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And now for some dividends...

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February 17, 2010 – Comments (28) | RELATED TICKERS: BP , MO , PHI

Yesterday, I whined about a few companies that don't seem their shareholders worthy of dividends.

Today, my temper tantrum is over and I turned my attention to three stocks with high yields (I consider anything over 5% right now to be "high yield") that are actually worth buying:

3 High-Yield Stocks Worth Buying

What I should mention, though, is that this wasn't a particularly easy exercise. And that's not because finding good high-yielders was tough. Actually, it was almost too easy. For those looking for good dividend opportunities out there, I think there are a bunch to be had. The three that I called out in my article (BP, MO, PHI) are great, but I could have had a bunch more if room permitted.

I'll ask the same thing here that I did in the article -- what are your favorite high yield stocks?

Matt

28 Comments – Post Your Own

#1) On February 17, 2010 at 4:05 PM, bullsHorn (65.20) wrote:

OKS, T, & STON

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#2) On February 17, 2010 at 4:50 PM, truthisntstupid (81.04) wrote:

Used to be MO, now I'm thinking its very close between MO and VZ.   Just wrote a pitch for VZ.  I think it's a free cash flow jackpot.  My pitch wasn't as well written as I'd have liked; I kept worrying it would end up too long and some points should have been two or three sentences instead of one.  The dividends as a % of free cash flow consistently beat T.  And when it came to cash return VZ was the clear winner over both MO and T. 

Cash return being the return you'd get if you could buy the whole thing, pay off the debt, and keep the free cash flow.  T has a cash return of 8.8%, VZ has a cash return of 9.53%, and MO had a cash return of (surprise! I thought it would be better too!)  less than 5%.  Cash return and figures for FCF from Morningstar.com.

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#3) On February 17, 2010 at 4:56 PM, truthisntstupid (81.04) wrote:

Morningstar.com shows FCF, dividends, and loads of other information going back 10 years....dividends as a % of FCF have done nothing but decline in all that time, with dividends requiring only 28% of FCF in the last quarter shown.   VZ's dividend appears to be very secure, and it doesn't appear to me as if Verizon has ever cut its dividend. 

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#4) On February 17, 2010 at 5:06 PM, truthisntstupid (81.04) wrote:

Cash return for MO was 4.52%.  I'm still keeping MO as one of my high-yieders, but I was surprised to see MO have to take a back seat to the other two on any cash flow metric. 

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#5) On February 17, 2010 at 5:13 PM, rosemanjhk (57.07) wrote:

STON, DD, NYB, PDLI to name a few....have to agree with VZ as well.

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#6) On February 17, 2010 at 5:14 PM, Donnernv (< 20) wrote:

NQU  Mostly tax free.

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#7) On February 17, 2010 at 5:18 PM, dargus (85.28) wrote:

And now for something completely dividend?

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#8) On February 17, 2010 at 5:35 PM, TMFKopp (98.25) wrote:

@truth

VZ has peripherally been on my radar, but as I mentioned in the article, I'm not too terribly keen on U.S. telecom considering the lack of growth prospects. Of course, that alone doesn't make a stock a write-off -- I did, after all, pick out MO.

I think stocks like VZ and T (which I own) have lower return prospects and little chance to outshine expectations, but that's probably OK since they also have less chance of disappointing. 

I guess what I'm trying to say is that I wouldn't call either a favorite of mine, but I think they can have a place in a diversified dividend portfolio...

Matt

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#9) On February 17, 2010 at 5:38 PM, chrisheck (72.10) wrote:

And now for something completely dividend?........

Yeah. I used to watch the Motley Python show.

chris

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#10) On February 17, 2010 at 5:39 PM, TMFKopp (98.25) wrote:

@dargus

Haha, nice!

 

@Donnernv

Interesting thought, particularly if you're investing outside of a tax-advantaged account. Generally I guess I'm just a little more interested in businesses though...

