It has been a stellar year for equity investors. The S&P is up better than 25% as we head into the last few weeks of trading in 2013. However, earnings growth has failed to keep up with the market's rise and is currently running in the low middle digits year over year.
Most predictions at major investment houses for 2014 seem to be gravitated to calling for a gain of 4% to 7% in the markets for 2014. In my portfolio I am positioning for less robust equity performance in 2014. At some point in the year, the Federal Reserve will have to start to "taper". I also believe the fallout and negative growth implications caused by the implementation of the Affordable Care Act are just beginning.
Given this outlook, I am adding more high yielding selections into my income portfolio. I particularly like the energy partnership and real estate investment trust (REIT) sectors. Here are two seven percent yielders from these areas I like here.
American Realty Capital Properties (ARCP) has a large, diversified net leased property portfolio throughout 45 states. Its property portfolio is focused on free standing, single tenant properties net leased to strong corporate tenants of which ~80% are companies with investment grade credits. It largest lessees include Dollar General (DG), Walgreens (WAG) and Federal Express (FDX).
This REIT popped up on my radar screen again this weekend when I read four insiders purchased almost $1mm in new shares last week. From an income perspective it is easy to see why. The shares yield seven percent through monthly payouts and its merger with Cole Real Estate (COLE) should be complete in the near future.
Another attractive feature of this REIT especially the new combination is showing solid upward revisions to consensus EPS estimates for FY2014 over the last two months. FFO (Funds from Operations) is projected to be $1.14 a share next fiscal year. This would be a 35% increase over FY2013 and should bode well for another dividend increase sometime in 2014 as well.
Williams Partners LP (WPZ) operates the largest natural gas pipeline system in the United States. It recently received federal approval to expand this pipeline system to serve Dominion Resources (D). This trend should continue due to the domestic energy production explosion over the last half dozen years and as more and more end customers switch over from coal to natural gas as a source of fuel.
The shares yield an even seven percent at current prices and Williams has more than double its distribution payouts since it came public in 2005. Ned Davis Research recently designated Williams as one of six energy partnerships that should do well even as interest rates rise.
Consensus earnings estimates for FY2014 have risen ~7% over the past months. Analysts project earnings will increase by over 30% next year on the back of a better than 15% growth in revenue. Williams should be a stead grower as new projects come on line over the next few years and should provide above average income returns in this low interest rate environment.