Financial planners like to put you in one of two camps:
The "growth camp," which they say is right for younger investors, and the "income camp," which they say is proper for retirees and those close to retirement.
Don't believe it.
There's only one reliable way to make 10% or more a year... especially now, in a rising interest rate environment. (See Part I and Part II.)
Growth and income are inseparable. The three companies you'll see today are perfect examples of this.
And "total return" has never been more important to seek...
Growth Is the New Income
I like to buy income-generating assets that have the potential to provide me with 5% to 10% per year in capital appreciation and that also will pay me between 5% and 10% in cash.
That's because seeking yield alone is dangerous. It can suck you into bad investments. After all, a high yield is high for a reason.
Take mortgage REITs, for example.
These are favorites among the high-yield seeking crowd, and in many cases they pay yields north of 10%. The downside here is that they also get sold off hard in a rising interest rate environment.
In fact, over the past six months the share price of the benchmark Market Vectors Mortgage REIT ETF (NYSE Arca: MORT) has plummeted nearly 20%. That's the kind of math that just does not work if your goal is to generate total return north of 10%.
Another high-yield favorite with little growth potential at this time is preferred stocks. As interest rates rise, the value of fixed-dividend payments is diminished.
Traders know this, and they've run for the preferred exits.
Just look at the iShares S&P U.S. Preferred Stock Index (NYSE Arca: PFF), which serves as a proxy for the entire preferred stock sector. This fund offers an attractive yield of 5.8%, but over the past six months the share price has declined 6.6% - a losing proposition.
To put the math on your side, and to reach that Holy Grail of double-digit annual returns, you need to seek out investments with solid yield and outstanding growth potential.
It takes a little more time. But the effort will pay off handsomely, because it will allow you to find companies like these...
3 Ways to Grow Your Money 10% or More Every Year
One sector currently offering both high yield and strong growth potential is energy master-limited partnerships, or MLPs. I like this sector because in addition to yields of 5% or more, they also are in the secular growth space of energy production and storage.
While there are many outstanding growth and income candidates in the market to choose from, one I am particularly bullish on is in the natural gas space. Specifically, I am bullish on transportable liquefied natural gas, or LNG, and the MLPs involved in the LNG transport space.
As you know from my colleague Dr. Kent Moors, LNG is one of the biggest game-changers of the early 21st century energy markets for select U.S. energy companies. According to a major LNG player, the industry is set to grow 56% by 2020. And where the United States didn't have a dog in the hunt three years ago, the U.S. is now expected to provide 8% to 12% of global exports in just 7 years.
Talk about going from zero to hero.
And one of the very best natural gas MLPs is Teekay LNG Partners L.P. (NYSE: TGP).
The company specializes in LNG transport, as well as liquefied petroleum gas (LPG) transport. Better yet, TGP has locked in business as things turn up. It has a number of long-term, fixed-rate charter contracts with major energy and utility companies. And servicing those contracts are its fleet of 27 LNG carriers, five LPG carriers, 10 Suezmax class crude oil tankers, and one Handymax product tanker.
The revenues generated from the LNG and LPG transport fees allow Teekay to pay out a very healthy 6.4% dividend yield, but that's just part of the appeal. Because of many governments' push toward increased use of clean energy, natural gas use and transport is booming and will likely continue growing for years to come.
Moreover, because Teekay is a shipping concern, it isn't directly subject to the volatility of the underlying commodity price in the natural gas space. And demand is in a long-term uptrend.
Another winner in the space is Kinder Morgan Energy Partners L.P. (NYSE: KMP).
KMP, like Teekay, is an MLP - which means its profits are your profits - and it operates one of the largest oil and natural gas pipelines in the United States.
This MLP has both "roots" and "wings." It is one of the most respected and durable pipeline players in the United States, and it's also positioned to benefit from new technologies such as hydraulic fracturing, or "fracking," for natural gas and oil.
Teekay is a company that specializes in LNG transport, as well as LPG transport. KMP pays a hefty yield of around 6.5%, but more importantly, like Teekay, it offers real growth that will lead to big upside in the share price.
We haven't seen that upside of late in KMP, but over the past five years shares are up nearly 45%. As for TGP, the shares are up 7% over the past six months and 112% over the past five years.
Outside of the energy patch is what seems, on its face, to be a highly contrarian play - a real estate investment trust (REIT).
Nowadays most investors think of REITs as investments leveraged to the Treasury market, kicking off - well, formerly kicking off - double-digit yields. I'm not talking about those poisoned REITs.
I'm actually talking about a solid REIT that does the kind of business traditional REITs were built to do: Buy property and manage it and take the profits. This business continues to do well, and Vornado Realty Trust (NYSE: VNO) is the best of class.
Vornado invests directly in prime real estate properties in the best, highest-rent locations around the country, including economically vibrant New York City, San Francisco, and Washington, D.C. Rents from these properties are what Vornado uses to generate income for unitholders.
Granted, Vornado doesn't pay 10%-plus on your principal. But it gives you something much more powerful: a growing dividend and a growing stock price.
Much more to come on Vornado, though. Stay tuned...
Robert Hsu is one of the world's leading financial analysts. He made his mark on the financial world early, first as a quant analyst for a billion-dollar hedge fund, and then as a portfolio manager for Wall Street powerhouse Goldman Sachs. He earned his first million at 29 and then retired at 31.
After five years in retirement, Robert founded the world-class money management firm Absolute Return Capital Advisors LLC to help private investors build their wealth. He currently serves as president and lends his special expertise in income investing to his clients and subscribers.
Robert is a published author and appears regularly on national financial TV and radio shows like Bloomberg and CNBC. He graduated from the University of California-Los Angeles with a degree in economics. Robert and his family divide their time between their homes in Beverly Hills and Taipei.