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As a result of last week’s ill founded (in our opinion) panic over higher interest rates, many of the names on our High Yield Buy List suffered some serious whackage. We utilize these stocks as ‘bond substitutes’ (in other words, we are not just buying high yield stocks; we are buying stocks that yield close to if not more than the long Treasury--hence bond substitute--which gives us a yield competitive with bonds but with the chance of getting lucky and receiving some capital appreciation on top of the yield); though we caution that this strategy is only for those investors who can afford to assume some added risk in their fixed income holdings in order to achieve higher returns.

One name on our Buy List that stands out is Mack-Cali Realty (CLI) because not only does its stock yield more than the 30 year Treasury, but it has also raised its dividend in seven of the last 10 years.

Mack-Cali Realty is a REIT that performs a full line of services for the properties in its portfolio, which are comprised primarily of office and office flex buildings. The company focuses on high quality properties and Fortune 500 tenants; further it has below average vacancy rates as a result of a unique lease renewal program. Finally, it has a debt to equity ratio (49%) that is below average for most REIT’s. Its stock yields in excess of 5.4%.

We are presenting its funds from operations per share [FFO] as well as its earnings per share, since investors look to the FFO as the source of funds for the payment of their dividend.

FFO: 2006 $3.52, 2007 $3.45, 2008 $3.60
DVD: $2.56
YLD 5.4%
EPS: 2006 $1.15, 2007 $1.10, 2008 $1.20

Disclosure: Author has a long position in CLI

CLI 1-yr chart

CLI

Source: Mack-Cali Realty: A High Yield Bargain