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    Real Cash From Real Assets

    While the general stock market has been the bane of retirement investing, real assets have been on quite a roll.

    Sure, this includes the run up in gold, which is up for the past decade by some 475 percent. While the overall market for commodities as measured by the Commodities Research Board (CRB) Index is up more than 77 percent for the same period of time.

    And even energy — something that used to recede during times of lower economic expansion — is still up big for the same period. Crude is up more than 231 percent, while the overabundant natural gas is up some 33 percent.

    More interesting is that the real asset market of real estate is really up — much more so than some of the other real asset market segments. Overall, real estate companies as tracked by Bloomberg are up more than 332 percent.

    But while the market for real assets is going well, too many investors are still not able to cash in. The trouble is that when the talking heads of Wall Street’s finest get out and play up real assets, they tend to focus on the raw stuff and then continue to pitch either complex futures and options trades or the world of Exchange Traded Funds/Exchange Traded Notes (ETF/ETN), complete with their result of heads they win and tails you still lose.

    But that doesn’t have to be the case for you.

    The key is to focus on companies that can make real assets pay and that keep paying, even when the market’s enthusiasm and hype fade and prices plummet.

    Let’s start with the market for the most basic of real assets: real estate.

    The media keep harping on falling single-family house prices around the Nation and when the slip and slide will end. Why bother hoping for a sustained recovery?

    Instead, look at a company that wins during both the dire and the glory days of real estate prices — all while paying its shareholders well year after year.

    W.P. Carey Inc. (WPC) has been a success since it came to the public market on the New York Stock Exchange. This company continues to operate as what I term a “pawnshop” for the Fortune 500. W.P. Carey buys from major corporations core real estate assets that include everything from headquarters buildings to distribution and warehousing facilities. It then leases the same properties for the long haul to the corporations from which they were bought.

    When times are tough, it steps in and buys on the cheap. And when times are flush, it gets to charge even more. During the past few years of woe, it’s been picking off great cash-generating assets at big discounts. And now, as the market for property in the United States and around strategic markets in Asia and Europe is getting more dear, the rents and the property values are getting only better.

    It pays more than 5.01 percent and is running strong with returns over the past year alone of more than 26 percent. Buy it under 55.

    But real estate is just the beginning of real asset investing for real cash. Next is the market for energy, from production to transportation.

    There are several cash-paying real energy asset companies that not only have plenty of hard real assets, but generate and pay ample sums of dividend cash to their investors.

    These are companies that are set up with the sole purpose of generating steady-to-rising cash flows from their real assets and, in turn, paying out the lion’s share to their shareholders — all without having to pay corporate income taxes.

    Called “pass-through securities” because they pass through profits directly to shareholders, they are set up in various forms, including limited liability companies (LLCs), limited partnerships (LPs), master limited partnerships (MLPs), general partnerships (GPs) and other set ups. I roll them all together under the term “pass-throughs” or “publicly traded partnerships” (PTPs).

    I’ll start with the example of an oil and natural gas company that continues to operate its business in the most conservative way. Not willing or needing to make the big risks of wildcatting, it works in established fields and makes the most of the cash flows.

    Linn Energy, LLC (LINE) continues to pay ample cash flows with a yield running more than 7 percent. Linn should be bought below 42. It continues to outgun and out-pay its peers, with a trailing 12-month return of more than 12 percent and a return of more than 210 percent since coming to the market in 2006.

    Then, there are companies that don’t even have to worry about the price of fuel and arguably fare even better with lower prices. The middlemen of the petroleum patch, the pipes and processors are involved in the most steady of markets. And for this market, look for the leader to buy and own Enterprise Products Partners L.P. (EPD). It pays a bit less at only a tick less than 5 percent as the price of the stock is up and rising with overall 12-month returns running in the 21 plus percent range; it should be bought under 57.

    — Neil George

    Join Neil George for the Largest Investor Gathering of 2013 at The World MoneyShow Orlando!

    Neil George is the editor of By George, an investment advisory publication. George was the editor of Personal Finance for many years. In addition, he served as editor for a collection of other investment journals published in the United States, Germany and other selected nations. Prior to his career in media, George worked for more than two decades on six continents in senior positions with a select group of financial institutions in investment banking, bond trading, brokerage and asset management. The institutions included Merrill Lynch International Bank in Europe, Asia and the Americas, as well as U.S. Bank and British- and Chinese-based Investec PLC. In addition, George worked to build a collection of independent public and private brokerage and fund-management companies in Los Angeles and New York. He also currently serves as an adjunct professor and board member of Webster University's Walker School of Business and Technology. George earned an MBA in international finance from Webster University in Europe and a bachelor's degree in economics from Kings College.

    | All posts from Neil George

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