2012 Dividend List

Mid to late December is when everyone starts cranking out their picks for 2012. Coming off a year where dividend stocks did fairly well, and beat the market handily, there are a lot of dividend lists making the rounds already.

The 2011 list from 24/7 Wall Street had so many winners that they have dropped many, simply for exceeding price targets they had set. Notable drops include my favorite Altria Group (MO), and Kinder Morgan Energy Partners (KMP), both of which I have in my portfolio, and will stick with.

Their 2012 list includes names like AT&T (T) which they added because it is coming off a rough year for the stock price, due largely to their loss of the T-Mobile deal and the associated financial penalties. General Electric (GE), who they say “remains our favorite conglomerate with its valuation of less than 11-times expected earnings and a 3.7% dividend yield”. Other picks include utility companies American Electric Power (AEP) and American Water Works Company (AWK).

In addition they pick two REIT’s; Government Properties Income Trust (GOV) and Senior Housing Properties Trust (SNH). I mentioned SNH in my April blog post, at that time it was trading at $23.10 as the S&P was near its high. Today SNH is trading at $21.20 and they just hiked the dividend up in October. This REIT is particularly appealing because it has managed to not rely totally on government-dependant segments. In stark contrast to SNH is GOV, which relies 100% on government tenants. Almost all of GOV’s tenant clients are federal, state, and local government entities under long-term leases. If government cut-backs and austerity measures continue, this could dig into the bottom line. 24/7 Wall Street added it to their list because they feel those fears drove the stock down too much.

AT&T (T) is yielding nearly 6%
General Electric (GE) is a little above 4%
American Electric Power (AEP) around 4.75%
American Water Works Company (AWK) is at 3%
Senior Housing Properties Trust (SNH) is just over 7%
Government Properties Income Trust (GOV) is at 7.75%

I think all these stocks would be good additions to a conservative long-term portfolio, I plan to add AT&T back to mine (I sold for a gain when the T-Mo deal was announced and the stock spiked). I still hold GE, at pre-recession pricing, and will look to add SNH as the yield is too good to let pass. I do not plan to drop Altria Group (MO) which still yields over 5.5% or Kinder Morgan (KMP) which yields nearly 6%.

Where to now...

After an absolutely awful August it could be time to regroup for a late year rally. I say this despite the fact that most analysts are calling for a pullback. I believe the pullback already happened, I mean it was a dreadful month in August.

The S&P was down 5.3% in August, and 7.4% since July.
The DOW was down 4.7% in August, and 6.8% since July.
The NASDAQ was down 7% in August, and 7.5% since July.

I think a lot of people would consider a pullback to be 5% - 15%, which puts the last two months squarely in the pullback range.

The other reason I am not convicted there will be a pullback is the worldwide economic situation. Europe is going through drastic uncertainty, and many investors are pulling out from EU based investments. That money has to go somewhere else. China has been ‘cooling off’ for the past year plus, and many are predicting the end of their double-digit growth run. That in turn will mean some investors will get out from China too. Again, that money has to go somewhere.

This money tends to come to ‘safer’ plays. We saw when the US was downgraded by S&P that there was virtually no impact to the bond market. US bonds should have fallen based on the “loss of top rating”, instead they actually have gone up… why… Because the US is still perceived to be the safest place to put your money. Whether that is true or not is a whole other debate. My point is that I think it will play in the favor of the US markets.

Monster Worldwide

Rolling the dice on Monster Worldwide…

Last night Jim Cramer looked at the worst performing stocks in the S&P and picked three he said were due for a turnaround. One of his three picks was Monster Worldwide (MWW). He talked about several points, including his belief that the worst is behind them because the job market weakness is likely priced in. He also cited high interest from short-sellers, noting that a movement up might squeeze them and cause a mass cover.

Another point he drove home was the possibility that Monster could be a takeover target at these prices. He pointed to the success of LinkedIn, and said Yahoo or eBay could be interested. That was purely speculation though.

