On my site I run a hypothetical Income Portfolio populated by high yield stocks. The portfolio is currently populated by 9 stocks from energy, financial, shipping, a REIT and a CEF holding high yield international stocks. I took an average yield of the 9 stocks and they have an average annual yield of 19.98% based on the most recent distribution. 20% yield!
The individual yields range from 10% for the Monmouth Real Estate Investment Corp. (MNRTA) to 34.3% for Atlas Pipeline Partners (APL). Obviously, the biggest reason for the high yield is that the value of the portfolio has fallen by 35% during the current market downturn. It seems apparent to me that if these stocks can maintain their dividend payouts, share prices will start to recover as the market realizes the shares have sold off too far.
Of the 9 securities in the portfolio, I strongly believe 5 will be able to maintain or increase their payouts for the foreseeable future. Of those 5, Penn West Energy (PWE) has been problematic because even though it is maintaining its payout level, the distributions are in Canadian currency and the results have declined over 20% when converted to U.S. dollars. Yet, even after the exchange rate haircut, PWE is yielding over 21% for U.S. investors.
The security most likely for a dividend cut is Atlas Pipeline Partners. Low oil prices could have a significant impact on APL’s cash flow. Yet at the current share price a 20% cut in the payout would still leave APL with a yield over 25%. And any distribution cut has double benefits on cash flow because the general partner incentives would be reduced by an equal amount. (for distributions above 60¢). On the recent conference call management announced they are looking for ways to reduce debt by strategic sales of assets or a possible combination of APL and Atlas Pipeline Holdings (AHD), the general partner holding company.
Nordic American Tanker (NAT) has been the best performing stock in the portfolio, down less than 10% since July 1. NAT has paid excellent dividends for the last two quarters, yet is the most unpredictable as far as future distributions go. I love this stock, but would not be surprised to see lower dividends for the next few quarters as lower oil demand could reduce the spot rates for oil tankers.
I am most curious about future distributions for the CEF Alpine Global Dynamic Dividend Fund (AGD). AGD has confirmed its monthly payout of 17¢ per share through the end of the year, keeping the yield at over 27%. AGD has been paying the 17¢ per month for at least a year and I believe since the CEF’s inception in 2006. NAV and share price have eroded sharply since trading well above $20 at the end of 2007. AGD’s objective is to obtain high dividends through international stocks and a dividend capture strategy to collect extra income during the year. It will be interesting to see at what level they can maintain the distribution into 2009. Has their trading strategy undermined the capital base of the fund, or are they still earning the same income from much cheaper stocks? We should know in the next 7 to 8 weeks.
My current outlook on this portfolio is that the stocks will be throwing off enough income to bring the value back to my July 1 start point in 18 to 20 months even if the stock market remains in its bear cave. If most of the securities in the portfolio do continue their current levels of payout into the next few quarters, I expect some share price appreciation.
Disclosure: The securities discussed are components of my site’s hypothetical Income Portfolio.