 

@rosemanjhk

I'm curious to hear your case on NYB... I actually took a look at it recently and can't say that I was terribly impressed.

 

Matt

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#11) On February 17, 2010 at 5:41 PM, TMFKopp (98.25) wrote:

@truth

Can you clarify this for me:

"The dividends as a % of free cash flow consistently beat T."

Are you referring to this as a measure of safety or how much the company pays out?

Also:

"Cash return being the return you'd get if you could buy the whole thing, pay off the debt, and keep the free cash flow.  T has a cash return of 8.8%, VZ has a cash return of 9.53%, and MO had a cash return of (surprise! I thought it would be better too!)  less than 5%."

Do you know how exactly they come up with this? Do they actually model out the scenario?

Matt

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#12) On February 17, 2010 at 5:47 PM, TMFKopp (98.25) wrote:

@bullsHorn

Re: STON

Ok, I'm a Peter Lynch fan (Service Corp International reference) so I'll bite... what's up with STON that it can offer such a fat yield?

A quick look at its cash flow statement and it doesn't exactly look like that's a sustainable payout -- the dividend alone has exceeded cash from operations for the past two years. Basically the company has been taking out debt to be able to fund its dividend and I can't imagine that this can continue either as LTM operating income barely covers interest payments.

Am I missing something?

Matt

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#13) On February 17, 2010 at 5:51 PM, truthisntstupid (81.04) wrote:

Kopp

I agree, it doesn't seem like much of a growth stock if past performance is any indication of what's to come.  $10,000 invested 5 years ago did fluctuate in value but today it would still be worth about $10,000.  Of course, there is the fact that trailing PE is over 22 and forward PE is a little over 11.  Anyway, it does seem to be an outstanding dividend stock and probably won't have any dificulty maintaining and growing its dividend.  With a forward PE of just over 11 the GAAP dividend payout ratio will be halved as well.

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#14) On February 17, 2010 at 5:55 PM, topsecret10 (< 20) wrote:

 Check out Pennantpark (PNNT)  They have been Increasing their dividend since 2007. Insiders are buying... Stock closed today at a little over 10 bucks,   Dividend yield at 11%       http://www.pennantpark.com/      TS

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#15) On February 17, 2010 at 6:05 PM, truthisntstupid (81.04) wrote:

Kopp

To answer your first question, I was simply comparing the FCF payout ratio for the two as listed @ Morningstar.com.

The second question is

Free cash flow + net interest expense

divided by marketcap + long term debt - any cash on the balance sheet.

Formula found in "The Little Book That Builds Wealth"  by Pat Dorsey  (Head of equity research @ Morningstar)

That's how it's computed but I didn't have to calculate it myself.  Go to Morningstar.com  and get a quote on any stock.  Then click on "valuation."    Then click on  "yields."

It's all figured and shown as part of Morningstar.com's free content.  

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#16) On February 17, 2010 at 6:08 PM, stan8331 (97.71) wrote:

Some of my faves right now are CODI, OKS, PSEC and PM. 

If I were closer to retirement I'd be looking more at higher-rate/lower-growth companies like BP and VZ.

PNNT looks interesting...

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#17) On February 17, 2010 at 6:31 PM, truthisntstupid (81.04) wrote:

Here's another interesting tidbit about VZ:

http://www.smartmoney.com/Investing/Stocks/3-Stocks-With-7-Free-Cash-Yields/?afl=yahoo

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#18) On February 17, 2010 at 10:55 PM, rd80 (98.26) wrote:

I own three that fall in the 5+% category.  T, NGG and HTS. 

I look at T kind of like a utility - good income but limited growth prospects. 

NGG is a utility, based in the UK but with significant operations in the NE US.  Need to check up on that one; bought it some time ago after following up on radio show recommendation and haven't paid much attention to it.  It's dividend policy is typical of European stocks - semi annual payouts and they will vary.