I think Cramer has an interesting point here. Really nobody is expecting much from the job market, and that is not a good sign. That said, if the job market were to start recovering it would likely be considered a ‘surprise’ and thus could generate a move in Monster Worldwide. Additionally I noticed that options for 2 months out are carrying a 5% premium for a $15 strike. Given the stock is sitting at $13.93 today that seemed pretty healthy, as you would collect more than 7% on the stock itself.

I did not sell any calls on my purchase of MWW, mainly because I see the potential for a bigger movement than just the 7% between current price and the $15 strike I would sell. I don’t know that this movement would happen before September, so it could still make sense to sell those calls. I think any surprise in the job numbers could be the catalyst for a 10% pop on this stock.

I sold Citi (C) at a loss, because all it has done is tailed off and slowly gone down. I look forward to the prospect that MWW will do the opposite, and perhaps even make a reasonable move by the end of the year.

New Russell ETF’s

The folks at Russell Investments have released a set of new ETF options… There is minimal information available for these so far, but they are all worth a closer look.

Russell Aggressive Growth ETF (AGRG)
Russell Consistent Growth ETF (CONG)
Russell Growth at a Reasonable Price ETF (GRPC)
Russell Equity Income ETF (EQIN)
Russell Low P/E ETF (LWPE)
Russell Contrarian ETF (CNTR)

Dividend ETF’s

Interested in dividends, but not willing to take the risk with individual stocks? If your looking for a way to collect far more cash than the bank, and can tolerate market risks and fluctuations… but you are unwilling to take risks on individual stocks… then here are some ETF’s for you:

iShares Dow Jones Select Dividend Index Fund (DVY); The Index consists of 100 of the highest dividend-yielding securities (excluding real estate investment trusts (REITs) in the Dow Jones U.S. Index…
Last dividend payout was 0.90% yield, and the funds payout quarterly. (about 3.5% annually)

iShares Dow Jones International Select Dividend Index Fund (IDV); The Index consists of 100 of the highest dividend-yielding securities (excluding real estate investment trusts (REITs) in the Dow Jones World Developed-Ex. United States Index, which covers developed markets, excluding the United States.
Last dividend payout was 0.69% yield, it also pays quarterly. (about 2.8% annually)

SPDR S&P 500 Dividend ETF (SDY); The S&P High Yield Dividend Aristocrats Index consists of the 50 highest dividend yielding constituents of the stocks of the S&P Composite 1500 Index that have increased dividends every year for at least 25 years.
Last dividend payout was 0.71% yield, it pays quarterly. (historically closer to 4% annually)

Article (Dividends)

A good article from 24/7 Wall Street
Link to Article

Payouts From Old Folks, Not Just For Old Folks

Real estate investment trusts are often sought after for their high dividends that they offer investors. As long as these entities pay out 90% of their taxable federal income in the form of dividends, the trusts effectively avoid federal tax. REITs have many categories from mortgage REITs, to shopping malls, office buildings, healthcare properties, apartments, multi-use, and more. Then there is a unique sector within housing REITs with a mixed track record that may be set to benefit from the aging population trends: housing for seniors. In short, these are dividends which ultimately come from old folks.

This morning came news that Senior Housing Properties Trust (NYSE: SNH) declared its regular dividend of $0.37 per quarter. While this may not sound like much news on the surface, this $1.48 annualized payout generates a dividend yield of about 6.4% for dividend investors. With shares at $23.10, the 52-week trading range is $19.25 to $25.28. This marks the third consecutive $0.37 payout, which had been $0.36 for five consecutive quarters and compares to a $0.35 dividend which had been paid for seven consecutive quarters before that.

Senior Housing Properties is rather well diversified in geographic segments. One earthquake, one hurricane, or one local natural disaster is unlikely to topple the company. It claimed some $3.8 billion in senior properties with some 27,000 living units located in 36 states. It invests in hospitals, nursing homes, senior apartments, independent living properties, and assisted living properties. Many of its properties are some of the larger centers of each type in local communities which you live in.

