This article is an interview of 10 Seeking Alpha contributors (authors) asking them for a stock pick between 5% and 6 1/2% and one between 6 1/2% and 8%.
Question 1 - If you had to pick one stock with a current dividend between 5% and 6.5% that you could not sell for 10 years, which one would it be?
Question 2 - If you had to pick one stock with a current dividend between 6.5% and 8% that you could not sell for 10 years, which one would it be?
This is the second in a series of interviews with prominent Seeking Alpha authors. The first article was similar, but asked for picks over 8%.
I want to thank all of the authors who contributed to this article. Please note that information from the authors was compiled over a period of around a week, so the yields will vary a little from what is quoted.
My Focus and Thoughts
My investment focus is on growth and income with higher-yielding dividend stocks. I recently retired, and I love dividends, but I love dividends even more if they grow. I lost my business and pretty much everything I had built up in a fire about 10 years ago. I was underinsured, and to add insult to injury, the recession came. I was determined to find a way to build up enough money to retire, but the window was short. I went way out on a high-risk limb and short term traded in and out of very high dividend stocks (dividends over 10% which provided a lot of volatility for trading). I started with a relatively small amount in an IRA, and somehow it worked. I was able to build up and squirrel away enough to retire recently. That required a lot of attention to detail and sweat, and I don't want that risk anymore.
So... my thoughts recently started wandering to how it was for our parents. Up until 10 years ago, they could put their money in longer-term CDs that often paid 5-8% interest with minimal risk. That was pretty simple. So, what can we do now? Are there currently any investments out there that pay an income of 5-8% that might be steady or even increase for the next 10 years that I can sleep at night with. I don't believe anything out there is quite as safe as those CDs were, but maybe some are close and will even increase their dividends over time. I will definitely have to monitor anything more than they did those CDs given the volatile environment for securities and the world in general, but I don't want to worry as much about it.
So, I decided to interview some prominent Seeking Alpha authors to get some food for thought by asking them a couple of relevant questions that would indirectly help to answer my question about CD substitutes.
Here Are the Questions the Authors Were Asked:
Please note that I promised everyone that I would make it clear in the article that their picks are totally speculative and these are not recommendations. These picks are based on a 10-year horizon. It may be that there are no high dividend stocks that can maintain for the next 10 years. These picks are food for thought. A lot of due diligence would be required on any of them. So, here are the questions I posed to the authors, and their answers:
Question 1 - If you had to pick one stock with a current dividend between 5% and 6 1/2% that you could not sell for 10 years, which one would it be?
Question 2 - If you had to pick one stock with a current dividend between 6 1/2% and 8% that you could not sell for 10 years, which one would it be?
Please note that in this article, the term dividends is going to be used to describe both dividends and distributions (think of both as income). We all know there is a difference, but for the purpose of this article, we are going to think of both of them as income you might receive. So, let's not over-complicate things with semantics.
I told the authors to try to pick one stock for each question, and give a brief explanation with links to any articles they had written on the picks or maybe articles they liked. The authors and their responses are in alphabetical order by first name.
1) Alessandro Pasetti - Ale is the founder of UK-based SEO firm Hedging Beta Ltd. (London). Based in London, he previously worked for almost five years at Dow Jones/The Wall Street Journal (Feb. 2009-Sept. 2013), producing M&A research, commentary and analysis for the IB community. Prior to that, he contributed to the launch of Loan Radar (Dec. 2005-Jan. 2009), where he worked for three years in London. He had stints in equity research at Bear Stearns in London (Jan.-Apr. 2005) and HVB in Munich (May-July 2005). He did its intermarket analysis research thesis with UniCredit Bank in Milan (Dec. 2003-Sept. 2004).
"Drawing from all the stocks on my radar, I am not comfortable with any equity investment in that yield range right now, and I'd screen for value among sovereign and corporate bonds instead rather than looking for equities yielding between 5% and 6/5% - the problem begin there's not much value around these days in bonds in that yield range, however."
