Many retired investors require steady dividend stocks to pay for their upcoming 2012 living expenses. Dividend income is required due to higher medical expenses and rising food costs. In this article I will focus upon potential ways to invest to protect your life savings. The focus is to increase your monthly income stream in fiscally sound securities.
As 2011 approaches its final days, income investors must avoid Treasury Bonds. Treasury Bond prices continue to be at record lows. The below chart highlights the yield compression on U.S. Treasury Bills and U.S. Treasury Bonds:
An income investor can not accept a 3% yield on a 30 year U.S. Treasury Bond. The risk of an interest rate increase will have an inverse relationship to the U.S. Treasury Bond valuation.
American Capital Agency Corp. (AGNC)
American Capital Agency is a must own stock for the serious dividend investor. I provide this statement with the caveat that entry price is crucial.
The September 30th book value per share is $26.98. Investors should attempt to keep their purchase price close to the book value per share. An investor should be comfortable and knowledgeable with the mortgage real estate investment trust ((mREIT)) business model. American Capital Agency owns 100% mortgage backed securities backed by the U.S. Government.
American Capital Agency is not, a buy and hold, stock. When U.S. Treasury Bond and mortgage rates start to increase, I will not own this stock. These securities thrive during times of decreasing interest yields. The net yield spread is not as favorable when interest rates are rising.
MV Oil Trust (MVO)
MV Oil Trust is a statutory trust formed on August 3, 2006, under the Delaware Statutory Trust Act. MV Oil was created to acquire and hold a term net profits interest for the benefit of the Trust unit holders pursuant to a conveyance from MV Partners to the Trust. MV Oil Trust owns 1,000 oil and gas properties.
In 2006, MV Oil did have hedges in place on oil and gas production prices. Those hedges are now removed and investors own a pure play income stream on oil and natural gas prices. This trust can prove to be beneficial if the Iran nuclear situation causes a dislocation in oil prices. Oil prices could potentially spike if the Strait of Hormuz is closed for oil exports.
MV Oil Trust is currently yielding an annual 9.8% yield. This could increase or decrease depending upon the movement of hydrocarbon prices. Investors should consider this security if they are willing to risk potential capital losses if oil and natural gas decline in value.
CenturyLink, Inc. (CTL)
CenturyLink is presently the 3rd third largest telecommunications company in the United States. The company offers broadband, voice, wireless, cloud computing, and managed services to consumers and businesses. CenturyLink also offers advanced entertainment services under the CenturyLink, and DIRECTV (DTV) brands. The company is a utility entity due to its increasingly important communication services.
On July 15, 2011, CenturyLink purchased Savvis for $2.378 billion. Savvis is, a provider of cloud hosting solutions, managed hosting, and network services in domestic and foreign markets. Savvis should allow CenturyLink to grow with their existing business customers and attract new growth opportunities in the future.
On November 15th, CenturyLink announced a 72.5 cent quarterly dividend. This payment will be paid on December 16th. This equates to an 8.0% annual dividend yield.
Southern Company (SO)
Southern Company generates and distributes electricity to more than 4.4 million customers in the Southeast. The company owns and operates 4 four electric utilities - Alabama Power, Georgia Power, Gulf Power, and Mississippi Power.
Southern Company’s largest subsidiary is Georgia Power. This unit is in the midst of adding 2 units to the Vogtle nuclear station. The cost expenditure is expected to be approximately $6.1 billion. The plants are anticipated to be operational no later than 2017.
The stock is a secure dividend holding during a rocky economic time. The current dividend yield is 4.2%. The stock is approaching 52 week highs. Investors are wise to seek a $38 entry price. This would provide a lower cost basis and an attractive 5.0% annual yield.
Reynolds American Inc. (RAI)
Reynolds American is the 2nd largest cigarette producer in the United States. Core brands include Winston, Camel, Salem, Pall Mall, Kool, Vantage, and Doral. I’m closely tracking the pending increase in U.S. tobacco prices anticipated for the end of 2011. This will provide solid footing for continued strength in this sector for 2012.
On November 14th, Reynolds American did announce a $2.5 billion stock buyback plan. This $2.5 billion is intended for the next 30 months. I am always, as all investors do, attempting to buy shares at a lower stock price with a limit order. I am personally comfortable with the current stock price of $40.35. The 5.4% dividend yield, higher product prices in the wings, and a stock buyback plan in place are positive signs. In my view, this confirms this equity moves higher in the long term.
Stonemor Partners LP (STON)
Stonemor Partners' business model is fairly easy to understand: funeral and cremation services. Stonemor Partners is the 2nd largest owner and operator of cemeteries in the United States. The Company operates 255 cemeteries in 26 states and Puerto Rico.
Stonemor Partners operates 63 funeral homes, 26 of which are on the grounds of its cemeteries. The cemetery products include burial lots, lawn and mausoleum crypts, burial vaults, caskets, and memorials.
The problem is Stonemor Partners’ dividend has not fully been supported by current operating activities or within the trust earnings that the funeral deposits are invested in. On November 29th, Standard & Poor's downgraded Stonemor Partners’ debt. In this article, “Stonemor Partners: Acquisition Strategy Is Key To Their Success”, the issue of growth was identified as an answer. On November 30th, Stonemor Partners’ did receive an increase to their secured credit line from $100 million to $120 million.
The yield is currently 9.4%. I do not believe this equity has a place in retired income portfolios. If one must own it, consider purchasing a protective put or a tight stop limit sell price. This can mitigate the downward slide of the stock price if the company decreases the quarterly dividends.
American Electric Power Co., Inc. (AEP)
American Electric Power has 10 operating utilities. The company provides utility services for over 5 million customers. These locations include: Arkansas, Kentucky, Indiana, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, and West Virginia. Approximately 80% of American Electric Power’s power generation is derived thru coal. The company owns nearly 38,000 megawatts of generating capacity in the U.S.
I believe it is important to keep abreast of management changes. Nicholas Akins, on November 12th, became American Electric Power’s Chief Executive Officer. He has a solid pedigree with the company in various managerial positions.
The company currently provides an annual dividend yield of 4.7%. I believe a $37.50 entry price is ideal to seek a 5.0% dividend yield. Patience is key as stock prices, as all investors know, do fluctuate. Buy at a price you are comfortable with and offers a yield you are seeking.
I recommend investors fully understand the respective business models. Each of the above names operates in a relatively strong, at the present time, sector based upon the current economic landscape. The key issue is to place attractive purchase prices to establish desirable yields and stock cost basis. As your risk tolerance warrants, purchase a protective put option or an inverse stock fund to hedge against market downside.
Disclosure: I am long AGNC, MVO, RAI, CTL.