This segment did not escape the recession entirely unscathed. What happens when grandma and grandpa or your elderly parents are upside down in their house? Chances are that they can’t sell the house to move into a retirement facility. In 2008 this one saw its shares drop from $24.00 down to under $11.00 at the peak. It was not until mid-2009 that shares got back above $20.00. Amazingly, the REIT never cut its dividend and the times when this one gets hit hard have proven over and over to be great opportunities.

With the aging population of America, with the baby boomers finally starting to reach retirement age, and with that age group being more well off than their kids, this sector at least has the demographic trends to look forward to. With a 6.4% dividend yield to boot, this one offers solid investing dividends for old folks from old folks.

Chasing Yield

As is well documented I like a stock with a good dividend yield. There is something about knowing that even in the event that the stock remains flat you will be collecting some return. In the past I have named favorites like Altria Group (MO) with its healthy +5.8% yield, and AT&T (T) with its equally enticing +5.7% yield. Additionally I have talked at length about the integrated oil companies like Royal Dutch Shell (RDS.A) offering +4.5% yields.

Preferred stocks also offer great yields, but at the expense of stock growth. In the past I was lucky to add preferreds from Deutsche Bank, ING Bank, Ford, and Bank of America all while they were below their call price. More often than not the purchase of these preferred shares is the other way around (see my post from Jan2011), and you actually give up principle for a fixed return over a fixed duration. These can be a great vehicle for fixed income investors (those after retirement), or you can choose to use them as a supplement for low yielding savings accounts. Key point being a savings account is FDIC insured, and these have the risk of 100% loss. (Not a trivial fact!)

So as I scour through the preferred stock listings I have come across a couple that interest me, one with lower risk, the other with much higher risk. As you might have guessed the total returns will reflect those risk levels.

Natl Westminster Preferred (NW-C) is a typical non-cumulative preferred issued at $25/share with a 7.76% coupon rate. The stock is currently trading at $24.01 and can be called at any time (for $25). This gives an effective yield of 8.08%. The troubling thing is that I have been unable to verify if they are in-fact currently paying out the dividend. That makes this a bit of a dice role, I would stand to make $0.99/share if they just buy this back, but I'm really looking to make the dividend of $1.94/yr.

The second option is even more risky. National Bank of Greece Series A (NBG-A) is also typical non-cumulative preferred issued at $25/share with a 9.00% coupon rate. National Bank of Greece carries only a B- credit rating. Unless you've been living under a rock, you are probably aware of the economic troubles in Greece itself. What this has done, is to create an atmosphere of fear (perhaps rightfully so) around this preferred. It is currently trading at only $19.95 Its call date is 6 June 2013, so there is still some time to collect on the dividend. As far as I can verify they did make the last dividend payment. Given the current pricing the actual yield for this more risky play is 11.28%. Moreover, if they were to buyback the preferred shares you would also get about a 20% gain on the principle investment.

There is no doubt that NBG-A is an attractive stock, but the risks are fairly high. This is not an FDIC insured account, and its not even a classic blue-chip stock. There is certainly a fair amount of risk here, and that is reflected in the pricing. Most of the perceived "less risky" preferreds are trading at a premium, so anything trading at a discount must have higher perceived risk. Even NW-C which has a slightly higher credit rating (BB-) is trading at a discount. If the yields were not this big it would be understandable, but the low prices and big yields are a strong indicator of the risks here.

Whiting Petroleum Corp

Whiting Petroleum Corp (WLL) is an E&P Oil and Gas operations company, with primary activates in the continental US. This week Cramer named 3 stocks of companies engaged in exploration in the North Dakota area, which he called an “amazing story”. In 2010 North Dakota produced 113 million barrels of oil, this number is more than double 3 years earlier.

Hot on the heels of my success in Oasis (OAS), I have been looking for another small domestic oil company. I checked out all three Cramer recommendations; EOG Resources (EOG), Whiting Petroleum (WLL), and Continental Resources (CLR). In the end I decided to let the lowest P/E be the deciding factor. EOG had a P/E of 184.09 with and EPS of 0.64, CLR had a P/E of 72.30 on 0.99 EPS, and WLL had P/E of 30 on 2.33 EPS. Picking a growth stock based on lowest P/E is probably not a sound formula for huge success, but the best EPS and lowest P/E of the three jumped out at me and appealed to my “value investor” ideals.

