A few high-yielders have seen their share prices hit the skids. Using a search at finviz.com, I screened for solid operating margins over 10%, yields over 5%, net income growth that is positive and a discount to the industry price to earnings ratio of more than 20%. Here is my analysis using a relative dividend discount model. I conclude that all of these stocks are cheap and should be bought right now.
Capital Product Partners, L.P. (CPLP) – Paying a dividend yield based on the recent trading history of 15.0%, CPLP offers a truly competitive dividend, particularly when compared to its peers – Gastem Inc. (GTMIF.PK), Overseas Shipholding Group Inc. (OSG), and TORM A/S (TRMD). OSG pays a dividend that currently equates to a yield of 8.3%, while the other two companies pay no dividend at all. While the shipping industry is known for high dividend yields, when one is paid, CPLP stands out from its peers. It is important to note that the company is set up as a limited partnership, which means that earnings are treated differently from a tax standpoint. This can affect not only the tax treatment of that dividend, but what investors are willing to participate in the stock – certain hedge funds and institutional investors will not invest in L.P.’s because of the different tax structure. For most, however, the competitive dividend yield should be sufficient to make the stock appealing. As additional enticement toward buying the stock, it carries an operating margin of 32.2%, where GTMIF.PK, TRMD and OSG are each losing money and the industry has an operating margin of 11.1%. Finally, with a price-to earnings ratio of 2.68 relative to 10.9 for the industry, the stock appears to be a strong value as well.
CH Energy Group, Inc. (CHG) – While to 4.0% dividend yield that is offered by CHG is only average amongst its peers in the diversified utilities industry, the stock is attractive for other reasons. The most closely related company, Consolidated Edison Inc. (ED), has a market capitalization of $17.2 billion and more attractive fundamental metrics. The draw of CHG is that with a market capitalization under $900 million, the company makes an interesting growth play, and possibly makes a good target for acquisition. Having a solid foothold in both the oil and natural gas markets, CHG appears solid and provides a reasonable income element.
Cross Timers Royalty Trust (CRT) – This express trust offers a dividend yield at current levels of 6.3%, while still having an attractive fundamental metric profile. When compared to competitors – Sabine Royalty Trist (SBR), San Juan Basin Royalty Trust (SJT) and Torch Energy Royalty Trust (TRU) – the stock is attractive on multiple fronts. On a price-to-earnings basis, CRT trades at a multiple of 15.9 relative to price-to-earnings multiples of 16.5 for SBR, 17.1 for SJT and 5.6 for TRU. While TRU does have a more attractive price-to-earnings multiple that its peers, it has an operating margin of 62.2% relative to operating margins in the high 90%s for each of the others, including CRT: SBR has an operating margin of 97.6%, SJT has an operating margin of 96.5% and CRT has an operating margin of 97.8%. In addition, CRT is trading near the top of an extended range and appears to have resistance around the $48 price level. Should the stock break out much above this level, it has the potential to run quite a bit higher. Also bullish for the stock is the recent price action in the crude oil market. Overall, with a dividend yield multiple percent higher than most of its peers (SJT carries a dividend yield of 6.7%) by several percent (SBR and TRU carry dividend yield below 4.5%), the stock is an attractive addition to an income driven portfolio.
Energy Transfer Equity, L.P. (ETE) – Combining a dividend yield of 6.9% with an operating margin well in excess of its peers, ETE is an attractive buy that can enhance both the fundamental profile and the income component of a well-designed portfolio. This is another limited partnership, so it is important to consider the tax ramifications for one’s own circumstances, but the stock looks solid. The company’s most solid peers are DCP Midstream Partners, LP (DPM) and Ferrellgas Partners, LP (FGP), which have dividend yields of 5.9% and 8.7% respectively. While FGP offers a higher dividend yield, the overall package is not as attractive. The respective operating margins are 15.6% for ETE relative to 7.7% for DPM and 5% for FGP. Furthermore, when the growth element is integrated and the price-to-earnings over growth (PEG) ratios are compared, ETE is the most attractive as well – ETE has a PEG ratio of 3.4 relative to 5 for DPM and 9.5 for FGP. While a reading below 1 is most typically considered attractive, it is the relative levels that are being compared in this instance. The strong income element from these names means that should not be analyzed purely as equity plays – fundamental metrics are considered in a slightly different light, as a hybrid between equity and income. Overall, the profile of ETE is very attractive and gives a potential investor the right blend of income and growth potential.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.