by Harry Domash
Lockheed Martin raised its
quarterly dividend by 15% to $1.15 per share, bringing the yield up
to 5.0%. Yes, the outlook for the aerospace industry isn't great, but
the 5% yield makes Lockheed look interesting.
You'd have a big leg-up if you
knew ahead of time when a company is about to announce a special
dividend. Our new Premium feature, "Future Special Dividend Suspects,"
attempts to do just that. Come January, I'll tell you how well it
A DD subscriber asked: I'm very interested
in BDCs-business development companies. This sector has done much
better than the S&P in recent months. But you are only recommending two
out of the entire universe of BDCs-why is that?" Here's my response.
I'm guessing that you received a blurb from
one of my competitors touting BDCs. We do follow all publicly traded
BDCs. You can see our list
For us, the number of picks in each portfolio
reflects our view of how subscribers should weight their own
portfolios, in terms of industries or sectors. Compared to other
categories such as preferreds, REITs and MLPs, in our view, BDCs are
relatively risky bets. Should the economy weaken, BDCs' clients, which
are relatively small companies, would be the hardest hit. So, limiting
our portfolio to our two best ideas is our way of telling you to tread
lightly in that sector, compared to other categories.
A subscriber wrote: "You have a
"buy" rating on Exterran Partners (EXLP),
but it's P/E ratio is 108. What gives? Here's
how I answered.
probably know, P/E compares trading price to earnings per share.
Accounting rules require that firms with
capital assets (buildings,
capital equipment, etc.) must depreciate those assets over a
fixed time period, say 20 years. That depreciation subtracts from
For example, say that you bought an
office property and the improvements (not the land) were worth
$20 million at the time of purchase. In that instance, you would
have to depreciate $1 million or so per per year from your
income for depreciation, even though, in fact, the building was
appreciating in value. Thus, even though cash income exceeds
expenses, from a accounting point of view, you might be losing
money. So, because of depreciation deductions, reported earnings
doesn't mean much.
When evaluating a stock
such as EXLP, you must look at operating cash flow, which is the
amount of cash that flowed in or out of its bank accounts due to
its main operations. What matters most is how operating cash
flow compares to dividends paid. You can see that on Yahoo as
well as many other financial sites. For EXLP's December 2011
quarter, cash flow was $26.4 million and dividends paid totaled
$17.1 million. That's about the ratio that you would expect from
Kohlberg Capital (KCAP) announces
33% dividend hike, yield now 14.1%
but be careful here. Kohlberg, a business development company (BDC) said
a recent acquisition powered the raise. But Kohlberg has been in hot
water with the SEC recently over accounting and reporting issues.
Kohlberg recently hired a new CFO to straighten out the mess, but the
financial outcome is still in doubt.
What's the scoop on dividend capture
strategies, a subscriber recently
asked. He was referring to Generac Holdings (GNRC), which,
although only trading around $26.70, is paying a $6.00/share dividend on
June 30. That's a sweet 23% yield. The subscriber asked, "Won't it drop
$6.00 on the ex-dividend date? So, what's the point?" Here's my answer.
You are right, while many subscribers tell me
that they're making money doing it, the dividend capture strategy is
controversial, to say the least. Here's why it's appealing.
Although stocks usually drop on the ex-dividend
date, they don't always, and when they do, they don't necessarily drop
by the dividend amount. Also, if they do drop, they often recover that
loss. So a player might wait for that to happen before selling. Some
dividend capture players take a different approach. They sell on the day
before the ex-date because the share price has already risen by the
dividend amount. Bottom line, although people are making money doing it,
capturing dividends is more art than science. Everyone does it
Buffeted by European debt problems and mixed U.S. economic numbers,
the last few weeks have been tough on stocks, including our picks.
During times like this, it’s tempting to throw in the towel, sell
everything, thinking that you’ll get back in when the market recovers.
But that never works out.
and time again, we don’t get the memo telling us to get back in because
the market is about to recover. Instead, the market rockets without
warning, and by the time we realize what’s going on, we’ve missed much
of the snapback.
course, it’s always possible that this time is different and the market
will never come back. But there’s not much evidence to support that
scenario. The U.S. economy is still in recovery mode, albeit slower than
we’d like. Growth in China and other emerging markets is slower than it
was, but still strong. Whatever happens in Europe could temporarily jolt
the markets, but probably won’t drive the U.S. and other markets into a
initially pick our stocks and continuously reevaluate them based on one
major criterion: their dividend growth prospects. Sure, our picks will
drop with the market, but as long as their dividend prospects remain
solid, their share prices will eventually recover.