Question 1 - "So, with regard to equity exposure, I'd rather hold a position in lower-yielding securities - but for the sake of argument, say the valuations of Exxon (NYSE:XOM) (XOM article) and Cummins (NYSE:CMI) (CMI article) plunged quite dramatically from their current levels and both offered a yield some 100/150 basis points higher (than their trailing yields), their shares would surely be too hard to ignore!
Frankly, the closest I get to that 5% low-end threshold you mentioned with any of the long-term value candidates included in my watch list is Caterpillar (NYSE:CAT) (CAT article), whose trailing yield was almost 4.5% based on a lower share price before the recent rally."
Question 2 - "Surprisingly perhaps, I find it easier to single out a few companies yielding in this higher 6.5-8% range given my personal perception of equity risk, Of the companies I cover, BP p.l.c. (NYSE:BP) (BP article), Shell (NYSE:RDS.A) (NYSE:RDS.B), Anglo American (OTCPK:AAUKF) and Potash Corp. (NYSE:POT) all offer trailing yields in the region of 8%, and any of them could well amount to up to 10% of any properly diversified portfolio.
As far as integrated oil producers are concerned, there's a lot to like in their diversified assets portfolios, in my view, and their P/TBV multiples shouldn't be too volatile from these distressed levels even if they adopted more conservative dividend policies. Moreover, they continue to be a play on consolidation over the next decade. Finally, resources are still troubled, of course, but the worst in asset write-down cycle might be behind us and even sluggish growth rates from China may have less residual impact on their equity valuations once their corporate restructurings are completed."
Allesandro does not own any of the stocks he covers to abide by the WSJ rules.
2) Brad Thomas - Brad is a research analyst, and he currently writes weekly for Forbes and Seeking Alpha where he maintains research on many publicly-listed REITs. In addition, he is the senior analyst at iREIT Forbes and Editor of the Forbes Real Estate Investor, a monthly subscription-based newsletter. He has also been featured in the Forbes magazine, Kiplinger, U.S. News & World Report, Money, NPR, Institutional Investor, GlobeStreet, and Fox Business. He was the #1 contributing analyst on Seeking Alpha in 2014 (as ranked by TipRanks).
"Welltower (NYSE:HCN) (HCN article). A Battle-tested REIT that has a strong balance sheet. Demographics are compelling and I view the company as a consolidator in healthcare real estate. I would have picked VTR, but you asked for a 5% or better dividend payer and Ventas, Inc. (NYSE:VTR) (VTR article) is yielding 4.5% compared with 5% for HCN.
Omega Healthcare (NYSE:OHI) (OHI article) is also battle-tested, and I like the strong diversification that should serve to mitigate some of the regulatory risks. The management team is vetted and the balance sheet is solid. The demand for assisted living real estate is strong and supports the buy-and-hold attributes driven by an aging population."
Brad owns HCN and OHI.
3) Bret Jensen - Bret is the editor for The Biotech Forum, the #2 subscribed to Marketplace investment service offered through Seeking Alpha. Top 5% ranked analyst (TipRanks) 2013 through first half of 2015. Daily contributor for Real Money Pro. Hedge fund manager from 2008 to 2011. Previously he was a technology executive at Fortune 100 firm for a decade. He provides Free Investment Reports on a variety of topics at bretjenseninvests.com
"I'm not much of a dividend guy, mainly biotech. However, one of the core holdings in my income portfolio is Chatham Lodging Trust (NYSE:CLDT) (CLDT article) which I just did an extensive article on and since it yields right at 6.5% straddles the two categories perfectly, feel free to include it in your list."
Bret owns CLDT.
4) Dividend Don - I am an antique dealer and an indie pop rock musician who retired from corporate America. I have worked in Market Research at Procter & Gamble (NYSE:PG), as an independent business owner, and also as a healthcare professional. My focus as stated in the beginning of this article is on dividend stocks, particularly those with growth potential, and those that are overlooked by the market.
