Sometimes just being steady is enough to make a portfolio work. When stocks are plunging day after day and much of the bond market’s doing the same, more and more investors are eager for investments that stay put.

Sleeping well at night and being able to leave the house without having to stay in contact with your broker is a good way to be. And for us, this doesn’t mean simply holding cash. There are some investments that do exactly what we want, remaining well braced for whatever comes while paying hefty dividends throughout the year—Taxable and Non-Taxable recommendations provide hefty coupon flows and pile on the cash.

Investing for stability doesn’t just mean owning stocks, bonds and funds of quality – but making sure that you have a foundation of investments inside your portfolio that aren’t leaping and plunging with the market vagrancies.

And this month there’s a lot more skittishness in the bond market over the direction of interest rates. As we’ve seen during the past seven years, the common cycle is that rates head up only to settle down later in the summer.

The general contours of the cycle tend to look like this: The economy gets a little oomph and then we get a little more talk about inflation. Stocks are running well on economic optimism, and that drives cash from bonds into equities, pushing yields up a bit more. Then the Fed and other central banks talk about–or actually follow through on–tightening a bit, and the market goes into a tizzy, bringing rates up and dragging bond prices of fixed issues down.

As reality sets in, and the economy isn’t too overheated, more and more folks start talking about easing borrowing conditions again. Bonds soar as we get further into the summer.

This causes a whole lot of trouble for many folks’ bond portfolios as well as their stocks; the ups and downs end up creating needless panic and lead to bad investment decisions.

There’s a way to measure this volatility, and this is how we look at our collection of holdings inside the Taxable and Non-Taxable portfolios: tracking and measuring volatility rates for the prices of each of our recommendations.

It should come as no surprise that bonds and funds that tend to be less volatile than the general bond market–and a whole lot less so than the general stock market–form the foundation of the Taxable Portfolio. Make sure you have some of this stuff in your portfolios right now.

Floating With Change

The core means of shoring up your bond portfolio is to go with a steady investment strategy. One avenue is to own bonds that are neutral with the rise and fall of interest rates, the floating-rate portion of the market. Instead of having a fixed-rate, floating-rate coupons are set or re-set on an ongoing basis, monthly, quarterly, semiannually or annually depending on coupon frequency of the issues.

We’ve been invested in this part of the market inside the Taxable Portfolio for the past several months, in a manner similar to our fixed-rate issues in the international and corporate bond markets. We’ve gone with packaged investments through our favorite bond mutual fund vehicle, the closed-end fund.

Just because a fund has the right name on the door doesn’t mean it has been–or, more important, that it will continue to be–what we need to brace up our portfolios. It still comes down to the underlying assets and the management behind the fund companies.

You can’t just buy an index or an exchange traded fund (ETF) and think you’re good to go in a market-neutral investment with yield. Nope; like with everything else, you need to be fussy and picky when putting the right market-neutral investments into your portfolio. Remember: Our fussy favorites are well run and hold good assets, but to get the best market-neutral position, you need the mix. Buy the collection–it won’t be that expensive because commissions for NYSE-listed bond funds aren’t that bad.

We start with ING Prime Rate Trust (NYSE: PPR), which focuses on the corporate debt of secure borrowers located principally in the US. Although it carries the Netherlands-based bank’s name, the fund’s management is all red, white and blue. That team has kept the fund consistently in the black with a five-year return running at an annualized 8.2 percent.

The fund’s share-price volatility is right on the money with a rate barely above 6 percent–even during the past month’s big market and economic gyrations.

Yielding in the mid-7 percent range and trading at a steady discount to net assets of about 3 percent, ING Prime Rate Trust is at the top of our list.

Our collection continues with BlackRock Global Floating Rate Income Trust (NYSE: BGT). This fund is invested in the US and beyond, primarily in corporates, but also in the floating-rate bonds issued by government agencies. The credit is lower-grade, with the bulk of the current holdings in the BB+ range.

