Dividend Stocks Better Deal Than Commodities Over the Long Haul. Here Are 3 to Consider

Includes: BAC, BWL.A, CRRC
by: Yieldpig

Commodities, especially silver had its rear end handed to it in a zip loc bag last week. Why? Because the smart money that picked up SLV at 18 last year had the basic, mouth breathing wisdom to punch out at 48. There’re lots of other reasons, too. Margin requirements on silver and oil have been adjusted. That’ll keep things from getting too full tilt boogie. But, like we talked about a couple of weeks ago as we disputed Jeremy Grantham’s “New Paradigm” claim, prices come down eventually. Just gonna happen.

Here’re some fun facts we stumbled on. According to data from the Credit Suisse Global Investment Returns Yearbook 2011, the annualized return for stocks from 1900 to 2010 has been 9.4%. Bonds got you 4.8% for the same time period. Commodities? How about a whopping 2.6% annualized for over one hundred years. With inflation at 3.1%, an inflation sensitive “investment” couldn’t even keep pace. Hell, you would’ve gotten 3.9% if you’d stayed in cash. But, then again, after 110 years, you’d be too dead to spend it.

Yeah, commodities have snapped back. But what doesn’t after getting hammered big time in a short period? I’m sure Enron popped on the open at least once or twice. But it’s probably the last stand. From Cairo, Egypt to Athens, Georgia, consumers are sick and tired of paying too much whether it’s gasoline or a loaf of bread. They’re the market and the market is a voting mechanism. Looks like higher commodity prices have had term limits imposed.

Judging by the return data we discussed, stocks are a better deal over the long haul. The VERY long haul. Short haul, too. Like the rock-n-roll, the ingredients, while necessary, aren’t nearly as important as the end product.

Hate to say I told you..but here are our three lil’ piggies….

“Take the skinheads bowling…”

Bowl America Class A (NYSEMKT:BWL.A)
Recent Price: 13.20
Current Yield: 4.84%

The Skinny
Growing up, a friend of my family's owned one of the larger bowling alleys in town. The entire family worked liked Trojans at the business but they were very successful. They fit the historical, mom-n-pop profile of that business. Eventually, AMF decided to roll up a mom-n-pop business on a national level (my pal’s family did quite well thanks to AMF’s delusion of grandeur). Didn’t work out so well. However, that doesn’t mean it can’t work on a smaller scale. BWL.A seems to be doing OK. The company operates 19 bowling centers in Washington, D.C., Florida. Virginia and Maryland. Tiny little $46 million market cap. But, sometimes those pay off big. The company has actually been around since 1958 and has consistently turned in revenue of $27 to $30 million annually over the last five years. The company is debt free and raised the dividend at the end of last year. Not bad considering the current environment.

The Danger
BWL.A’s numbers have been slipping a little lately. 2010 EPS came in at 36 cents versus 60 cents for the previous year. Revenue has also shrunk 8.85 percent YOY. Cash seems to be tightening too. Last year, operating cash flow was around $3.5 million, down from $4.78 million for the prior year. That’s a concern. BWL’A looks like an interesting idea. Be careful though, the potential for a gutter ball is there as well.

“Take Another Look at the Book…”

Courier Corp (NASDAQ:CRRC)
Recent Price: 11.66
Current Yield: 7.20%

The Skinny
CRCC is another Yieldpig repeater. We covered it July 23 of last year. The price then was around 14. It’s on sale now and the yield has consequently bumped up thanks to that. Still the nation’s third largest book manufacturer, CRRC cranks out over 100 million books annually. The stock now trades around book value. Last year, operating cash flow jumped from $18.3 million to $27 million. Sales did grow by about $10 million. Not bad. There may be some value there.

The Danger
I’m late to the party. But I freakin’ love my Kindle. No more reading glasses. The wife doesn’t kvetch at me for stacking books up on the night stand. That’s a Cat 5 headwind. They also posted a Q2 2011 loss of 40 cents a share. Throw in the fact that 2010 EPS came in at 60 cents when four years ago they were at $2.25.
Volume is also a concern. Yesterday, around 24,600 shares traded hands. I’ve seen less liquid stocks, but that’s a mighty skinny number. Be careful with this one.

“Trust the preferreds…”

Bank of America Capital Trust IV Preferred 5.875% (BAC.PU)
Recent Price: 23.27
Current Yield: 6.3%

The Skinny
It’s hard to drive through the suburbs and not realize the power of Bank of America’s (NYSE:BAC) franchise, warts and all. There are plenty of their trust preferreds out there. This particular one trades at a discount to par ($25) and sports half of an investment grade rating (BB+/Baa3). Remember, the Collins Amendment in Dodd Frank stipulates that banks with more than $15 billion must begin phasing out trust preferreds as part of their Tier 1 capital structure in 2013. They’ll have three years to do so. Most will probably call them in at par. That’s a 7.4% upside in addition to the yield. Not bad for a well known name.

The Danger
Since the financial crisis of 2008, B of A, at times, reminds me of an enormous train wreck where they are constantly pulling out bodies. A lot of junk in the basement to be cleaned out. BAC.PU only has half of an investment grade rating. Not impressive for an institution of that size. Interest rates are also a factor. When they rise, BAC.PU could be smacked a bit due to its lowish original coupon (5.86%). There’s also a chance that BAC converts it into a straight preferred thanks to its low coupon.