Many stocks are trading well below the recent highs due to a post-election market decline and an even bigger drop in some dividend stocks due to investor concerns about a potential increase in the tax rate on dividends in 2013. If an agreement on the Fiscal Cliff is not reached, the tax rate on dividends could go from the current 15%, to over 40% for some investors. While that is a valid concern, there is still a good chance that a deal of some sorts will be made in order to keep tax rates on dividends at more reasonable levels. Plus, in a low interest rate world, dividend stocks are still likely to offer some of the best yields even if taxes do rise. The recent drop in dividend stocks has created a buying opportunity that some company insiders are taking advantage of. Since insiders tend to know their companies best, as well as when it makes sense to buy the stock, it can pay to follow insiders when they buy.
The average stock in the S&P 500 Index (SPY) currently offers a yield of just over 2%, so with the below stocks yielding more than five times that amount, these qualify as "high-yielders." The stocks were selected because of the exceptionally high yields, recent insider buying, but also because these stocks are trading well below recent highs and therefore now offer a better buying opportunity. Here are three high-yielding stocks to consider now:
Compass Diversified Holdings (CODI) invests in and buys other companies. It uses profits generated by these investments and companies to pay shareholders a very generous yield of over 10%. Compass often buys a controlling interest in small to medium-sized businesses that are profitable and lead in niche industries. It works with management of these various companies to increase growth and provide support. Because it is focused on small to mid-sized companies, it can often find investment opportunities that are overlooked by larger companies. The portfolio of companies it has invested in includes Camelbak, Staff Mark, Liberty Safe, Ergo Baby Carrier, and others. Multiple insiders have been recently buying shares. On December 11, 2012, Gordon Burns, a partner at the firm, purchased 2,000 shares in a transaction valued at $27,840, and on December 10th and 7th, he bought a total of another 6,000 shares. This follows up on other insider buying by Allan Offenberg on November 15, of about 4,600 shares in a transaction valued at over $62,000.
Here are some key points for CODI:
Current share price: $13.90
The 52 week range is $11.82 to $15.70
Earnings estimates for 2012: $1.59 per share
Earnings estimates for 2013: $1.62 per share
Annual dividend: $1.44 per share which yields 10.4%
Martin Midstream Partners (MMLP) is trading near the 52-week lows which means it could be seeing a fair amount of seasonal tax-loss selling. At this time of year, many investors tend to sell stocks that they have lost money on in order to harvest losses for tax purposes before the end of the year. This could be providing an opportunity to accumulate cheap shares from investors who are selling for tax reasons. When the tax-loss selling ends on December 31, the shares could rebound in January. There are a couple of major reasons that contributed to the recent weakness in this stock. One is a general sell-off in dividend stocks due to concerns that the tax rate on dividend income could rise in 2013 if a Fiscal Cliff deal is not reached soon. Another reason for a decline is because of a secondary offering on November 20, in which the company announced it priced a public offering of 3 million shares at $31.16 per unit. The company plans to use these funds to reduce debt and for other purposes. Martin Midstream offers a wide variety of services to the energy sector which includes marine transportation, natural gas services, fuel storage and more. It also has a major natural gas pipeline in Texas.
This business model provides relatively stable cash flows for the company which it uses to pay investors a very generous yield of over 10%. Plus it has a strong history of increasing the payout. In 2005, the quarterly distribution was 52.5 cents, but it now pays 76.25 cents per quarter. Insiders are buying the recent pullback in the stock which means the selloff could be overdone.
On December 13, Wesley Skelton (an officer) bought 1,000 shares in a deal valued at over $30,000, plus other insiders have been buying. On November 16, Joe Averett (a director) purchased 1,500 shares for $31.53, in a transaction valued at $47,295.
Here are some key points for MMLP:
Current share price: $31.72
The 52 week range is $29.46 to $37.91
Earnings estimates for 2012: $1.41 per share
Earnings estimates for 2013: $1.65 per share
Annual dividend: $3.08 per share which yields 10.1%
American Capital Agency (AGNC) shares have been volatile lately due to a post-election selloff in stocks. Investors have also been concerned about the extent of the impact from the Federal Reserve's QE3 bond buying program which has pushed mortgage rates down even further in the past several weeks. When rates drop, it creates a wave of refinancing activity with homeowners who are replacing higher rate mortgages with ones that will save them money. Of course, this comes at the expense of mortgage companies who have seen higher margin loans be replaced with lower ones. Since mortgage REIT companies pay out most of what is earned to shareholders in the form of a dividend, a sudden drop in profits can lead to an almost equally sudden drop in the dividend. However, American Capital shares have been adjusted lower by the market and might have already priced-in these concerns. Some analysts and investors think American Capital is well positioned to weather the recent changes in the industry. A sign that the stock is a good buy is the fact that company insiders who tend to know this industry very well have been buying the stock. On December 9, Alvin Puryear (a director), purchased 1,500 shares in a transaction valued at $47,250. On December 3, Malon Wilkus bought 3,910 shares in a transaction valued at over $100,000 and this follows up on other insiders who were buying shares in November.
Here are some key points for AGNC:
Current share price: $29.90
The 52 week range is $27.61 to $36.77
Earnings estimates for 2012: $4.02
Earnings estimates for 2013: $5.47
Annual dividend: $5 per share which yields about 16.6%
Data is sourced from Yahoo Finance.
Disclaimer: 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 advisor.