This might seem daunting, but take a look and you’ll see that the actual borrowers are many of the major petrol companies and agencies around the world. The track record is shorter for the actual fund, but not for the management team. We’ve followed these guys in other segments of the corporate and government bond markets through, for example, Personal Finance Growth Portfolio recommendation BlackRock Income Opportunity (NYSE: BNA).

BlackRock Global Floating Rate Income Trust trades at a modest discount to assets of just more than 3 percent and provides a dividend yield just shy of 8 percent.

Next up is LMP Corporate Loan Fund (NYSE: TLI), formerly Citigroup Investments Corporate Loan Fund. It’s still run by Smith Barney, part of Citigroup’s financial operations empire.

The fund is primarily invested in corporate issues, including floating rate bonds, preferreds and hybrid corporate securities that pay out a regular to adjustable stream of cash flows. Like BlackRock Global Floating Rate, credit quality averages are lower, although the bulk of the assets are running in the Ba1-3 range.

The fund is a similar bargain with a current market discount to net asset value of more than 3 percent. The dividend yield is close to BlackRock Floating Rate’s, running near 8 percent. The fund has a longer track record–it’s been around since 1999. And in the years since its debut, the worst return was only 5 percent; for the past five years it’s been running at 25 percent overall, and for the trailing year it’s returned better than 5 percent-plus annualized.

Many of these kinds of market-neutral funds, like for floating-rate and adjustable-rate issues, has only recently inspired more demand from the market. This explains the relative “youth” of many of the funds. Our next issue, Eaton Vance Floating Rate Income Trust (NYSE: EFT), is also a youngster. Management has been around for quite awhile, but the fund has just two-plus years of history. But in that short time it’s managed to maintain a positive total return. And it’s outpaced the benchmark intermediate- to long-term government market through a combination of maintaining a close hold on its investments and keeping cash flows and dividends higher.

The fund trades at a discount of more than 2 percent and maintains a dividend yield above 8.7 percent.

Eaton Vance Floating Rate is complemented by our other corporate-focused fund, Pioneer Floating Rate Trust (NYSE: PHD). The fund is aggressive in its holdings of individual corporate issues, with most maintaining a B or better credit rating. This include many high cash flow industries that can deal with the floating nature of their debt yet aren’t mature enough for straight debenture issuance.

Pioneer Floating Rate trades at a discount of just under 2 percent and maintains a dividend yield of just below 9 percent. Although the credit ratings might scare you, the performance won’t. The management team has worked to not only bolster underlying asset value, but also keeps the cash coming in at higher levels.

Just Pay Me

The following is free market commentary Neil George has written for his By George subscribers. The advice and recommendations below are simply for your benefit as investors. And recommendations listed below are are not current Bond Desk recommendations, nor will they be followed and updated on a continuous basis. See above for the current Bond Desk recommendations and advice.

All I want companies to do is run their businesses well, build up revenues, develop markets and give me my cut of the profits. Don’t give me any rubbish about earnings per share, earnings before interest, taxes and depreciation (EBITA) or other common excuses for covering up bad business management.

The best way to get and keep me as an investor is simple: Tell me how much you’ve made, what it cost to make it, how much you’re paying management and how much I’m going to get from the profits and continue to get on a regular basis.

It’s that simple. But it’s that simplicity of paying me that’s so elusive for way too many companies these days.

Instead, it’s all about throwing around jargon and hoping nobody asks the really hard questions. And, of course, the idiot money keeps piling into the company stock from pension funds, and mutual fund managers keep the system going–all to the detriment of investors.

One biggie company trick dominating way too many folks’ portfolios and retirement plans is to buy back shares rather than paying out dividends. My legal eagle at Bond Desk, Managing Editor David Dittman, provided the following rundown on this scheme or, worse, scam:

The financial media has a tendency to celebrate companies’ announcements that they’re buying back shares on the open market. It’s driven by superficial concerns, such as the short-term reduction in the number of shares outstanding.