"My first pick is W.P. Carey, Inc. (NYSE:WPC) (yield as of close on was ). WPC is a global net-lease REIT. It provides long-term sale-leasebacks and build-to-suit financing solutions. WPC has been around since 1998, and has increased its dividends (on average) for 18 straight years, right through the great recession. I like that it is diversified internationally. According to Morningstar, it has averaged a 12.42% total return over the last 10 years. It is a very complex REIT, which I believe has kept the price down recently, as people don't like to buy what they don't understand. So... the 6.33% dividend is higher than what you might expect for a stock that has been so generous with its growing dividends. I feel comfortable owning it for the long haul with one eye open. A really good fairly recent article on WPC and its complexity was written by Brad Thomas and can be found in this link.
My second pick is Sabra Health Care REIT (NASDAQ:SBRA). SBRA hasn't gotten as much press as a lot of the other healthcare related REITs, and I suspect it's been overlooked recently. Its yield is 7.73%. It has been around since 2010, and has raised its dividend every years since inception. It has a low 73.5% payout ratio which gives me a great deal of comfort that it can meet or exceed the dividend. It invests in triple-net leased healthcare properties 34 different states. I like to look at current yield plus the average percentage of dividend increases over the past few years. In this case it's 7.73 plus around 5 (average dividend increase/year over the past few years) = 12.73% total. That's one of the highest numbers I can find in this type of stock. I like Omega Healthcare Investors for similar reasons too."
Don owns WPC, SBRA, and OHI.
5) Dividend Reaper - Dividend Reaper is a self-taught dividend growth investor who frequently blogs about his trades, evaluations, ideas, and tips on building personal wealth.
Dividend Reaper says:
"To answer your first question, I would have to say I would go with AT&T (T article). It currently holds a dividend yield of 5.04%, which is within the range you asked for. The company has very strong fundamentals, low debt load, and a great strategy moving forward. In addition, it has a low payout ratio in my opinion which supports that even with a sudden downturn, it would likely be able to maintain the dividend payments as scheduled.
As for your second question, I would have to go with STAG Industrial, Inc. (NYSE:STAG) (STAG article). I've reviewed this in more detail in an article that was just released, but ultimately what it boils down to is its holdings. It has holdings that I feel will hold very well in the event of a downturn in the economy. Even though it has yet to experience one since it has become a REIT, I think that it will survive given its diversification and industry. As I write this, STAG Industrial yields a dividend of 6.91%, and I initiated a position in the company not far from this."
Dividend Reaper owns T and STAG.
6) Early Retiree Reality - Early Retiree Reality was a software engineer for over 21 years before he called it quits to the corporate world at 45 years old in 2014. All of his money was hard-earned. He lived below his means and saved a substantial percentage of his take-home pay for most of his professional life. He decided to become a contributor to Seeking Alpha to document his journey as an early retiree. He is "dividend growth" minded, but also dabbles in growth, deep value, speculation, as well as a little hedging now and then with options. His article named "How I Retired At 45" was one of the most popular Seeking Alpha has ever seen with 1,252 comments.
Early Retiree Reality says:
"AT&T is right at 5% today, so that'd be my first pick. Steady, predictable, worry-free income with 2-3% annual increases as well as some capital appreciation.
If I were in the high income tax bracket (which I am currently not), there will be a few medium-risk municipal bond funds in the 6.5% tax-effective return range. However, since the market rate is my effective rate, I wouldn't move up the risk ladder for the riskier munis. So for this pick, I'd have to go with Flaherty & Crumrine/Claymore Preferred Securities Income Fund (NYSE:FFC), which is right at 8% right now. During the Great Recession, its dividend dropped 15%, so that's something to consider. It's also trading at a premium today, so I'd wait for a better entry price."
Early Retiree Reality owns T and FFC.
7) Eric Landis - Eric is a civil engineer, who decided to take an active role in managing his IRA for retirement and decided to publicly share his experiences in building the portfolio as an example for the dividend growth investing strategy. He enjoys writing about stocks and sharing ideas here on Seeking Alpha.
