Tag: Dividend


32 Dividend Stocks That Could Double Your Money


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Growth or yield? Why choose when we can have both.

There are 32 dividend hikes on the way that are going to set up their investors for a big 12 months ahead. How? Simple–these payout raises are going to provide fuel to their attached share prices. The 10%+ raises (and there will be double-digit increases) in particular are going to position their shareholders for safe 10% to 12% returns in the year ahead regardless of what the broader stock market does.

Ever wonder why the yield on your favorite dividend aristocrat always looks low even though the firm is regularly raising that payout? Pull up its stock chart and you’ll see that its share price follows its dividend higher like a magnet. For example let’s consider this pair of “dividend doublers”.

Their soaring payouts and profits are about all they have in common. Texas Roadhouse (TXRH) is a mid-level steak restaurant chain that caters to the average American. Vail Resorts (MTN) is a “one percenter” stock that owns and operates high-end ski resorts, condos and lodgings. But both have raised their payouts generously every year, and both their stocks have more than doubled in less than five years.

This is why we keep a close eye on serial dividend raisers. Yield is nice, but doubling our money is even better! In this spirit here are 32 dividend growers to watch in upcoming months.

REITs

Real estate investment trusts (REITs) have no equal in retirement-focused accounts. Their very structure requires them to deliver the lion’s share of their taxable income to investors as dividends. If you’re an income investor, you need to be watching this sector like a hawk (if you aren’t already).

REITs have a couple “busy seasons” for dividend-increase announcements, including February and December. But the next couple months should see a decent handful of real estate plays hike their regular dividends.

Contrarian Outlook

Contrarian Outlook

Dividend Spotlight: CoreSite Realty (COR): CoreSite is a datacenter REIT with 21 operation centers across eight major communications markets in the U.S. That doesn’t sound like CoreSite is casting a wide net, but each of those locations packs a serious punch, allowing the company to service more than 1,350 customers.

CoreSite’s path over the past half-year or so is similar to the rest of the market’s, swooning at the end of 2018 only to rebound through the first few months of 2019. But COR is doing it better, up 27% to soar above both the S&P 500 (+16%) and the Vanguard REIT ETF (VNQ, +18%).

Credit CoreSite’s outstanding operations. The company reported a 20.7% improvement in net income that fueled a 14.2% boom in funds from operations (FFO, an important REIT profitability metric). CoreSite paid out 15.6% more in dividends, too, but FFO growth kept the payout ratio at a perfectly manageable 82%.

Up next is a likely dividend-increase declaration in the final week of May. And if history is any indication, look for another hike to be announced in early December.

MLPs

The last time I guided you through some likely dividend raisers, I pointed out many master limited partnerships (MLPs) that improve their distributions on a quarterly basis – not once a year, but four times a year. So the list of companies on tap for April and May are pretty similar, but a couple things have changed in the space since then.

For one, Western Gas Equity Partners LP and Western Gas Partners LP have combined to become Western Midstream Partners LP (WES). This follows a slew of mergers in the MLP industry following 2018’s changes to the tax law.

Also, Andeavor Logistics LP (ANDX) announced the same distribution it had for the prior two quarters, so its quarterly hikes appear to be a thing of the past.

Contrarian Outlook

Contrarian Outlook

Dividend Spotlight: Delek Logistics Partners LP (DKL): I wouldn’t be surprised if this is the first time you’ve read about small-cap Delek Logistics Partners LP. This roughly $815 million MLP was formed by Delek US Holdings (DK) just a few years ago to hold various energy assets.

For instance, its Pipelines/Transportation segment includes roughly 805 miles of crude and product transportation pipelines, a 600-mile crude oil gathering system in Arkansas, and storage facilities with 10 million barrels of active shell capacity. It also has light product terminals in Texas, Tennessee and Arkansas.

  • That business description won’t make your heart skip a beat. But let’s look at a few of its 2018 financial highlights:
  • Net revenues grew 22.2% year-over-year to $657.6 million.
  • Net income grew 30.0% YoY to $90.2 million.
  • Distributable cash flow (DCF, similar to free cash flow and an important metric for determining the health of the distribution) jumped 43% YoY to $121.6 million.
  • DCF coverage ratio of the distribution was 1.19x. (In other words, its DCF was 119% of what it needed to cover its regular payout.)
  • Fourth-quarter distribution grew 11.7% YoY to 81 cents per share.

That payout didn’t grow in a straight line, of course. DKL has been growing its distributions every single quarter for years, which is fantastic for investors because it only adds to the power of compounding.

Aristocrats

The Dividend Aristocrats are a group of 57 S&P 500 companies that have increased their dividends on an annual basis for at least 25 consecutive years, though many of them have done so for many years longer than that.

But they’re not all gems. I’ve recently pointed out a few Dividend Aristocrats that aren’t worth your time. Their business prospects are middling, and dividend growth has become downright begrudging, as if the only reason they’re raising them isn’t to reward shareholders, but instead to just keep their membership cards updated.

Contrarian Outlook

Contrarian Outlook

Dividend Spotlight: Johnson & Johnson (JNJ): Johnson & Johnson is one such Aristocrat laggard. The company is in the midst of serious legal issues related to one of its most famous consumer products.