Here’s an analogy that I think is appropriate. Say that you owned an
apartment building, which is fully occupied and your tenants are paying
their rents on time. Now, say that real estate prices drop, including
multifamily properties, but your rents stay up and your property remains
fully rented. Would you sell?
That’s the way you have to look at high-dividend stocks. We can’t
predict how long this market downdraft will persist, or how deep it will
go. But, we can keep our eye on our pick’s dividend prospects and let
you know of changes in that regard. Meanwhile, you'll still be
collecting the dividends.
If you’re in
the mood to pick up some bargains, here are some suggestions . . .
Roundy's, a Wisconsin
based grocery store chain was founded in 1872,
but just got around to going public via an IPO in February 2012.
Yesterday, the operator of 159 grocery stores and 98 pharmacies declared
its first quarterly dividend, $0.23 per share, which equates to a 9.0%
yield. Roundy's isn't growing much, but that dividend gets my attention.
closed-end fund Aberdeen Chile (CH) has been falling like a rock. What’s up?” I received that question the other day from a Premium Subscriber and
I thought that you might be interested in my answer.
To start with;
closed-end funds, unlike conventional mutual funds, do not trade
at their net asset values (per-share value of fund’s holdings). Instead,
they trade like regular stocks. Their trading prices vary with supply
and demand for their shares, and can be above (premium) or below
(discount) their net asset values (NAV).
In the case of Aberdeen Chile, its
market price had plunged from $19.23 on March 30 to $16.66 on May 9.
That’s a 13% drop. But here’s the catch.
On March 30, Aberdeen Chile was
trading at a 14% premium to its NAV, which was $16.81. By May 9, the NAV
was $16.12, down only 4% from its March 30 peak, but it was only trading
at a 1% premium.
Thus, most of Aberdeen Chile’s 13%
price drop was due to a change in market sentiment, not its fundamental
As noted, Aberdeen Chile is now
trading close to its NAV. Whether it trades at a premium or discount in
the future depends on market sentiment for emerging market stocks,
particularly Latin America. It will trade at a premium if market players
are excited about Latin America and at a discount if they’re negative
about the prospects. You can see current and historical premium/discount
values for closed-end funds at “www.cefconnect.com.”
Furniture component manufacturer
Leggett & Platt (LEG) issued a dividend press release today that
confused at least one financial wire service. The company announced a 2Q
$0.28 per share dividend that it said was "an increase of 3.7% versus 2Q
2011." Reuters, and possibly other wire services interpreted that as
meaning that LEG had just increased its dividend by 3.7%. In fact, it
had been paying $0.28 since September 2011. However, it was true that
its 2Q $0.28 payout is 3.7% above 2Q 2010.
On May 1, Conoco Phillips (COP) spun-off its chemical business and its
refining and marketing assets into a separate publicly traded
corporation, Phillips 66 (ticker PSX). Conoco Phillips shareholders of
record on April 16 received one
share of Phillips 66 for every two Conoco Phillips share held. Conoco Phillips
is now a pure-play exploration and production
Exxon Mobil (XOM) made headlines
today when it hiked its quarterly dividend by 21%, a record for Exxon.
But those headlines are deceiving. Even with that increase, it's still
only paying 2.6%. By contrast, Chevron (CVX), which raised also raised
its payout today, but only by 11%, is paying 3.5%. Royal Dutch Shell (RDS-B),
which is overdue for a hike, is paying 4.8%.
Dow Chemical (DOW) raised its quarterly
dividend by 28% to $1.28 per share. The new yield is 3.9%. This is a big
raise for a company with a $39 billion market-cap that was already
yielding 3.1%. The new dividend will be Dow's 403rd consecutive
quarterly payout. It started paying quarterly dividend in 1912.
This might be a good time to invest
in commercial real estate, which you can do via real estate investment
trusts (REITs). REITs don’t pay U.S. federal income taxes as long as
they pay out at least 90% of their taxable income to shareholders. There
are two basic types of REITs: Property REITs and mortgage REITs.
Property REITs own commercial real estate
properties such as apartment complexes, office buildings, or shopping
centers, while mortgage REITs invest in mortgages backed by real estate.
Today, we’ll focus on property REITs.
Property REITs provide the customary management
services associated with leasing properties such as apartment buildings,
shopping centers and office buildings. But they can’t operate properties
requiring a high degree of personal service such as hotels and
healthcare facilities. Instead, they must lease those properties out to
You can use the free screener at FINVIZ.com to
find REITs. Click here for tips on using it to find the best REITs.