I write about Bryan Perry’s Cash Machine every now and again — he’s generally focused on high-yield stocks, and he has pitched a variety of them over the years, from telecoms to MLPs to BDCs, anything that sports a nice, high payout.
This time around, though, he made a promise that caught my attention — here’s what he said:
“Once You Grab Your First Payday, You’ll Never Put Your Money in a CD Again
“That’s because you’ll not only be getting over 10 times more money than a 1-year CD, but you’ll also know that your money will be equally as safe.
“This is why Wall Street’s biggest insiders are already in on this deal!”
Your money will be “equally as safe” as in a 1-year CD? Either he’s got a wildly pessimistic opinion about the FDIC and it’s ability to guarantee the value of your Certificate of Deposit down at the bank, or he’s on to something remarkable. Or, of course, he could just be, well, exaggerating.
And frankly, we’re a bit short on time here at HQ today so I’m going to make this quick: No way is this investment as safe as a CD if “guaranteed return of capital” is what you mean by safety. I can tell that even without telling you the name of the stock just yet, because he lets slip a few paragaphs later that he’s teasing a Business Development Company (BDC), which is basically like a pass-through small business lender — they borrow money cheap at short term rates, including money from the government’s funding for small business loans, and they lend it out at much higher rates to small and mid-size companies. They have similar tax status to REITs or MLPs, which is why they have such high payouts — they pass the tax obligation on to shareholders and don’t pay any corporate tax (so these, like REITs, can be appealing choices for retirement accounts — particularly ROTH IRAs, since that income will then either never be taxed or can accumulate tax-deferred for years … MLPs, for a variety of other reasons, are not generally good choices for an IRA if you have a taxable account handy).
There are all kinds of BDCs out there, we’ve had a bit of an explosion in the marketplace for these tax-pass-through investments in recent years, but there aren’t any of them that I’d say are “safer than a CD”. Which one, though, is Perry teasing?
Here are our clues:
“I’ve sent you this special message to tell you about a little-known income investment my readers and I own that pays 11.6% annually — and that is legally required by the government.”
OK, I Can’t let that frequently used bit of tease go by without comment: “Legally required by the government” means they have to pay out dividends if they make money — BDCs are required to distribute at least 90% of their taxable income to investors, so it’s very much subject to their operating performance, they are not “required by the government” to keep paying out a specific dollar figure, or to pay out a rising amount, it’s a function of their income and can go down or be suspended. BDCs in general can, and have, cut their distributions dramatically on occasion when their income dropped.
More from Perry:
“This Is Why the Vanguard Group Owns Over 3 Million Shares…
“…and will be collecting their own $331,909 payday this month, along with us, BlackRock, UBS and the some of the biggest hedge funds and institutional investors on the planet….
“all they are doing — I repeat, all they are doing — is parking their money in this high-yield business development fund, that pays you 11.6%, and laughing all the way to the bank!
“This is why Blackrock’s, State Street’s, and UBS’ profits have been shooting through the roof as income investors have seen their monthly payouts decrease.
“By simply enrolling in this fund, as I’ll show you in your free online report, you’ll finally be able to enjoy the same kind of fat government-mandated payouts that hedge funds and institutional investors have enjoyed for years, and bank an easy 11.6%, too.”
Then Perry explains BDCs a bit:
“Frankly, they use a modified version of the 3-6-3 rule that bankers have been living on