"Chatham Lodging Trust is currently yielding 6.3% and is my favorite REIT in the lodging sector. The article is a bit dated, but I covered the company in a previous article here.
I like that Chatham is focused on premium select-service hotels in diversified high-end markets. They maintain a conservative balance sheet and target a reasonable payout ratio of just 50% of FFO. The stock is cheap, trading at just 8.3 times expected 2016 FFO, as much of the lodging sector has sold off due to concerns of slowing growth. However, the company recently raised the dividend by 10%, showing management's confidence that it can keep growing FFO going forward.
STAG Industrial, Inc. (STAG article) is another stock that I covered previously and continue to own. It too is trading well below all-time highs and is currently yielding 6.9%.
As its name would suggest, STAG is a REIT that specializes in industrial properties, and it focuses on some of the smaller markets around the country. STAG is also conservatively run and has maintained a steady dividend growth rate since it came public. At a market cap of just under $1.4B, the company has plenty of room to grow, and with the warehouse/industrial market largely fragmented, there are plenty of opportunities for STAG to continue growing its property portfolio."
Eric owns CLDT and STAG.
8) George Schneider - George creates digital utility solutions for investing. You can check them out by clicking here. He is a former clinical psychologist, and retired administrator and owner of a rehabilitation clinic. Since the financial crisis of 2008, he has employed specialized, customized dividend growth strategies aimed at enhancing and growing a dividend income stream.
Here on Seeking Alpha he writes about his Fill-The-Gap Portfolio, which is aimed at highlighting strategies investors may utilize to close the gap between an average Social Security benefit and the much greater costs faced in retirement. His emphasis is focused on growing income for retirement. He also has a Marketplace offering which is currently ranked #4 and is called Retirement: One Dividend At A Time.
"The 10-year time frame is a familiar and comfortable one for me. I am always on the prowl for solid companies that have demonstrated long periods of not only paying dividends, but also growing them to protect retirees from the ravages of inflation.
When I consult my Real Time Portfolio Tracker for my subscriber portfolio which updates prices, yields, dividend income etc., all in real time, I come upon EPR Properties (NYSE:EPR) which we bought for the subscriber portfolio several months ago at a price of $54.99 a share. We've enjoyed a healthy capital gain of almost 17% on this name and our yield on cost for this position is almost 7%. However, since the price has risen since purchase, the current yield for today's buyer is 5.97%, fitting nicely into your first criteria.
This diversified REIT has interests in the restaurant and entertainment space, charter school exposure, ski resorts, movie and entertainment complexes for the whole family and now its latest project, Adelaar, a gambling mecca resort in the Catskill Mountains of upstate New York.
One of the very few winners in the lottery to build such a complex in New York, it will have first player advantage for years to come as the state intends to keep the number of gambling establishments limited. This resort will be aimed at the whole family, with the idea of making it a repeat destination for families to bring their children for world class sports, fun, eating, night time entertainment, and gambling for the adults.
Though this company has seen a boost to its share price, we believe there is much upside potential with this name. Three years ago, EPR became a monthly dividend payer, providing easy cash flow for retirees desirous of a simple solution to pay their bills. The dividend has been increasing at the rate of 7-10% each year since. It has compiled a good solid, reliable record of dividend payment since 2005 with only one hiccup in 2009, coincident with the financial crisis. After suffering a 20% dividend reduction, it resumed a strong trajectory of dividend increases beginning in 2011 till today.
My second choice would have to be Omega Healthcare Investors.
At a recent price of $33.63, we bought more shares in this name for our subscriber portfolio, obtaining a yield of 6.78%. This healthcare REIT was hammered recently along with the whole interest-rate sensitive space when the 10-year Treasury bond leapt from 1.69% to 1.90% in a matter of days last week. Used to a more slumbering movement, this titanic shift of 12.42% in so short a time put the spook back into the bond market which leaked into the REIT space immediately.
