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, Yieldpig (18 clicks)
Long only, dividend investing, value, investment advisor
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You’ve all been waiting so patiently for this week’s three lil’ piggies…so without further ado…here they are:

“Fire up some yield…”

Lorillard, Inc. (NYSE:LO)
Recent Price: 80.79
P/E: 13.05
Current Yield: 5.57%

The Skinny
Some of you might be reading this and saying ”Again….with the tobacco stocks!” Yes. LO, I think, is the 4th we’ve covered (Altria (NYSE:MO), Reynolds American (NYSE:RAI), Vector Group (NYSE:VGR)). Is it an ugly business? You bet. However, it’s fairly static and a good source of dividends. LO is the 3rd largest manufacturer of cigarettes in the U.S. holding an 11% share of the entire market. The numbers are, as Larry David would say “pretty….prettaaaay…good.” 9% EPS growth predicted for 2011 and the company is in the process of a $1billion share buyback. Things have also been somewhat quiet on the legal front. One more factor propping up tobacco stock prices in general: pitiful yields on Treasuries.

The Danger
LO’s share price has run quite a bit as it hovers within a couple of bucks of its 52 week high. Not much room for upside according to analyst opinion. Regulatory risk hangs over the shares due to an FDA study on menthol cigarettes that is currently underway. Why is that a concern? LO’s flagship brand is Newport, one of the most popular menthol smokes out there. And while cash flow is healthy, the company has a lot of debt on the balance sheet.

“Below book…below the radar…”

New ULM Telecom, Inc. (OTCQB:NULM)
Recent Price: 5.30
P/E: 7.07
Current Yield: 6.03%

The Skinny
To paraphrase Forrest Gump, screening stocks is like a box of chocolates. You never know what you’re gonna get. NULM might be a sweet little confection. An ILEC (incumbent local exchange carrier) in southern Minnesota and northern Iowa, NULM, on a smallish scale, has its fingers in a little bit of everything when it comes to communications: wire line, high speed internet, as well as multiple cable television systems in Minnesota. Gotta love those old timey monopolies (the company was founded in 1905...did they have telephones then?) and is priced as such. Low multiples, good cash flow and it trades at half of its book value. Sure. You can roll your eyes at wire line communications, but they still serve a purpose and add some sort of value to the whole Telco space. Remember, it took a few million years for the dinosaurs to die out.

The Danger
Digging up info was a challenge. The company website is pretty helpful, though and the data on Yahoo! Finance was usable. The thematic risk, obviously, is the enormous competition in the telco space as well as the gradual death of NULM’s core business: wire line. They’ve spent a century building out that infrastructure. Retooling for the brave new world would be costly. Our biggest concern is liquidity. It trades on the OTC bulletin board and looking at the chart, it’s a thousand shares here, 200 there with no real consistently. Most likely retired switchboard operators cashing out or locals trading it. If you are brave and lucky enough to get a couple shares, use limit orders and plan on holding it a while. This one’s a genuine outlier.

“All’s weld…that…”

Bonal International, Inc. (OTCPK:BONL)
Recent Price: .78 (yes…78 cents)
P/E: 8.07
Current Yield: 15.38%

The Skinny
This particular issue should probably have been titled “The Outlier Issue”. A penny stock with real earnings AND a dividend? The devil, you say! BONL can trace its beginnings to a humble, two man Detroit machine shop 60 years ago. From there, the small company evolved into a larger small company and is the world’s leading provider of sub-harmonic vibratory metal stress relief technology. Their products are used extensively in manufacturing including aerospace, automotive, and machine tools. BONL tells a small but impressive story: 33% of their sales are generated internationally, inventory is shrinking (good internal cost control). Best of all, the company hiked the dividend 50% over last quarter.

The Danger
While the company has an interesting, successful history, the environment is challenging. Sales were down 34% (not great) which, no surprise, monkeys with net earnings. The biggest concern, though, is how tiny the company is. Shares trade on the Pink Sheets. Information and liquidity can be scarce. Small may, indeed, be beautiful. However, this small may be fairly risky. Don’t bet retirement on it by any stretch of the imagination.

Disclosure: None