As I pointed out at the start of the year:

J&J spent 2018 in court battling off cases related to claims that their baby powder contained asbestos and caused mesothelioma to a few people who were exposed to it. “We will continue to defend the safety of our product because it does not contain asbestos or cause mesothelioma,” the company said in May after losing a ruling in California.

But Reuters dropped a bombshell report in December saying that internal documents “show that the company’s powder was sometimes tainted with carcinogenic asbestos and that J&J kept that information from regulators and the public” for decades. JNJ tanked 13% in five trading days following Reuters’ report, and that very likely won’t be the last of it. Johnson & Johnson not only risks suffering a massive reputational hit to its consumer brands, but its legal path forward suddenly looks fraught with potholes.

These issues threaten to put a cap on Johnson & Johnson in the near-term. In turn, that could put some pressure on the company to please shareholders in any way it can – including writing significantly fatter dividend checks. Payout growth has been respectable, at about 28% since early 2015, but J&J might need to deliver something truly generous in mid-April, when it typically announces its annual dividend increase.

The Best of the Rest

There are still dozens more likely dividend increases coming in the next two months. But these are a few of the most intriguing companies, whether it’s because they’re at a pivot point, running hot or just not your run-of-the-mill company.

But the most interesting of the bunch right now is America’s largest company.

Contrarian Outlook

Contrarian Outlook

Dividend Spotlight: Apple (AAPL): Apple has been through this before. Back in 2015 and 2016, Wall Street was concerned that Apple had lost its innovative edge, that its product was to expensive for China, and that its other offerings would never make up for any weakness in iPhone sales.

Within a few years, it had doubled its market cap from a trench around $500 billion to a high above $1 trillion, making it the first American company to reach that lofty level.

Apple has found itself in the same position again recently, however. The stock lost about a third of its value on iPhone sales declines (caused in part by Chinese weakness!) and skepticism about its lack of other game-changing devices.

And yet, AAPL shares have defied logic by rebounding 40% off a big share dip after the company made a rare cut to its sales guidance on Jan. 2. What gives? Well, Morgan Stanley analysts recently said year-over-year growth to the iPhone “installed base” in China was its best in 15 months, and the tech giant has announced a series of product upgrades and new services, including Apple News+, streaming TV content and even an Apple credit card.

Don’t sleep on the dividend, though. Apple’s payout has nearly doubled since it restarted regular distributions in mid-2012. And considering a skinflint 23% payout ratio and renowned ability to generate free cash, Apple can afford to continue making significant hikes – even as it finds ways to grow and silence the haters.

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3 Weed Dividend Stocks Paying Up To 5.1%


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“Jenny, I can imagine. My wife makes fun of me when I ice my knees after basketball games,” I confided to my friend and favorite bartender.

Her husband, no “young chicken” anymore either she joked, was sore from his own martial arts contest. She bought him a CBD “bath bomb” to help with the aches of being active and middle-aged.

Always the sucker for natural remedies and bartender wisdom, I teed up an Amazon selection for pain and inflammation. Just 26 hours later, I was massaging hemp, turmeric and MSM into my patella tendon (about an hour before tipoff)

“You’re a terrible scientist,” my wife reprimanded me after I bragged about my patella’s comeback in my postgame recap. “You’re supposed to change one variable at a time. You changed everything.”

She was right, of course. I had new basketball shoes and wore a knee brace for the first time in years. I’d changed three variables, had no idea which was the miracle cure. I was left with no choice but to keep my three member “knee team” together! (Who knows how it’s working, as long as it is working, right?)

Hemp has been a popular free agent addition for many aging athletes since its increasing legalization. As you know the crop has other popular uses, too. Mine is more mundane, yet probably fitting for a dividend analyst!

The plant was used in China nearly 5,000 years ago and is enjoying a good old-fashioned American boom thanks to state governments. I live just a few blocks from our neighborhood dispensary yet I wouldn’t have thought to get a doctor’s note for the salve. Put it in on Amazon Prime, though, and it’s in my cart in minutes.

Now what about weed dividends? We’ve had plenty of readers write in asking and, with “pot holiday” April 20 just days away, I thought it’d be fitting for us to review the current crop of dividends.

The Horizons Marijuana Life Sciences Index ETF (HMMJ) just paid its seventh quarterly dividend last Wednesday. Its $0.3811 per share payout is good for a generous 5.1% trailing yield. Plus investors have been as high as a kite since inception, enjoying 160% total returns versus 22% for the S&P 500.

But where exactly do these dividends come from? Most of the stocks the fund holds are not profitable. And the lone dividend payer Scotts Miracle-Gro (SMG) in the fund is only 7.2% of assets.

HMMJ actually makes its money by lending its shares to short sellers. Remember, when you sell a stock “short,” you are actually borrowing shares so that you can sell them at their current market price. Later, you must buy back these shares to “cover” your short position.

Normally it doesn’t cost that much money to short a stock. But the mostly-unprofitable shares that HMMJ holds are in high demand by short sellers today, and the ETF itself holds much of the supply. So, the fund’s “side hustle” of renting out its holdings is booming.