This gave us another opportunity to take some candy from the babies that fled the high-quality REIT space, giving us accidentally high yield.
OHI is a healthcare REIT with properties diversified as to geography and type. It is involved in hospitals, clinics, assisted living facilities, skilled nursing facilities and senior housing. The macro trend of baby boomers aging out of the work force and into these facilities plays well into the strength of this company.
My Watch List Real Time Tracker displays for me that OHI is about 12% off its 52-week high. So is competitor Welltower, but its P/E ratio, though high at 26, is still below HCN's P/E of 29. With HCN's current yield around 5%, it would appear OHI has a couple of good advantages going for it; lower P/E and higher current dividend yield.
In a recent article, You Don't Need $1 Million To Retire: Here's Why, I addressed the progress of some of these equities that are components of the Fill-The-Gap Portfolio I manage on the public Seeking Alpha site. Interested readers can explore more about my methods and strategies there.
These equities should do very well for 10 years and beyond for investors that place the greatest emphasis on dividends and the growth of those dividends for their retirements.
I own each of these stocks mentioned, in both personal, Fill-The-Gap Portfolio and subscriber portfolios I manage."
George owns EPR and OHI.
9) Mark Morelli - He is a retired electrical engineer and adjunct professor of math and engineering. He has been investing for over 30 years, starting off with stock index funds, bond funds, and stable value funds and later migrating in part to dividend paying stalwarts as retirement approached. He typically uses a "buy and hold" strategy with an eye on the long term. He says he is a member of the "Apple (NASDAQ:AAPL) cult" so until it is proven otherwise that Apple is not a great company that develops and sells great products that people love I will continue to buy their products and own their stock.
"AT&T Inc. Click here for an article he wrote the explains his T pick.
I generally don't go for high yield, but if I did it would be ALPS Alerian MLP ETF AMLP. Click here for an article he wrote that explains his AMLP pick.
Mark owns both T and AMLP (the AMLP distribution is a little higher than the question, but I left it as food for thought)."
10) Patrick Gunn - Patrick has written 60 articles covering a wide range of topics on Seeking Alpha.
"I think the easy answer is AT&T on that front, I think it is just over 5% right now, you'll likely get that answer from about everyone. I think though I'll have to go with Pimco Municipal Income Fund (NYSE:PMF). If the goal is to acquire income with a margin of safety, it is hard to beat municipal bonds and Pimco has a great track record in this space. Really any muni fund would be a good play for income over the long term. Right now, PMF is showing a 5.9% yield
For a higher yield between 6.5% and 8% I think I'll go with beaten-down money managers Manning & Napier (NYSE:MN). It is currently yielding 7.8% and carries no debt on its balance sheet. The payout has remained constant for years but with a beaten down share price and a high yield your returns should come with price appreciation."
Patrick owns T, but not MN.
11) Tradevestor - Tradevestor likes to strike a balance between short-term trading and long-term investing. Tradevestor is a group account handled by father and son. The father was a trader for quite a few years with mixed returns while the son started out a few years ago slowly convincing the Patriarch towards investing rather than trading. They have written 312 articles for Seeking Alpha.
"5% to 6.5% range - AT&T hands down. It's my largest position. Love the yield and the safety. Plus the new direction with the DIRECTV acquisition and the free cash flow it has added." Click here to read his article that talk about AT&T's transformation.
The 6.5% to 8% range - Omega Healthcare. OHI. Another holding of mine. Love the yield again, reliable dividend increases quarterly.. More older people in the country :)
We tend to prefer DG stocks, starting out at a low-ish yield and getting richer with the company and not at the expense of the company.
Tradevestor owns T and OHI.
In conclusion: Perhaps this article will inspire some readers to add some other ideas to the conversation. Just remember, this is all very speculative. These are not recommendations. The vast majority of high dividend stocks are likely high because there is a problem, but certainly not all. Which ones do you think could be the exceptions, and why?
Disclosure: I am/we are long OHI, SABRA, WPC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.