As a retired or planning to retire person you have to focus on bargains. Buying when everyone else is scared gives you all kinds of advantages and it’s perfect for those of us who have learned one of the most important investment disciplines: Patience.
Bargain hunting obviously gets you into investments at lower prices, which means higher yields if they pay a dividend. It also keeps you out of the herd trap of buying at the top. And, if you have developed a long-term horizon, which most of us within range of retirement had better have developed, you can allow a bargain time to recover from whatever forces made it a bargain and really make some money for a change.
Here’s an industry that has been shelled recently. U.S. Steel Corp. (NYSE: X) has dropped 22% from its 52-week high.
Is there anyone who thinks U.S. Steel is going under? Or is there anyone who thinks U.S. Steel won’t recover from its current rough patch?
I hope not. It would be a bad bet.
But, as retired folks we have to look at more than just the eventual recovery of a stock. Almost all of us need income so it would be nice if the big dog of steel, U.S. Steel, paid a decent dividend while we wait for the recovery.
I’m sorry to report, it does not. Not unless you consider 0.8% a decent income. And I don’t
But, how about a bond from U.S. Steel?
It has a bond that matures in 2020 that pays a coupon of 9.125% and is selling for about 108, that’s $1,080. When you shake out all the numbers that means this bond will pay you a minimum annual return of about 5.7% a year to maturity. And a current yield, that’s how much income you make based on the cost of the bond, of 6.8%.
A U.S. Steel bond with a maturity of less than seven years also has a negative correlation to interest rate increases. That means you won’t see a big drop in the market value when rates finally go back up.
This is an essential industry that is, for all intents and purposes, a government-protected industry.
It will pay you far more than any CD, money market or even a 30-year Treasury and this type of bond has a 98% success ratio in the current market.
If you are looking for income from essential industries that are out of favor at the moment, look at their bonds. It is the one of the best and least understood ways for the retired people to invest.