ll have a full review in the November issue.

Dashed merger hopes, unfavorable regulatory environments and dim prospects signal investor caution is still in order for these companies.

Fears of rising interest rates and falling oil prices got you down? Take advantage of this opportunity to add to some of our favorite essential-services names, many of which now trade below our buy targets. Here’s what you need to know to profit from what’s going on in the utility space.

By the end of 2016, energy companies will lock in the lion’s share of an estimated $600 billion in contracts for new infrastructure to process and transport surging US oil and gas production to market.   This construction boom creates an unprecedented opportunity for well positioned energy companies such as Dominion Resources (NYSE: D), which recently proposed a 550-mile pipeline to carry cheap shale gas to energy-hungry North Carolina and Virginia. (See Five Big Deals to Build Wealth.)   The pipeline project has stoked the usual opposition from environmentalists and concerned citizens who, by reflect, don’t want any energy-related infrastructure in their backyards.   Ironically, utilities have answered environmentalists’ call for more renewable energy, increasing wind generation from 6 billion to 168 billion kilowatt-hours between 2000 and 2013 and solar-power capacity by 70 percent since 2013. That’s a clear demonstration of how the best US utilities have walked both sides of the street in the debate over fossil fuels and renewable energy. As long as these companies earn a fair return on investment, they’ll continue to reward us with rising earnings and dividends.

Canadian REITs trade at reasonable valuations, offer superior yields and generally operate more conservatively than their US peers.