But there is no actual cash flow backing up its distribution. Nor is there any guarantee that its “short lending” business will remain as robust in future quarters. To paraphrase Prince, this distribution is just a party and parties weren’t meant to last.

How about Scotts, which does manufacture actual products? It’s more of a “pick and shovel” play on weed. The company doesn’t peddle the crop directly but sells growing equipment. Scotts stock pays 2.7% today and, while the firm raises its dividend regularly to the tune of about 5% per year.

As much hype as there is around weed, the power of the “dividend magnet”—the gravity exerted by a payout on its stock price—is even stronger. While Scotts has hiked its dividend by 17% over the last three years, its stock price has risen by the exact same amount.

The firm’s subsidiary for cannabis growers has, troublingly, not been growing organically. It’s been more hype than hemp to date for this baked maker of lawn and garden products.

A better backdoor play on the sector is landlord Innovative Industrial Properties (IIPR). Remember, while many states have legalized pot, it remains illegal under federal law. Financing is challenging for weed peddlers, so many sell their properties to IIPR to get cash in the door for their operations. The firms then rent their former buildings back from IIPR.

Why IIPR? It’s the only real estate investment trust (REIT) that works with weed growers. As a publicly traded company, it gets to borrow money at much lower rates than it collects from its cannabis clients. As a REIT, IIPR is obligated to dish most of its profits back to its shareholders as dividends. The result is a good old-fashioned payout boom, a 200% increase in less than two years!

The only “problem” with the chart above is that, if you don’t yet own IIRP, it is now quite expensive to do so. Its price line has run away from its payout line, which is a sign that shares are dangerously overvalued. The stock now pays just 2.1% and trades for an extremely rich 31-times its annual cash flow.

Sure, you may be able to buy IIRP “high” and sell it higher. But that’s a different dividend drug altogether.

Forget dividends you say? Let’s not forget the example that money-losing, no-dividend firm India Globalization Capital (IGC) set for us. IGC found the magic investor formula when they put two investing buzzwords side-by-side:

  1. Cannabis, and
  2. Blockchain.

The savvy marketers at IGC then introduced an energy drink infused with hemp, and wow, what a rush!

We rational income investors fortunately avoided this clown show. I wrote to you as the blockchain-weed craze was peaking:

We level-headed contrarians should stay away from this circus. In fact, you need to be honest with yourself about the latest weed craze. If you’re tempted at all to buy this junk, it’s better if you change the channel.

Many marketers know that you and your peers are fixating on these parabolic charts. It’s going to end in tears, but they don’t care. They know they can get your attention now with a weed-fueled promise of 100% to 1,000%+ gains and get out while the getting is good.

The epilogue on IGC? Tears would be putting it mildly.

Disclosure: none

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5 Dividend Growth Stocks With Upside To Analyst Targets


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To become a “Dividend Aristocrat,” a dividend paying company must accomplish an incredible feat: consistently increase shareholder dividends every year for at least 20 consecutive years. Companies with this kind of track record tend to attract a lot of investor attention — and furthermore, “tracking” funds that follow the Dividend Aristocrats Index must own them. With all of this demand for shares, dividend growth stocks can sometimes become “fully priced,” where there isn’t much upside to analyst targets.

But we here at ETF Channel have looked through the underlying holdings of the SPDR S&P Dividend ETF (which tracks the S&P High Yield Dividend Aristocrats Index), and found these five dividend growth stocks that actually still have fairly substantial upside to the average analyst target price 12 months out. Which means, if the analysts are correct, these are five dividend growth stocks that could produce capital gains in addition to their growing dividend payments.

In the first table below, we present the five stocks. The recent share price, average analyst 12-month target price, and percentage upside to reach the analyst target are presented.

Stock Recent Price Avg. Analyst 12-Mo. Target % Upside to Target
Becton, Dickinson $268.50 18.87%
Chevron $120.27 $140.62 16.92%
Abbott Laboratories $72.88 $79.93 9.68%
National Retail Properties $50.76 $54.55 7.46%
Lincoln Electric Holdings $89.70 $95.78 6.77%

The average 12-month analyst targets are only targets for the share price however, and each of these stocks are expected to pay dividends during that holding period — so the expected total return if these stocks reach their analyst targets is actually the share price upside seen by the analysts plus the dividend yield shareholders can expect. To ballpark that total return potential, we have added the current yield to the analyst target price upside, in order to arrive at the 12-month total return potential:

Stock Dividend Yield % Upside to Analyst Target Implied Total Return Potential
Becton, Dickinson 1.36% 18.87% 20.23%
Chevron 3.96% 16.92% 20.88%
Abbott Laboratories 1.76% 9.68% 11.44%
National Retail Properties 3.94% 7.46% 11.4%
Lincoln Electric Holdings 2.10% 6.77% 8.87%

Another consideration with dividend growth stocks is just how much the dividend is growing. We looked up the trailing twelve months worth of dividends shareholders of each of the above five companies have collected, and then also looked up the same number for the prior trailing twelve months. This gives us a rough yardstick to see how much the dividend has grown, from one trailing twelve month period to another.

