3 Dividend Stock Ideas

 |  Includes: ANZBY, CSA, MWR
by: Yieldpig

“Kiwis and Kangaroos…”

Australia and New Zealand Bank ADR (OTCPK:ANZBY)
Recent Price: 23.42
P/E: 13.11
Current Yield: 4.78%

The Skinny
How do you get exposure to both the Aussie dollar AND the New Zealand kiwi? How about a bank that covers both markets? ANZBY provides a wide range of banking services to consumers, small businesses, commercial and institutional customers in Australia and New Zealand. The commodity fueled boom both nations have enjoyed has flowed through. Revenue has been rising steadily and net income has been growing at a 14.3% annual clip over the last 9 years. The bank’s dividend payout ratio is modest at 58% which we’re comfortable with.

The Danger
Good times in ANZAC land have been enabled, primarily, by China’s seemingly insatiable appetite for commodities. With some tremors in the Chinese economic foundation, that party could end abruptly and unpleasantly. The banking sector will be one of the first to feel that pain. Also, the currencies of both countries have rallied for the better part of two years. Regardless of what the newsletters and talking heads say, that trade is liable to run out of gas sooner or later. I’ll bet on sooner. On a fundamental level, while banks typically have low ROE’s, ANZBY’s are shrinking in the face of growing earnings. That makes one curious and not in a good way.

“CYA with CSA…”

Cogdell Spencer (NYSE:CSA)
Recent Price: 6.04
Current Yield: 6.623%

The Skinny
While everyone’s running off at the mouth about “commodity this…” and “contango that…”, we’d rather talk about a $294 million market cap REIT trading at a 29% discount to its 52 week high. We’re funny like that. Go figure. CSA is self managed REIT that owns, develops, and runs specialty medical office buildings domestically. CSA’s cash position is pretty good at $25 million on the books. That’s around 50 cents a share. Not bad for a $6 stock. Also, revenue per share is about $4.00. That leaves $2 for the other stuff. Cheap. Rents have also been rising steadily. And the sector as whole? C’mon…when was the last time you were in an empty doctor’s office. My wife was having an epidural a few weeks back at her orthopedist’s surgery center (attached to their office) and I stood in the waiting room most of the time. There were no free chairs. Business is booming.

The Danger
While many REITs enjoyed upward bias last year. CSA didn’t. They turned in a Q3 2010 loss of 4 cents per share and a total loss of 18 cents per share for the year. Then there’s the debt: $386 million. That’s been paid down some thanks to their recent equity offerings. Oh yeah…that. Back in May, CSA raised about $45 million through an equity underwriting. This put another 6.5 million shares out there. Could be a bit dilutive. And although the sector is healthy (get it…healthcare? Healthy?) looking, a lot of uncertainty looms on the horizon. From freshman congressmen clamoring for the appeal of Obamacare to, perhaps, a pending Medicare crisis, anyone who makes any money associated with the medical arts is a little antsy. A REIT that owns medical buildings would probably qualify.

“Not so flat Morgan Stanley…”

Morgan Stanley Capital Trust III Preferred 6.25% (NYSE:MWR)
Recent Price: 22.82
Current Yield: 6.84%

The Skinny
Why buy a 5 year bond paying 5% or less when you can buy a bank trust preferred and pick up well over a 100 bps AND maybe some capital appreciation. Here you go. With a par value of $25, MWR trades at 91 cents on the dollar. Not distressed but better than full price or a premium, no? Good brand name, too. Although they call it a “joint venture”, Morgan Stanley (NYSE:MS) is the “daddy” in the relationship with Smith Barney. People can beat up on full service firms all they want. But at the end of the day, they handle trillions of dollars and make lots of money. The preferred shares carry a BB+/Baa2 rating which isn’t too terribly awful. And, as we’ve discussed before, thanks to Basel II trust preferreds are no longer considered part of a bank’s Tier One capital. Over the next two to three to five years, trust preferreds will be called in at par. Own ‘em while they’re at a discount and get paid decently in the process.

The Danger
MS’s underlying rating is A/A2 which is quite good for corporate debt. However, MWR is BB+/Baa2. Obviously, there are things about the preferred shares that spook the ratings clowns…er…sorry…agencies. Remember, you’re buying a junior security in the company’s debt hierarchy. It’s got a different place in line. Better than common equity, but not as great as the bonds or bank debt. Also, we discussed the fact that trust preferreds, especially those issued by banks, will be called willy nilly over the next few years. Don’t get attached to MWR. You probably won’t own it very long. Lastly, I know things are better today then they were in 2008. But, markets and sentiment can turn on a dime. With sovereign debt problems continuing in Europe and the strong possibility of a Chinese slowdown, big banks will be punished as the market reacts. Yes..bonds and preferreds, too.

Disclosure: Long MWR in client accounts