In this article I'll discuss 7 dividend stocks with yields between 9 and 12%. I own some of these names and am trying to accumulate positions at attractive entry points in the ones I don't ow. These names all have inherent risks in order to offer these high yields. I do plan to buy below current closing prices, via limit orders, and hedge accordingly. If the price doesn't come down to my levels, then I'll move on to other ideas.
I keep my position sizes to a 1.5% - 3.5% level. I don't want one stock taking my entire portfolio down. My goal in setting good-til-cancelled orders on the below stocks, is to take advantage of the high-frequency trading programs. By some accounts, high-frequency trading accounts for 60-75% of all trading activity. The swings in price valuations can be volatile and without warning. Click to enlarge:
The company currently offers a 10% yield with a quarterly 75-cent, per share, dividend. I have never liked Mr Fredriksen's business model of paying out the majority of its cash flow. One of his other companies, Frontline (FRO), is struggling to pay the bills today because the company never saved any money for the rainy days.
Management put on a September 6th presentation which highlighted the positive trends favoring Seadrill. The company has an order backlog of $12.2-billion. I would like to buy SDRL in the $25 - $27.50 range. The stock has a high beta of 2.1. If I can gain an entry price in my buy range, then I will likely put on a collar trade to protect the downside.
The Gabelli Global Gold, Natural Resources & Income Trust (GGN)
I am positive long-term on gold and natural resources. Gabelli Global Gold, since June 2006, has paid a 14-cent per month dividend. The fund, per the above table, has yielded a 11.8% total annualized rate-of-return. This return assumes that dividends are not reinvested into additional shares.
I have a two pronged approach to my Gabelli Global Gold position. I reinvest the dividends. Secondly, I typically have a good-til-cancelled buy order to buy below current prices. The price I am seeking is 10% - 20% below Gabelli Global Gold's NAV.
Navios Maritime Partners (NMM)
Navios Maritime Partners is part of a cross-ownership entity. This below table lists the inter-relationship of associated third parties:
The stock offers a 12% yield based upon a $13.85 closing price. I am seeking to purchase the equity closer to the $11.06-low for the year. The NMM Mar 2012 12.500 put (NMM120317P00012500) offers a potential option credit premium in order to wait for a lower price. If exercised, the net cost basis, for 100-NMM shares, would be $11.10 assuming $140 would be realized for selling the put.
Student Transportation Inc (STB)
The CEO, Denis Joseph Gallagher, purchased approximately 50,000-shares per insider trading reports. The shares were purchased between September 28th and October 3rd.
Southern Copper Corp. (SCCO)
Copper has historically been a leading indicator of economic downturn. This may be a lagging indicator, as times have changed, as copper is stockpiled by China and leading international countries. Nevertheless, it is important to note that Southern Copper did fall to $9-per share in the 2009 malaise. The company's balance sheet has approximately 45% debt.
I am watching the price volatility and looking for an attractive entry point. I would likely buy the equity at a low valuation with a protective put.
Solar Capital (SLRC)
The company has about $400-million of lending capacity. Leaders Michael Gross and Bruce Spohler have plenty of experience in this sector. The company will report 3rd quarter results on November 1st.
Ares Capital Corporation (ARCC)
Ares Capital manages close to $5-billion in private middle market companies. This is in debt and equity positions. The business development corporation (BDC) has adequate capital to fund new accretive projects. Over 90% of the new deals were backed by first lien senior secured loans. Management has proven to be successful in weeding out the winners from the losers.
The June 30th book value per share was $15.28. Ares Capital is trading at about a 10% discount to NAV. I am looking to enter at a low $12 range. The dividend is enticing, but I believe this segment may offer some additional downside before bouncing back. In the meantime, I will wait for an opportune time and pounce accordingly.
The market is not on stable ground. The housing and employment market continue to suffer. The euro continues to be an issue kicked down the road for legislators to deal with at some future point. What is amazing to me is the market's lack of accountability. Nobody, in the eloquent words of Barry Ritholtz, is willing to "take the loss".
Disclosure: I am long GGN, STB.