Buying dividend stocks when the market experiences a solid pullback is a strategy that has been working for investors for the past couple of years. In the latest selloff, some dividend stocks have been under pressure due to concerns about tax increases. If no deal is reached on the fiscal cliff, the tax rate on dividends could be poised to rise from about 15% to around 43%. However, there is a good chance that a deal will be reached which will not result in the worst-case scenario of a 43% tax rate. Plus, many dividend stocks will still net higher yields to investors even after a tax hike.
With so many stocks trading lower, it is hard to know which ones might be best to invest in now. One way to sort through it all and perhaps find some real bargains is by tracking company insiders. Directors and top executives tend to know their companies better than outside investors and analysts. They also often have better than average timing as to when is the right moment to buy a stock. That is why following insiders when they make meaningful purchases of stock is so widely followed. Here are a couple dividend stocks that have just seen strong levels of insider buying:
Martin Midstream Partners (MMLP) shares are now trading close to 52-week lows. The stock has been under pressure due to the recent market correction but there has also been some company specific news that took it lower. On November 20, the company announced it priced a public offering of 3 million shares at $31.16 per unit. It plans to use the funds to repay outstanding indebtedness incurred under its revolving credit facility and for general partnership purposes. Basically, the company will have a stronger balance sheet going forward. Since the company priced the shares at about $31, it was an excuse for the stock to dip to that level as well. However, many similarly positioned companies have seen a rebound in the share price after secondary offerings, and that might also be true for this stock, especially since it offers a high yield. Martin Midstream provides a range of services to the energy sector such as marine transportation, natural gas services, terminalling and storage of fuel and others. It owns a natural gas pipeline in Texas that runs about 200 miles in length. These lines of business generally offer relatively stable revenues and that reduces risks for shareholders. This company is focused on distributing profits to shareholders and it has a strong history of raising the payout. For example, in 2005 the quarterly distribution was 52.5 cents, but it now pays 76.25 cents per quarter. Insiders are buying shares on this dip, which could be a sign of value.
On November 16, Joe Averett (a director) purchased 1,500 shares for $31.53, in a transaction valued at $47,295. Plus, multiple insiders have been consistently buying this stock throughout 2012. For example, on August 20, 2012, a few insiders bought shares in transactions worth about $15,000. However, in June, Averett bought 2,000 shares in a transaction worth about $62,760 and on the same day, Scott Massey (also a director), bought 2,250 shares in a transaction valued at $70,000.
Here are some key points for MMLP:
Current share price: $31.25
The 52 week range is $29.46 to $37.91
Earnings estimates for 2012: $1.41 per share
Earnings estimates for 2013: $1.73 per share
Annual dividend: $3.08 per share which yields 9.8%
Two Harbors Investment Corp (TWO) is a real estate investment trust or "REIT", that is focused on investing in residential mortgage-backed securities, and residential mortgage loans. As a REIT it is required to distribute at least 90% of its earnings out to shareholders. That is one reason why stocks in this sector offer an above-average dividend yield. The other reason is because companies like Two Harbors also use leverage. By borrowing money at very low interest rates and reinvesting it in higher yielding assets, it can increase returns. The Federal Reserve's low interest rate policy and recent QE3 bond buying program have caused some homeowners to refinance. That has put some margin pressures on mortgage REIT companies. In response, many of these stocks have seen a pullback and some companies have reduced dividend rates to levels that appear more sustainable in the current interest rate environment. With a lower share price and a dividend policy that has already been adjusted to reflect the current market dynamics, it could be time to buy the stock which now appears undervalued. Two Harbors recently increased a share buy back program to up to 25 million shares. Recent insider buying also indicates the stock is undervalued at current levels. On November 20, William Roth (an officer) purchased 10,000 shares at $11.08 per share in a transaction valued at $110,800. On November 16, Steven Kuhn (an officer) purchased 20,000 shares at $10.82 per share, in a deal valued at $216,400. Other insiders have also made recent purchases and when multiple insiders buy, outside investors should take note.
Here are some key points for TWO:
Current share price: $11.04
The 52 week range is $8.89 to $12.20
Earnings estimates for 2011: n/a on Yahoo Finance
Earnings estimates for 2012: n/a on Yahoo Finance
Annual dividend: $1.44 per share which yields 12.9%
Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.