Stock Prior TTM Dividend TTM Dividend % Growth
Becton, Dickinson $2.96 $3.04 2.70%
Chevron $4.36 $4.55 4.36%
Abbott Laboratories $1.09 $1.2 10.09%
National Retail Properties $1.88 $1.975 5.05%
Lincoln Electric Holdings $1.48 $1.72 16.22%

These five stocks are part of our full Dividend Aristocrats List. Click here to find out the Dividend Growth Stocks: 25 Aristocrats »

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This “Pullback-Proof” 7.5% Dividend Is Cheap (For Now)


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If your mattress is a bit heavy on cash these days, you’re probably grinding your teeth every day as the markets tick higher. Should you be in the market? Shouldn’t the market pull back eventually?

Here’s a solution that’ll get your “buy and hope” friends out of your face: buy some dividend machines that’ll pay you while the markets levitate and hold up just fine if we do see the dip we’re overdue for.

I’m talking specifically about three mighty “pullback-proof” dividends (yields up to 7.5%) perfect for the “cliff-edge” market we’re seeing now. More on those in a moment.

Beware the “Dumb” Money

First, when I say “cliff edge,” I’m not kidding around.

As I just wrote in my Contrarian Income Report service, I’ve recently grown wary of the market’s short-term outlook—and my unease goes well beyond first-level panic about the “inverted yield curve.”

The real reason to be wary is simpler: the “dumb money” hasn’t been this confident of further market gains since January 2018! Dumb was dumber back then, because stocks promptly collapsed.

(By the way, many individual investors would be categorized as “dumb money” because they get greedy when markets are hot and tend to buy high. Professionals—and savvy contrarian income-seekers like us—on the other hand, smartly buy the dips.)

This does not mean we’re going to cash. We need to keep our income and our nest egg growing, so we’re going after what I call “pullback-proof” dividends.

These high-yield “unicorns” have three weapons to deploy against the next market brushfire:

    1. Big—and growing—dividends. I like to see a stock throwing off a yield of at least 4% (double the current average S&P 500 payout), backstopped by explosive payout growth.
    2. Bargain valuations: For stocks and real estate investment trusts (REITs), this means low price-to-free-cash-flow (FCF) ratios; for high-yield closed-end funds (CEFs), we’re talking huge discounts to NAV (or market prices well below the value of the fund’s portfolio).
    3. Rising sales to keep driving those dividends and gains—no matter what.

What’s the endgame on stocks like these?

Simple: they’ll hold their own in a meltdown, and when markets rise, their attractive payouts and cheap prices nicely set them up to outperform.

3 “Pullback-Proof” Dividend Buys

With that, let’s move on to the three “pullback-proof” plays I have for you now.

Prudential: “Cheap by any Measure”

The 21% surge from Prudential Financial (PRU) this year might make you think the easy money has been pocketed here. No way. Because this stock still ticks all three of our “pullback-proof” boxes.

For one, the insurer is cheap by any measure. Right now you can buy shares for 82% of book value—or less than what PRU would sell for if it were broken up and sold off! What’s more, PRU trades at a silly two times free cash flow! Downright insulting for a management team that’s grown sales 52% in the last five fiscal years.

Then there’s the dividend, which yields a nice 4.1% now and is growing like a weed:

PRU’s Supercharged Payout

If you’ve been following my articles on Contrarian Outlook, you know I’ve written before about a dividend’s power to yank share prices higher as it grows.

PRU is a textbook example. As you can see above, the share price has jumped up to meet its payout over and over—until early 2018, that is, when the pair parted ways. That’s even more proof we’ve got a nice buy window now, before the stock gaps back up.

Zoetis: A Classic Megatrend Stock

My “unofficial” fourth requirement for a pullback-proof payout is a tie-in to a soaring megatrend. One of the biggest (and most overlooked)? The growing pile of cash we’re doling out on our furry pals.

Consider this: in 2009, total US pet spending clocked in at $45.5 billion. This year? An estimated $75.4 billion—a 66% rise in just a decade!

And Zoetis (ZTS), a maker of medicines for pets and livestock spun off from Pfizer (PFE) in 2013, is grabbing more than its share of that spending:

A Cash Machine

There are, however, a couple places where Zoetis does come up a bit short on our “pullback-proof” checklist.

Let’s deal with those now.

First, the dividend looks lame at 0.7%. But that’s because investors bid up the price with each hike, keeping the current yield the same (because you calculate yield by dividing the yearly payout into the share price).

But if you’d bought in early 2013, the yield on your original investment would already be up 200%, to 2.1%. Going hand in hand with that increase are management’s stock buybacks, which have propelled the shares to a very speedy triple.

Share Count Down, Share Price Up

Second, Zoetis seems pricey at 34 times free cash flow. But as you can see below, that’s on the low end historically—another sign that now’s the time to move:

When Expensive Is Cheap

Finally, let’s …

RQI: A Cheap—and Safe—7.5% Dividend

REITs are one of my favorite pullback plays because these landlords are obligated by law to pay 90% of their income as dividends, fueling some truly gargantuan payouts.

There’s just one problem.

REITs on a Roll

With the big run in REITs since the Fed suddenly became “patient” on interest rates, it’s been tough to find bargains here.

That’s where CEFs come in. By tapping their famous discounts to NAV, we can “rewind the clock” and tap into some of the hottest properties in the US at 2018 prices! Consider the Cohen & Steers Quality Income Realty Fund (RQI).

