If You Don’t Know About This Income Investing Oddity, Pay Attention

I know what income investors like.

If I put a double-digit yield in the headline of an article, it will see thousands more reads than an article without a big headline yield.

I can put “safety” in the headline. I can put in enormous capital gains. But yield is what really excites income investors.

#-ad_banner-#That’s one of the reasons I have a “10%-Plus” Portfolio in my High-Yield Investing advisory. To be included in the portfolio, a security has to pay double-digits at the time it’s added. No exceptions.

But there’s a secret to those high yields I’d guess most income investors don’t know.

Take a look below. I’ve shown the performance of my current holdings in the “10%-Plus” Portfolio (to be fair to High-Yield Investing subscribers I’ve redacted the ticker symbols).

Why are the yields you see here below 10%? Nearly all the holdings in the portfolio have risen since I added them. That lowers the current yield, but those who bought when I highlighted the play are still earning 10% or more on the initial investment.

Sure, I have a losing position. No one can pick 100% winners. But I have one more list I want you to see.

It’s the performance of my lower-yielding “Dividend Optimizer” Portfolio. These are investments you can count on to deliver above-average income year-in and year-out, but they don’t pay out the juicy double-digit yields.

That performance is very good. But with the average returns between the two portfolios, there’s something odd happening.

The “10%-Plus” Portfolio is showing an average gain of about four times the average yield. But the lower-yielding “Dividend Optimizer” Portfolio shows an average gain of more than five times the yield. Just a few weeks ago, the average return was actually six times the yield.

So despite one portfolio boasting double-digit yields (which should make the securities more attractive to investors), the performance of the two portfolios is roughly the same.

My colleague Daniel Moser attributes this phenomenon to the “sweet spot” for yields — those in the 5-8% range.

It’s the area where yields are not so low that they’re trivial and not so high that they make it tough for management to pay steadily increasing dividends.

Action to Take–> Most importantly, this little quirk shows you don’t want to always pass up lower-yielding securities simply because you’ve found something paying more. You can be rewarded just as handsomely by those sitting in the “sweet spot.”

P.S. — If you’re looking for quality stocks with high yields, you should take a look at this one. It pays a 19.2% dividend yield. It borrows cheap, gets paid handsomely and then pockets the spread. You’ll get the full story on this cash machine and others like it in this video.