The market is coming off its best first quarter since 1998. Given the ongoing crisis in Europe, economic growth still under trend and a stellar performance in the first three months of the year; the market is likely to be a more challenging place for investors in the second quarter of the year. My personal opinion is that we have seen most of the gains we can expect for the year already. Given this outlook, I am looking to rotate more of my portfolio allocation into steady, cheap dividend yielding plays. Here are three that look good on a valuation and income basis.
Calumet Specialty Products Partners, L.P. (CLMT) produces and sells specialty hydrocarbon products from a couple of refineries in North America. It operates in two segments, Specialty Products and Fuel Products.
4 reasons CLMT is a good addition for an income portfolio at $37 a share:
- Calumet is offering a good entry point after it sold off over 6 percent from its highs recently after announcing a public offering of just over 5mm new units (which is a regular part of a MLP that is growing assets).
- The company just broke ground with partner MDU Resources (MDU) on first diesel refinery built in 37 years. The $300M facility will will produce fuel that powers fracking rigs and other equipment used in the development of the Bakken shale. This will add significantly to revenues and cash flow growth in future years.
- CLMT yields almost seven percent (6.7%). The entity has more than doubled its distribution payouts since it came public in 2006.
- Despite the yield, CLMT is selling for under 9x this year's earnings and under 7x operating cash flow.
Cisco Systems (CSCO) is the largest network firm in the world.
4 reasons CSCO is a good value and income play at $21 a share:
- The company announced a better than 20% dividend hike which will bring its dividend yield to 3.25%. Cisco has now raised its dividend payout by 250% over the last two years.
- The company can easily afford the latest hike in its payout. Cisco has one of biggest cash hoards among S&P firms with over $45B in cash and market securities.
- CSCO is selling near the bottom of its five year valuation range based on P/CF, P/B, P/S and P/E.
- Analysts project 5% revenue growth annually over the next few years, the stock has a five year projected PEG near 1 (1.25) and is trading at less than 10x forward earnings (7x subtracting cash).
CBL & Associates Properties (CBL) is a public real estate investment trust. It engages in acquisition, development, and management of properties.
4 reasons CBL is a good income play at $23 a share:
- The stock yields just under four percent (3.9%). The company has more than quadrupled its dividend payout since coming out of the recession (It had to cut dividends radically during financial crisis).
- Despite its yield, CBL sells for less than 11x forward earnings. Given its low payout ratio for a real estate play, it has room to continue to increase dividends at a solid rate.
- It has S&P's highest rating "Strong Buy" with a $27 price target on its shares.
- The company has a solid niche is having the best shopping center assets in mid-market areas. Real estate should be a solid play if inflation picks ups as it should eventually given our current monetary policy.