This stout CEF trades at a 7.1% discount to NAV. But as you can see below, that gap has almost completely closed in just the last year. So we’ve got plenty of “snap back” upside built in here:

RQI’s Buy Alarm Goes Off

Here’s something else you need to know about this “all-in-one” real estate play: it rolls out an enormous dividend (7.5% yield!) every single month:

A Steady Monthly Cash Infusion

Finally, this portfolio focuses on the best REITs—industrial, residential, self-storage, data center and health care—while dodging retail, the perennial whipping boy of Amazon.com (AMZN).

RQI Skips the Mall

With its 7.5% dividend and (nearly) matching discount, RQI is a solid “pullback-proof” candidate now.

Disclosure: None

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5 Dividend Growth Stocks With Upside To Analyst Targets


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To become a “Dividend Aristocrat,” a dividend paying company must accomplish an incredible feat: consistently increase shareholder dividends every year for at least 20 consecutive years. Companies with this kind of track record tend to attract a lot of investor attention — and furthermore, “tracking” funds that follow the Dividend Aristocrats Index must own them. With all of this demand for shares, dividend growth stocks can sometimes become “fully priced,” where there isn’t much upside to analyst targets.

But we here at ETF Channel have looked through the underlying holdings of the SPDR S&P Dividend ETF (which tracks the S&P High Yield Dividend Aristocrats Index), and found these five dividend growth stocks that actually still have fairly substantial upside to the average analyst target price 12 months out. Which means, if the analysts are correct, these are five dividend growth stocks that could produce capital gains in addition to their growing dividend payments.

In the first table below, we present the five stocks. The recent share price, average analyst 12-month target price, and percentage upside to reach the analyst target are presented.

Stock Recent Price Avg. Analyst 12-Mo. Target % Upside to Target
Caterpillar $141.20 $153.43 8.66%
MDU Resources Group $25.79 $28.00 8.57%
United Technologies $135.30 $145.12 7.26%
RPM International $60.63 $64.83 6.93%
International Business Machines $144.35 $151.73 5.11%

The average 12-month analyst targets are only targets for the share price however, and each of these stocks are expected to pay dividends during that holding period — so the expected total return if these stocks reach their analyst targets is actually the share price upside seen by the analysts plus the dividend yield shareholders can expect. To ballpark that total return potential, we have added the current yield to the analyst target price upside, in order to arrive at the 12-month total return potential:

Stock Dividend Yield % Upside to Analyst Target Implied Total Return Potential
Caterpillar 2.44% 8.66% 11.1%
MDU Resources Group 3.14% 8.57% 11.71%
United Technologies 2.17% 7.26% 9.43%
RPM International 2.31% 6.93% 9.24%
International Business Machines 4.35% 5.11% 9.46%

Another consideration with dividend growth stocks is just how much the dividend is growing. We looked up the trailing twelve months worth of dividends shareholders of each of the above five companies have collected, and then also looked up the same number for the prior trailing twelve months. This gives us a rough yardstick to see how much the dividend has grown, from one trailing twelve month period to another.

Stock Prior TTM Dividend TTM Dividend % Growth
Caterpillar $3.11 $3.36 8.04%
MDU Resources Group $0.782 $0.802 2.56%
United Technologies $2.76 $2.87 3.99%
RPM International $0.94 $1.34 42.55%
International Business Machines $6 $6.28 4.67%

These five stocks are part of our full Dividend Aristocrats ListClick here to find out the Dividend Growth Stocks: 25 Aristocrats »

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Two Great Dividend Stocks You Should Buy Before May (Like This FTSE 100 Giant)


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Harry Potter publisher Bloomsbury is scheduled to release next results in late May.

Getty

These companies have plenty of chance to deliver strong share price growth next month. Now’s a great time to go shopping, then.

Bloomsbury Publishing

Full-year numbers for Bloomsbury Publishing are scheduled for Tuesday, May 21, and if March’s trading update is anything to go by I’m expecting another cheery market reception.

The House of Harry (Potter) can still rely on the escapades of the boy wizard to keep earnings rising year after year and for cash flows to continue impressing. But Bloomsbury isn’t a one-trick pony and it has a broad range of global bestsellers to drive the top line across its fiction and non-fiction titles.

What really gets me excited, though, is the vast investment the small cap is devoting to its Academic and Professional division, an area which is ripe with potential and which the company declared put in another “strong performance” in the 12 months to February 2019.

It’s not a shock to find that City analysts are expecting profits growth at Bloomsbury to rev from low-single-digit percentages in fiscal 2019 to 14% in this year, then, and for dividends to keep rising through this period. Thus an 8.3p per share annual dividend is forecast for the present period, resulting in a chubby 3.7% yield.

The publishing colossus looks in great condition to make good on these forecasts as well. Not only are predicted rewards covered by anticipated profits by two times, bang on the widely-regarded security benchmark, but Bloomsbury’s position as a terrific cash creator — net cash leapt to £27m as of February from £16.9m six months earlier — also sets it in good stead to keep hiking shareholder payouts.