Hatteras is a REIT - leveraged mortgage backed securities.  Not much in the way of growth prospects, but 17% yield.  As long as the Fed holds short term rates near zero, the business is virtually a license to print money.

All three are pitched on my CAPS page if anyone wants more on why I like them.

Fool on!

Russ

 

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#19) On February 17, 2010 at 11:12 PM, islandcleaners (< 20) wrote:

PBI...and some of the one's here:

http://yieldpig.blogspot.com/

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#20) On February 18, 2010 at 12:25 AM, truthisntstupid (81.04) wrote:

"All three are pitched on my CAPS page if anyone wants to know more about why I like them."

That feels like a hint, and even if it wasn't meant that way, I look at this page and feel like I've been rude and overbearing.  I'm sorry.  Really.  Dang me.

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#21) On February 18, 2010 at 2:13 AM, TMFKopp (98.25) wrote:

@truth

FWIW, I've enjoyed your comments -- I always like when people get excited about stocks.

Matt

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#22) On February 18, 2010 at 2:27 AM, truthisntstupid (81.04) wrote:

Kopp

Thanks.  Didn't mean to take over the whole blog.

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#23) On February 18, 2010 at 10:07 AM, rd80 (98.26) wrote:

truth - I was just being lazy.  Didn't want to bother retyping stuff I'd already done :)

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#24) On February 18, 2010 at 11:04 AM, bullsHorn (65.20) wrote:

@ Matt

 It took me a long while to finally pull the trigger on STON...which is a regret in hindsight. I was put onto the stock by an outside investor of my company.  I don't usually care much for word of mouth, but this guy is an ultra conservative investor and very successful at that.  His pitch was quite simple, so I'll give it to you.  "BABY BOOMERS"  They have to die sometime and that sometime is this decade and the next. 

Yes, STON doesn't make a ton of cash, but that's not what attracts people to the stock.  It's their dividend yield and they know it.  STON is well run and consistant with the dividend.  I agree with you, they make me slightly nervous, but considering who gave me the heads up and looking at their history was enough to make ME pull the trigger.

 With that said, I have not spoken to him in 6 months and he referred the stock to me when it was 13-14$.  The 20$ area is even more nerve racking, but this stock has defied gravity before and has made a pretty good history doing just that. 

 Death and taxes...

A bit of advice to those newer investors who love dividends.  Dividends are taxed at a much higher rate, so don't buy dividends in your stock portfolio like etrade, Ameritrade, Scott trade, etc...Get an IRA and load that puppy up with high yield dividends and avoid paying taxes on them until a much later date.  Your stock portfolio should be based on stock appreciation which is taxed at 15% 

 

 

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#25) On February 18, 2010 at 1:54 PM, Rehydrogenated (32.20) wrote:

I like LG. Their only problem is that they can't lower prices as fast as natural gas is dropping. But making money off the cheap natural gas is evening out the drop in demand.

Basically no matter what happens they will still be the same, but their yield is great (5%+) for a low risk play.

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#26) On February 22, 2010 at 7:46 PM, DavidSobel (< 20) wrote:

Your advice on taxes is a roll of the dice and it will come up snake eyes or box cars because if you think that the tax rate is going to go down just look at the debt the gov. is making.  Someone will have to pay and congress will find a way to crank that rate up on IRA's.  I say pay it now and get it off the balance sheet for cheep while you are the one making the decisions. 

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#27) On February 22, 2010 at 8:08 PM, DavidSobel (< 20) wrote:

Here is a few good yielding stocks I own:

ALSK   11.61%

SXL      6.44%

BPT     16.26%

EEP       7.74%

FFC       9.43%

kmp      6.65%

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#28) On February 25, 2010 at 5:26 PM, TMFKopp (98.25) wrote:

@bullsHorn

Thanks for the run-down... I'll have to keep my eye on that one.

Thanks everyone for all the great comments -- I've got a bunch more stocks to add to my watch list now...

Matt

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