In many cases, a company will buy back shares and fulfill options for employees without canceling the bought-back shares. Those shares revert to the company treasury and, upon the exercise of options, are added back to the total shares outstanding. There’s no long-term impact on your pro-rata claim on company earnings.

A report published by management consulting firm McKinsey & Co indicates that pay packages of executives and other staff are linked to the company’s earnings per share (EPS) performance, which rises with a buyback. Nevertheless, Merrill Lynch has pointed out that the fact that there are fewer companies than in the late 1990s that are making announcements about share buybacks indicates a shakeout from those companies that were implementing them for the wrong reasons.

The most obvious benefit of a share buyback is that it ostensibly reduces the number of shares outstanding in a company and improves EPS (see below for an explanation of the qualifier).

When corporate taxes are part of the equation, the company’s value also increases—albeit by a relatively small amount—because the cost of capital decreases by having less cash or greater debt. This seeming paradox is the result of interest income on cash holdings being taxable and raising the cost of the capital being held.

On the other hand, when a company uses some debt for financing—in this case, the use of debt in order to buy back shares—the cost of capital is lower because interest payments are tax deductible, while dividends aren’t.

Most investors prefer a share buyback over a special dividend because the share buyback is perceived to be the most tax-effective way of redistributing funds.

Another advantage for investors is that a buyback can increase the price of a stock, if only in the short term. It reduces the number of shares available, while demand remains stable.

It’s difficult to gauge the precise effect share buybacks have on share prices—given the many other factors that influence the market—but the effect of a buyback can be positive if a company is focused on boosting what’s truly an undervalued stock.

Some analysts believe that a buyback is also safer for a company than paying a special dividend, as a consequence of companies being able to raise or lower the value of a share buyback program more easily than adjusting the value of a special dividend.

Another benefit: the positive signal a buyback sends to investors about the belief of company executives that the company’s stock is undervalued and presents the best value for investment. It also signals management’s confidence that the company doesn’t need the cash to cover future commitments, such as interest payments and capital expenditures.

However, the McKinsey report indicated that, in some instances, a buyback can be a negative signal of few investment opportunities ahead, potentially suggesting to investors that they could do better by putting their money elsewhere. A buyback can only be justified if it’s the best way for a company to invest its money.

Shareholders invest in a company when they believe the company can create greater value with their money than they can themselves; when a buyback isn’t well thought through and is done for the wrong reasons, it can spook investors.

And companies are more active in buying back shares to offset growing numbers of options they’re issuing to their employees. The media has focused on the buybacks, but in many cases investors have simply been overlooking the other side of the equation. It’s interesting if a company has been buying back its shares. But if with the other hand it’s issuing shares through options, what’s been gained?

The answer from some analysts is “not much.” One report points out that while an employee usually buys shares for less than the market price under option programs, the company pays market price to buy them back.

In dollar terms, the number of shares outstanding may seem to be shrinking, as the company has spent more to buy back shares than employees have spent to acquire them. But in fact, the number of shares could remain unchanged or even grow.

According to Standard & Poor’s, S&P 500-listed companies bought a record $115 billion of their own shares in the second quarter of 2006 alone. Share buybacks on the index were up 43 percent from 2005 and 175 percent from 2004.

Although share buybacks have created much hype, the McKinsey report urges companies not to confuse the value created by returning cash to shareholders with the value created by actual operational improvements. The report warns that the EPS increase that many buybacks deliver helps managers achieve EPS-based compensation targets. However, boosting EPS in this way doesn’t signify an increase in underlying performance.

Although EPS may be up after a buyback, any mechanical increase in EPS is likely to be offset by a reduction in the company’s price-to-earnings ratio (setting aside a buyback’s impact on corporate taxes). Intrinsic value remains flat.

A share buyback is often most valuable for the message it sends to the markets—not for its effect on EPS. And any money spent on buybacks would be far better if used to pay bigger dividends, which is exactly what we want when we buy into a company.

Pay us, or we’re not interested.