Many income investors are always on the look out for promising dividend stocks. If an investor performs due diligence, he / she can locate a few gems to allocate investment funds to. In this article I discuss 7 interesting stocks with high yields worth diving into and taking a deeper look. Let's see what we can find!
Cornerstone Progressive Return Fund (CFP)
CFP has pluses and negatives to consider. The fund has announced plans to increase monthly distribution to 10.3-cents for July, August, and September distributions. The current annual yield is 17.48%. The dividend is a managed distribution and paid monthly.
Examining the 1st quarter SEC N-Q filing, Cornerstone Progressive is clearly loaded with high-yield securities. CFP holdings include 91.44% in closed-end funds. These holdings include option arbitrage securities; corporate debt funds; high-current yield securities; and high-yield municipal debt.
Cornerstone Progressive Return utilizes zero leverage. The 1.47% expense ratio is reasonable considering the fund is only $50-million in market cap.
I would advise readers to postpone allocation dollars to CFP. The current CFP price, $7.07, is trading at a 21.69% premium to net asset value (NAV). Ideally CFP should be purchased with a price closer to NAV. Yield chasers have propped up the CFP price to unjustifiable prices.
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Fifth Street Finance (FSC)
Fifth Street continues to keep the wheels in motion. The company recently announced a secondary to build up its capital base for new lending projects. The company announced a 5-million share offering on June 23rd. The company raised $65.1-million, with additional FSC shares sold in the offering, to be used for investments in small and mid-cap investments.
FSC currently pays a 10.66-cents monthly per share dividend, equating to a $1.28-per share annual dividend. Based upon a current stock price of $11.66, the annual dividend yield is 10.97%. The stock has been under temporary weakness as the secondary offering has placed additional shares on the market place.
FSC continues to outperform the SP500. The total annualized rate of return is 11.1%, over four-years, versus the 1.5% SP500 return over the same period.
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Invesco Mortgage Capital (IVR)
IVR is a MREIT that owns both agency mortgage backed securities (MBS) and non-agency MBS. The non-agency MBS inherently carry more risk than government sponsored enterprise (GSE) guaranteed securities. IVR pays 97-cents per quarter, or a 18.5% dividend yield based upon a recent stock price of $20.90.
IVR, per its 1st quarter 10-Q, has $6,769,817,000 in agency bonds out of a total of $9,380,928,000 in bond assets. This represents a 72% position in agency paper. The 28% in non-agency paper cannot be discounted. Investors must be cognizant of the potential write-downs and valuations of these non-agency backed securities.
IVR recently raised $393-million in a secondary offering. I will be watching for the percentage of MBS designated as agency vs. non-agency paper. My preference is for agency paper. I believe investors are well served to wait for the 2nd quarter 10-Q, to be issued in July 2011, for book value figures. This name could well move into an increasing agency-only MREIT. If this occurs, investors' attention will take note.
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Linn Energy, LLC (LINE)
LINE continues to prosper as a long-term energy growth play. The company is focused upon paying a consistent, growing dividend. Even as oil prices have dropped in recent weeks, LINE's hedges allow the company to operate without the worry of day-to-day energy price fluctuations. LINE pays a quarterly dividend of 66-cents. This equates to a 6.9% annual dividend yield based upon Monday's closing price of $38.42.
The company is adamant about acquiring and developing low-risk, long-life, low-decline (e.g. depletion rates) assets. The assets include both natural gas and oil properties.
The annual report has substantially outperformed the SP500. The 16.9% total annualized rate of return beats the 1.6% SP500 return over the same 6-year period.
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New York Mortgage Trust (NYMT)
NYMT operates as a MREIT with both agency mortgage backed securities (MBS) and non-agency MBS. This is a major distinction between a pure play agency-- MBS entity such as American Capital Agency (AGNC), or Hatteras Financial (HTS). NYMT is fairly small at a $74-million market cap. In comparison, AGNC recently offered a $1-billion secondary share offering.
New York Mortgage Trust is paying 22-cents per quarter, which equates to a 11.1% annual dividend yield. The company announced on June 27th a 2-million share secondary offering in a SEC filing.
The company has been successful at raising its book value per share. As of March 31st, 2011, the book value per share was $7.54. This was an increase to the book value per share on December 31st, 2010 of $7.27.
In my view, it is too early to determine the direction in which NYMT is heading. Is the enterprise focused upon agency paper or non-agency paper? The company is actively engaged, as of June 27th, raising additional funds. I will follow this company to see what direction the company takes and provide commentary on the credibility of management and the business model. For now I advise to take a watch-and-see approach. An observance of an agency-backed MBS portfolio is advisable to new investors.
Investors are wise to review the 8-year NYMT results vs the SP500. NYMT provided a -15.1% total annualized rate of return vs. the 3.4% total annualized rate of return of the SP500. Let's watch and see what develops from Monday's secondary announcement.
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Prospect Capital (PSEC)
Prospect Capital shares have dropped a bit due to the overhang of a secondary offering. The company recently announced a secondary to build up its capital base for new lending projects, a 10-million share offering on June 23rd. The company raised funds with the secondary priced at $10.15. PSEC can be a difficult entity to analyze as it has Level 3 assets on its balance sheet. Prospect Capital management is focused upon lending money to companies who are likely - based upon PSEC management oversite - to repay the investment. This lending is often opaque and difficult to price, such as Treasury Bills or blue chip stocks.
PSEC currently pays a 10.13-cents monthly per share dividend. This equates to a $1.21-per share annual dividend. Based upon a current stock price of $10.07, the annual dividend yield is 12.00%.
PSEC has under performed the S&P500 over the past 8-years. The total annualized rate of return is 2.0%, versus the 4.0% SP500 return over the same period.
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StoneMor Partners (STON)
StoneMor Partners is the second largest owner and operator of cemeteries in the United States. StoneMor provides services both on an immediate need and planned-needs basis. STON pays a quarterly dividend of 58.5-cents per quarter. This equates to an 8.5% annual dividend yield.
For planning needs, StoneMor accepts funding for merchandise trusts (e.g., caskets) and prepaid trusts. STON invests planned-needs money in debt securities, mutual fund investments, and equity investments. These securities are reported on the 10-Q at their market value. STON's goal is to earn profits on these funds until the customer has a need for the products.
StoneMor recently had an investor presentation on May 25th. The company highlighted its 2010 fiscal achievements on page 7 . STON grew the distributable free cash flow by 19% in 2010. This is significant as the number reflects STON's ability to increase future dividends.
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Disclosure: I am long FSC, LINE, PSEC, STON.