Reckitt Benckiser

Another great income share to buy today is Reckitt Benckiser Group as I believe a set of strong trading first-quarter figures will be forthcoming on Thursday, May 2.

The household goods company saw its share price fall below £60 per share last week following news that charges of illegal marketing were being brought against its Indivior by the US, raising speculation that the Footsie firm could be facing hefty legal bills related to the heroin-treatment manufacturer which it spun off five years ago.

I would consider this to be a decent dip-buying opportunity for long-term investors, though, and particularly as those forthcoming trading details could well remind the market of its brilliant defensive qualities and the subsequent likelihood of solid and sustained earnings and dividend growth. It certainly did this when full-year results were unveiled back in February,

Now City analysts aren’t expecting earnings at Reckitt Benckiser to blow anyone away in the immediate future at least, a bottom-line increase of only 2% being predicted. What the calculator bashers do believe, though, is that provides the base for dividends to keep on improving as well — a total annual reward of 176.6p per share is estimates, a target which yields a decent-ish 3%. An added bonus: this projection is covered two times over by predicted earnings.

Clearly larger yields can be found, but the ubiquity of its beloved products means that Reckitt Benckiser can be relied on to keep increasing profits and thus bumping dividends higher year after year, too. And this makes it a great selection for income investors, in my opinion.

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3 Reasons Why Oil Stocks Are Doomed (And A 7.6% Dividend To Buy Instead)


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Oil prices have been locked in a tight range for five years—and I know I don’t have to tell you that this has been a disaster for energy investors.

Oil Fails to Launch

With the benchmark Energy Select Sector SPDR (XLE) unable to hold its gains for long (let alone recover to pre-crash levels), even the most conservative energy investor has been clobbered.

Why is this happening?

After all, you’d think a growing global population and emerging-market growth would drive up the price of a limited resource like oil. But the tables have turned. I’ll get into why shortly.

These Dividend Payers Are Better Buys Than Oil

For now, though, I recommend that income-seekers go a different route and pick stocks (and closed-end funds [CEFs]) that benefit from cheaper oil and gas—like utilities.

The reason is simple: these companies will pay less to fuel their plants, driving up their profit margins—and their dividend payouts, too.

So what’s the best way to buy in?

You could choose a utility ETF, like the Utilities Sector SPDR Fund (XLU). With a 3% yield, it pays 70% more than an index fund like the SPDR S&P 500 ETF (SPY).

But my favorite method probably won’t surprise you: CEFs! The Cohen & Steers Infrastructure Fund (UTF), for example, pays a 7.6% dividend now, while trading at a 4.6% discount to net asset value (NAV, or what it’s underlying portfolio is worth). It also holds major electric utilities like NextEra Energy (NEE) and Atmos Energy (ATO).

What’s Weighing on Oil

Now let’s dive into some of the other issues that are bound to keep energy down for a long time to come.

Energy Efficiency: Oil’s Nemesis

We hear a lot about alternative fuels these days, but if you’re reading this, you’re still likely using more power generated by oil, coal and nuclear power than wind and solar.

The real story is a bit more boring: people are simply using less energy—and utilities are learning to provide more power with less energy inputs, raising their profit margins.

A European Union study, for example, found that more efficient thermal-power production meant less energy needed to be used to satisfy consumers’ needs. The trend was nowhere near slowing:

Europe’s Lean Energy Machines

The same trend holds in the US, where from 1980 to 2014, the fuel economy of vehicles fell by over 25%, industrial energy efficiency rose 40%, and lost energy from transport fell by 25%, according to the American Council for an Energy Efficient Economy.

And if you’re looking for China for growth, think again. It’s getting better at using energy, too.

Chinese Power Consumption Falls Relative to Economic Growth

Note the one line going down? That’s the ratio of total produced energy to GDP, indicating that China has been more efficient in its use of energy (the IEC estimates energy production to GDP fell by over 3% in 2018, continuing the trend).

Another problem for oil bulls: population growth is slowing.

A (Slower) Growing Population

With slower population growth, the natural growth of energy demand will slow, as well. Meantime, alternative-energy costs are tanking, making it easier to replace oil with other fuels.

Solar Gets Cheaper …

The continued decline in solar-power costs has helped keep solar installations growing over the last decade. The cost of wind-power production has also been on a steady decline since 2008:

… And so Does Wind

While alternatives still face a few hurdles (the largest of which is storage), it’s clear that lower costs for alternative fuels will mean companies and consumers will choose them more often, creating another headwind for oil.

Action to Take: Avoid Oil

While oil companies can pivot to alternative energies (Royal Dutch Shell [RDS] has been particularly good on this front), the transition is slow and full of risks that constantly need to be repriced in. RDS said it will likely spend between $1 billion and $2 billion on alternative energy per year in 2019, which is just 4.3% of the company’s operating expenses in 2018 and 0.4% of its annual revenues.

But RDS’s sales still depend on oil prices, and little has changed in the last five years; the company’s 2018 revenues were still down 7.8% since 2014.

The bottom line? These companies are clearly not set for a future of steadily declining oil demand, and we need to invest for the future, not the past. The risks of betting on oil firms turning around are simply too high.

Disclosure: None

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These ‘Secret,’ Low-Priced Dividend Stocks Yield Around 10%. Should You Buy Or Avoid Them Today?