If the trend of higher oil prices, and more demand for local oil continue, then all three of these stocks will likely be winners.

52 Week Highs (Oil/Gas Sector)

Many people are hesitant to buy stocks when they are at their 52-wk high. Honestly I can relate, there is nothing worse than buying in at a 52-wk high and watching the stock slide. You always know that you bought at the top of the range, and that will be the resistance point.

That said, I can highlight several instances where I have bought at the 52-wk high and done just fine. For example I bought Chevron (CVX) at its 52-wk high back in September and I’m up over 20% on that trade. Some more recent examples; on December 29th I bought El Paso Energy (EP) at its 52-wk high and today I’m up over 25.5% on that trade. Proving that momentum can carry a stock from its high to a much higher high. Similarly on January 5th I rolled the dice to get in on Hess (HES) at a near 52-wk high, after several weeks of waiting for a pullback that never happened. In the 5 weeks since I’m up 6.45% on that purchase.

For sure it does not always work out this well, but I am not letting a 52-wk high on ConocoPhillips (COP) scare me away from a trade I have been waiting to make for several months. During the past 3 months COP has outperformed Total (TOT) +22.64% vs. +13.90%, and more alarmingly +10% vs. +3% in the last month. TOT has a nicer dividend yield, but I believe that Total’s positioning itself heavy in Canadian tar sands is a poor long-term decision. For performance alone I would rather be in COP than TOT, add in my belief that their long-term strategy is wrong and you can see why I’ll sell TOT for a +25% gain and buy into COP even at its current 52-wk high.

Kinder Morgan

Today I bought Kinder Morgan Energy Partners LP (KMP) ahead of the IPO of parent company Kinder Morgan, Inc. (KMI). Kinder Morgan Inc. will go public again this week. KMI should price between $26 - $29 a share when it does hit the market. It is also expected to carry a nice 4% dividend yield.

In the mean time, I have pulled the trigger on a stock that I have been watching on and off for the last few years KMP. The pipeline industry is strong, and KMP pays a healthy 6% dividend. Kinder Morgan has a history of very strong delivery. The stock has been on a tear, and is only slightly lower than its 52-week high of $73.08. Today I have paid $71.74 a share with the intention of holding this stock for the long term. I will also closely watch the price on KMI once it is actively on the market.

Wells Fargo 8.00% Preferred Stock Series J

Wells Fargo & Co., 8.00% Dep Shares Non-cumul Perp Cl A Preferred Stock Series J

How is works:
Yesterday I bought WFC-J which is a preferred stock carrying an 8% coupon rate. The stock was issued at $25 a share, and has a call price of $25 per share on the call date of 12/15/2017. I paid $27.10 a share, this means I paid a premium and will not earn the full 8% coupon rate.

Here is what I will earn and lose:
I paid $27.10 for the shares which carry the 8.0% coupon rate. That rate is calculated based on the initial share price, $25 in this case. The annual amount of the payment (spit up quarterly) is $2.00 per year, thus 8% of the $25 issue price. Given that I paid $27.10 for the shares my payment is actually 7.38% per year. I will lose 8.4% on the stock on 15-Dec-2017, assuming that Wells Fargo will buy it back on the call date. This means I will collect $12 per share over the next 6 years, which represents a 44.28% gain. Of that I will ‘give back’ $2.10 a share leaving me with $9.90 of actual gain which translates to a 39.6% gain over the 6yr period.

The downside of this trade is that it is highly unlikely that I can make anything more than 39.6%, and there is always the small risk that the company could go out of business or be unfit to pay the dividend. In this case I do not see Wells Fargo having a high risk for either, and clearly the $2.10 premium means the market agrees. The question is will the common shares of Wells Fargo be up more than 39.6% in 6-years? And that does not factor that I’ll collect $0.50 a share each quarter for the next 24 quarters. Clearly that is money I can use for other investments.