Retirement Strategy: Add Value And Dividend Stocks (Part 15)

| About: Transocean Ltd. (RIG)

Here we are, sitting around waiting for the pullback or correction that never comes, the market has not even flat-lined, and we have now taken chips off the table (read this), implemented a "flat market strategy" (review that here), and have even taken some conservative option trades that we have profited from.

As traders, we might be bored to tears with a VIX at lows, but as investors we appreciate the calm, love cashing our dividend checks, and are peacefully watching out portfolio rise in value based on our strategy.

Our "Team Alpha" Retirement Portfolio

Our current portfolio consists of ExxonMobil (XOM), Johnson and Johnson (JNJ), AT&T (T), General Electric (GE), Annaly Capital (NLY), Southern Company (SO), Procter & Gamble (PG), Philip Morris (PM), Intel (INTC), Realty Income (O), Chevron (CVX), E.I. du Pont (DD), Duke Energy (DUK), Coca-Cola (KO), Bank of America (BAC)

XOM 88/shr 100 8800 sold 100
JNJ 65/shr 100 6500
T 30/shr 100 3000
GE 19/shr 100 1900
NLY 16/shr 110 1760
EXC 0 0 sold 2/13
PG 67/shr 200 13400 bbcall
KO 69/shr 50 3450 buy 2/16
PM 83/shr 140 11620 bbcall
INTC 27/shr 300 8100
O 37/shr 100 3700
COP 0 0 sold 2/16
PFE 0 0 sold 2/16
CVX 109/shr 100 10900
DD 51/shr 100 5100
DUK 21/shr 100 2100
PPL 0 0 sold2/16
SO 45/shr 300 13700
Cash Rsv 0 22027
Total x x 116057
Click to enlarge

As of 2/27/2012, we have an overall gain of 16% not counting the Bank of America shares purchased at $5.17/share that we moved from our risk basket to our core portfolio (400 shares using our cash reserves previously, but not deducting from the balance until we moved the shares).

We have collected dividends, sold covered calls, and have done well thus far. Is that all there is?

Not for this old codger! During this "quiet period" I think it would be a swell idea to look for a few value stocks. Perhaps some that have not run up in share price, or maybe have even gone down into a "value" price range for us to take advantage of within our core holdings.

The criteria that I have are as follows:

  • A dividend yield of at least 3%
  • Has underperformed the S&P
  • Has a 5 year growth rate of at least 5% per year

Value Stocks To Consider Buying Now

Transocean Ltd. (NYSE:RIG): Price: $58.70/share, Dividend Yield: 5.45%, ESS Rating: Neutral

Transocean Ltd. (<a href='http://seekingalpha.com/symbol/RIG' title='Transocean Ltd.'>RIG</a>)

Back in March of 2010, Transocean hit $92.00/share and is currently trading at a mid range of its 52 week performance, at $58/share. It had a weak 2011 but has recently rebounded in 2012 as oil has hovered over $100/barrel. Most analysts agree that Transocean will grow its earnings significantly over the next 5 years. Check out this report by Barron's on Global Hunter Research.

The report states;

"While there are still many rigs left to be cycled through the yard, we feel that incrementally the business will perform up to its previous standards. ... We are now confident in the call to own the stock as a true fundamental long-term holding and are thus upgrading to Buy."

Institutional holdings are a lofty 67% and the market cap is under the enterprise value, and is selling at 1.25% of overall BV.

While we hold ExxonMobil as our "big dog" in the oil patch, Transocean appears to have an upside potential for the long term that we can get in on at an attractive price, and it has very little overlap with Exxon Mobil. At the same time, we will be paid to wait to the tune of a 5.45% yield. In my opinion, this is a solid value stock with an outstanding dividend.

Winstream Corp. (NASDAQ:WIN): Price: $12.09/share, Dividend Yield: 8.30%, ESS Rating: Neutral

Windstream Corporation (<a href='http://seekingalpha.com/symbol/WIN' title='Windstream Holdings, Inc.'>WIN</a>)

The share price has basically flat-lined for a few years, and has a very low beta. It has a very high payout ratio of its lofty dividend, however its revenue growth year over year was over 23%, its market cap is less than 1/2 its enterprise value, and it has roughly 33% of its shares held by institutions.

The latest earnings report had mixed results (only missed estimates by a penny though) as noted in this report, which goes on to state:

"For 2012, the company expects adjusted revenues between $6.180-$6.305 billion and adjusted OIBDA in the range of $2.392-$2.462 billion. Free cash flow and capital expenditures are expected in the bands of $840-$950 million and $950-$1.050 billion, respectively.

In addition, Windstream expects dividend payout ratio (as a percentage of estimated free cash flow) between 62-70% in 2012. Depreciation and amortization expense is estimated at approximately $1.305 billion for the year.

Windstream is hopeful of receiving $55 million in proceeds from the Federal Communications Commission approved spectrum sale this year."

It appears that business could be turning around, (particularly the dividend payout ratio), and with the consolidation in the communications business, an 8.3% dividend yield is quite compelling to be paid to wait for future positive developments (buyout?). Current price levels are in the value range to consider owning.

My Opinion

I would consider adding these stocks to my own portfolio as well as "Team Alpha's" portfolio for their impressive dividends as well as their value share price. We are picking up a few good buys when things settle a bit, and we wait for a pullback that can invigorate any portfolio. As retirees, we can boost our yield as well as add some pop to our lineup. The 2 stocks outlined here are not high risk investments, yet will have to be monitored as does everything else. I believe we can add them with confidence. Take a look for yourselves and let me know what you think.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RIG, WIN over the next 72 hours.

Disclaimer: Please remember to do your own research prior to making any investment decisions. This article is not a recommendation to buy or sell any securities or stocks, and is the opinion of the author.