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These shares all offer double-digit dividend yields. But are they really all that great?

Capital & Regional

At first glance Capital & Regional may appear a very attractive destination for dividend hunters. Supported by an expected 5% earnings rise in 2019 the firm is expected to pay a 3.4p per share reward, a figure that yields a super 13.3%.

What’s more, the shopping centre operator’s low, low valuation, a forward P/E ratio of 6.1 times, adds an extra layer of appeal . However, dig down a little and suddenly Capital & Regional isn’t the star attraction it appears to be — it slashed the annual payout by more than a third in 2018, to 2.42p per share from 3.64p previously, and further reductions are quite possible as it battles against high gearing and saves cash for capital expenditure purposes.

Things are made all the more difficult by the twin pressures of e-commerce and fading consumer spending power which is smashing footfall at its retail sites. That yield, then, looks too good to be true and in my opinion it is. This stock is best avoided at all costs.

PayPoint

It’s not all doom and gloom, though. My next pick, PayPoint, is a little-known dividend stock that I reckon’s a great buy today.

Why am I so bullish? Its retail technologies — which allow shop owners to carry out a variety of tasks from logging parcels and taking bill payments from customers, to accepting card payments and conducting EPoS functions — are being adopted by retailers at an astounding pace. And to illustrate this fact, PayPoint in January upped its rollout target for its PayPoint One terminals during the year ending March 2019 to 12,700 sites from 12,000 previously.

It’s not a mystery as to why City analysts expect the small cap to report a 5% profits uplift in the current fiscal period, then, and that it will also raise the full-year dividend to 84.4p per share from the anticipated 84p for last year, resulting in a chubby 9.5% yield. A final reason to buy? PayPoint’s rock-bottom price, as shown by its prospective P/E multiple of 13.3 times.

Reach

My final selection for this piece is Reach, a stock where transformative M&A activity looks set to drive revenues skywards and deliver terrific cost savings.

In particular, the acquisition of the Express and Star newspapers (and related websites) early last year has boosted the small cap’s scale in the digital publishing arena and this helped full-year revenues boom 16% in 2018 to £723.9m. Print advertising may be in structural decline but Reach’s bulked-up online operations mean that the future still looks bright, and this — allied with the company’s excellent cash generation and low debt — is enabling it to continue paying market-mashing dividends.

The City expects this trend to continue in 2019, too, a 6.4p per share reward currently predicted. As a result Reach yields a stunning 10.1% and this, combined with the company’s dirt-cheap forward P/E rating of 1.6 times makes it a great buy today, in my opinion.

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A Dividend Capture Strategy That Actually Works


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“Does Brett know of a fund that employs a dividend capture strategy?”

Our customer service guru Jonathan has fielded many questions of this flavor in recent weeks and months. And thanks for asking, because I do! Hat tip Wall Street Journal:

“Alpine Woods Capital Investors LLC has employed dividend-timing strategy quite successfully in its Alpine Dynamic Dividend Fund, but the firm believes its approach will work even better in its first closed-end fund.

“The new closed-end fund combines three strategies —dividend capture, value and growth—to maximize the amount of distributed dividend income that qualifies for the reduced rates and to find companies globally with the potential for dividend growth and capital appreciation.”

Sounds awesome, right? So when are we adding the Alpine Global Dynamic Dividend Fund to our portfolio?

Well, never. The article above was written in 2006, which means the fund has a 13-year track record. An awful track record. Its initial investors are still down a half-percent–and that’s before we consider inflation!

Sweet Strategy, Team

The fund still yields 8% today. If history is any guide, investors who own AGD will lose their dividends to price declines in the fund.

Why is AGD such a dog? Well, at its core, this strategy is a bit too “basic” to actually make money.

Let’s say you and I want to do better than AGD on our own (a pretty low bar). We would pick an individual dividend stock to buy before its dividend is committed (its “ex” date). Then we’d dump it the next day.

Money for nothing and our yield for free. We’re just trying to capture the dividend without holding the stock for very long.

But can we really buy a stock the day before its dividend date and pull this off? Unfortunately for us other investors have thought of this. They already own shares and they are selling at an inflated price. In fact, the stock is probably “overpriced” by the amount of the dividend it’s about to pay!

So we move our timeframe back. Let’s buy the stock a week or two ahead of its dividend date. Well, again, we’re not the only investors who have this idea. They’ve been bidding the price up slowly for weeks and even months. Their net effect is the “market” pricing in the future dividend at any given moment.

Then we have the Rational Dividend Capture A fund, which employs the name but not the strategy. To be honest I’m not actually sure what the fund does. Supposedly they look for high quality dividend stocks and time their entries using “technical analysis to identify rates of change, trend input, cycle analysis and economic factors.”

Sounds fancy but again, it doesn’t work. Misguided dividend capture investors would have been better off buying a high quality income fund such as the Vanguard High Dividend Yield Index:

What’s in a Name? Underperformance in This Case

All right, let’s stop being so basic ourselves. “True believers” in the strategy will argue that the real way to employ it is with options. We should buy and sell puts and calls to magnify the price ticks that occur before and after the dividend date.

