Is it time to flee to safety? With the economic and political climates only becoming more tumultuous, I have been paying closer attention to dividend stocks recently. We all know about AT&T (NYSE:T), Altria (NYSE:MO), and Pepsi (NYSE:PEP), but there are attractive companies with high yields that are going ex-dividend every week.
To focus on these opportunities I ran a screen using TDAmeritrade with a focus on relative safety for the investments. Since this is a high yield quest I began with a specification of a dividend yield greater than four percent and an ex-dividend date within the next week. To provide some layer of safety I narrowed down the environment by looking at companies with market capitalizations greater than one billion, PEs between zero and twenty, and a institutional holding percentage of at least twenty-five percent. While not a precise requirement, I prefer companies that have underperformed the S&P 500 year-to-date as it indicates limited downside relative to peers. This is summarized below:
- Dividend Yield ≥ 4.0%
- Ex-Dividend Date = Next Week
- Market Capitalization ≥ $1B
- PE Ratio: 0-20
- Institutional Ownership ≥ 25%
After applying this screen I arrived at eight potential trades. Although I envision these as short-term trading ideas, you still need to be careful. The information presented below should simply be a starting point for further research.
Prospect Capital Corporation (NASDAQ:PSEC): 13.35% Yield - Ex-Dividend 10/27
Prospect is a private equity firm that makes secured debt and equity investments with a focus on micro cap (<$250M enterprise value) energy and industrial sectors in the United States. With the domestic economic performance this initially appears to be a vulnerable area of the economy. There may be signs of cracks in the company's business, at least in the short-term, as the distribution was lower this year. With a PE below seven I think downside risk is limited. I am confident in the company's immediate term prospects primarily because the company announced a $100M repurchase plan in August. Please note that Prospect makes monthly distributions, so you are still looking at approximately one percent in income, similar to the other companies below.
Royal Bank of Canada (NYSE:RY): 4.64% Yield - Ex-Dividend 10/24
The Royal Bank of Canada (“RBC”) is one of the world’s largest diversified banks with services ranging from commercial banking to investment banking to wealth management. Over half of the company's profits come from vanilla Canadian banking services, while less than twenty percent comes from the more volatile international banking and wealth management segments. While hundreds are protesting Wall Street, RBC has thus far been flying under the radar as our neighbor to the north. RBC edged out Bank of Montreal (NYSE:BMO), which also met the screener requirements, due to significantly higher market cap ($30B) and relative underperformance (11%).
TC PipeLines, LP (TCLP) 6.53% Yield - Ex-Dividend 10/27
TC PipeLines is a master limited partnership (MLP) that owns interest in companies that operate thousands of miles of natural gas pipelines spanning the Midwest U.S. and Canada. This is a highly lucrative business considering its low relative risk: TCLP’s profits are not overwhelmingly tied to energy prices as the pipeline operators charge for the privilege of using the pipelines. Volume will differ as the underlying resources prices change, but not dramatically. Revenue is not growing as fast as peers but an eighty percent profit margin cushions the blow. TCPL narrowly edged out El Paso Pipeline Partners, L.P. (NYSE:EPB) due to its .8% higher yield and 12% relative S&P underperformance.
Pinnacle West Capital Corporation (NYSE:PNW) 4.62% Yield - Ex-Dividend 10/28
Pinnacle West Capital is a regulated utility company that produces and distributes energy for over one million customers on the west coast. While slight geographical differences exist for regional utilities, the underlying business is essentially the same: a stable, cash-cow business that returns most profits to investors via dividends. I have successfully owned utility companies in the northeast U.S. Pinnacle has the slight advantage over Alliant Energy Corporation (NYSE:LNT) with a higher yield, institutional holding, market cap, and relative underperformance.
Paychex, Inc. (NASDAQ:PAYX) 4.53% Yield - Ex-Dividend 10/28
Paychex is the payroll, human resource, and overall administrative outsourcing company which competes directly with larger rival Automatic Data Processing (NASDAQ:ADP). A common theme should be emerging by now that the non-financial companies highlighted operate in relatively stable businesses that are financially sound enough to weather short-term economic variances. If the economy weakens further and unemployment rises, Paychex’s earnings might decline-- but remember this is a short-term trade.
The information presented above has been summarized below (Source: TD Ameritrade).
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