By Carla Pasternak, DividendOpportunities.com
If you think investing in income stocks means giving up strong returns, think again. This security could have turned a $1,000 investment 10 years ago into $64,800 today.
Income stocks have a reputation. They’re boring. They’re stodgy.
If you want to earn 4-5% a year — the conventional wisdom goes — then income stocks are for you. If you want to earn higher returns, then you better look elsewhere. In fact, for decades income payers have even been nicknamed “widow and orphan” stocks because their stable and predictable returns appealed to the most conservative investors.
But sometimes the conventional wisdom gets it wrong.
How else can you explain the income payers we’ve found that have returned 538%… 733%… 2,270%… and even more over the past decade?
That’s what we found a few days ago, when a member of StreetAuthority’s research team tracked down the best-performing high-yielders of the past 10 years.
In total, 18 stocks yield over 6% and have had a total return of more than 500% during the past decade. But one stock took the cake. This investment currently yields 6.0%, and over the past decade, it’s returned 6,380% — enough to turn a modest $1,000 investment into $64,800.
That investment is Terra Nitrogen (NYSE: TNH). The Sioux City, Iowa master limited partnership (MLP) sells nitrogen fertilizer to farmers in the central and southern United States.
So why has a company that makes a “boring” product like fertilizer soared more than 6,000%?
Demand for food commodities of all types is soaring. Prices for wheat have risen 180% since 2001. Corn has risen from under $3 per bushel to over $7 per bushel during the same time.
In turn, that’s sparked demand for fertilizer to boost crop yields, causing fertilizer prices to zoom as well. In just the past year alone, prices for Terra Nitrogen’s fertilizers have increased 47%.
That support behind prices has caused the partnership’s sales to rise dramatically. In the trailing twelve months, TNH has seen revenues of $673 million — more than 120% greater than a decade ago.
As an MLP, Terra Nitrogen must distribute all available cash after expenses to the general partners and unit holders. In the past year, TNH has distributed quarterly payments totaling $11.35 per unit. That works out to an annualized yield of 6.0% at recent prices. While the distributions vary with earnings, the overall trend is sharply higher. In 2007, TNH distributed a total of $7.64 per unit, but only $1.92 per unit in 2006. Investors were paid just $0.44 per unit in 2001.
Now, I’m not suggesting you run out and buy into Terra Nitrogen. In fact, after an explosive run-up since May, I wouldn’t rule out a pullback in the stock.
But if you’ve held on to the notion that earning an income stream from high-yield stocks means giving up strong returns, I hope you’re seeing that’s simply not the case.
Good Investing!
Carla Pasternak’s Dividend Opportunities
P.S. — If you’re interested in finding out more about high-yield ideas, be sure to check out this presentation about my High-Yield Investing advisory. We’ve locked in yields as high as 10.1%, 10.5% and 12.1%… and I’ve even seen some holdings return triple-digit gains. Visit this link to learn more.