But again, we’re back to our original problem. If there is no major inefficiency in a dividend stock’s price at any given moment, how exactly are we supposed to exploit it?

The Real Inefficiency: Options “Decay”

Speaking of options, they are a better way to practice the dividend payout capture we’re seeking. With each day that passes, call and put options (the rights to buy or sell a stock at a certain price) decay in value. That’s bad for buyers, but great for sellers like us. With each passing day, the sellers grow richer. They don’t have to worry about the clock. In fact, it’s their friend.

Selling (or writing) call options can be a great way to collect more income from your portfolio. To capture more dividends, in other words!

As always, there’s no free lunch in the markets. Our tradeoff is that we’ll give up some upside in exchange for the call premium. In a pricey market, we’re probably happy to make this trade. Let’s look at an example using one of our favorite dividend stocks.

Omega Healthcare Investors yields a generous 7.1% today. Its rent is well covered by the rents of its tenants (who operate skilled nursing facilities), so we can feel good about that nice yield. But here’s how we can capture more.

OHI trades for about $37.14 as I write. There are May calls that “strike” at $38 (which means we are sellers at $38 per share if OHI trades above that price on May 17). They are fetching around $0.45 per share, which sets us up for this “homemade” dividend capture strategy:

  • April 10: $0.45 per share (covered call premium)
  • April 27: $0.66 per share (quarterly dividend)

(A couple of quick notes. First, why’d I choose the May option expiration? Because it falls in the 60 day or less “sweet spot” of the options curve chart above, when prices decay fastest. Also the April 27 ex-dividend date is my projection because the next dividend hasn’t officially been declared.)

If OHI trades sideways between now and May 17, we’ve found a way to collect $1.11 per share in cash (dividend plus call option premium) instead of “just” $0.66 (dividend alone). If the stock rallies and closes above $38 in mid-May, we’ll keep the $1.11 plus an additional $0.86 in price upside (the difference between our call’s strike price and OHI’s current price).

The “instant payout” of $0.45 annualizes to about 12% because we can repeat this technique about ten times per year. Which boosts OHI’s annual yield from 7.1% to 19.1%. Plus we can capture some additional upside, too.

Would we ever regret selling covered calls instead of simply buying and holding? If OHI rocketed 50% higher next month, we would have already agreed to sell at the start of that moonshot. But we don’t own big dividend payers in hopes of fast gains. A steady 19.1% yield with upside on a safe stock would be just fine!

Disclosure: None

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Three Cheap Dividend Stocks Whose Shares Prices Could Still Surge In April (Like This FTSE 100 Hero)


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Car insurer Hastings is set to release fresh financials in the days ahead.

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We’re almost halfway through April but there’s still plenty of time for the following few stocks to surge before the month expires. Come take a look.

Hastings Group

Car insurance giant colossus Hastings Group is all set to release quarter one trading numbers on Friday, April 26. It’s a share I’ve liked for a long time as, despite the problem of intense competition, the company’s ability to snag market share from its customers is driving profits ever higher.

This was apparent in the full-year results unpackaged in February, a release in which Hastings declared that the number of live policies rose by 70,000 in 2018 to 2.71m and that consequently gross written premiums rose 3% year-on-year to £958.3m. I’m expecting another sunny release in the coming days.

The strength of last year’s performance prompted the FTSE 250 firm to raise its payout ratio goal to between 65% and 75%, up from 50% to 60% previously, and this means that City analysts are expecting the full-year dividend to rise to 14.6p per share from 13.5p last year. This means that the yield sits at an enormous 6.8%.

Taylor Wimpey

If you’re feeling greedy, though, and are seeking even larger yields than those of Hastings, then you might want to head over to Taylor Wimpey. As part of the housebuilder’s vow to return shedloads of cash to its shareholders it’s pledged an 18.3p per share total reward in 2019, and this creates a gigantic 10.1% yield.

In fact, I reckon it’s a good idea to buy the business ahead of its next trading statement on Thursday, April 25, a release I reckon could provide its share price with an extra dose of jet fuel. Because of a slew of positive market updates across the sector, Taylor Wimpey has swelled 33% in value since the turn of the year, and I’m expecting another brilliant set of numbers from the builder to boost investor appetite still further.

The FTSE 100 company announced in February that a combination of margin improvements and higher completions drove pre-tax profit 19% higher in 2018 to £810.7m. News that its forward order book had risen to 8,304 as of December from 7,136 a year earlier illustrated the ongoing resilience of the market, too.

Greene King

The final dividend share I’m looking at today is Greene King. The pub operator’s resilience in spite of the mounting pressure on Britons’ spending power is something to behold, and I’m expecting to hear that the booze has kept on flowing when its pre-close trading statement is released on Tuesday, April 30.

The FTSE 250 business certainly impressed last time out, advising in the first few days of the year that like for-like sales were up 3.2% in the 36 weeks to January 6 and that takings on Christmas Day has stormed to a record peak of £7.7m.

Like Taylor Wimpey’s, the share price of Greene King has also gone gangbusters in 2019 and so far it’s up around a quarter more expensive than it was on New Year’s Eve. I fully expect it to gain more ground in end-of-month trading.

Royston Wild owns shares in Taylor Wimpey.

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