I just got my check from Seeking Alpha for the articles I wrote during the 1st quarter. I'm going to match my earnings from the most recent quarter and make an investment based on feedback from you. That is right, I am going to let all of you pick the next stock for my portfolio.
Using the Scottrade stock screening tool, I searched for the following:
- Dividend yield greater than 7%
- Within 10% of the 52 week low
- Paid dividends at least 36 months
There was an interesting mix of stocks in the screener, and actually not a large amount (fewer than 30). I decided on this approach, trying to look for a dividend diamond in the rough. From the screen results, these are the top 5 in my opinion:
- Ferrellgas Partners LP (FGP)
- Solar Capital Ltd (SLRC)
- Eagle Rock Energy Partners LP (EROC)
- Natural Resource Partners LP (NRP)
- Buckeye Partners LP (BPL)
Below, I will talk about Pros and Cons of each stock. With the screening method I used, I expect to see some flaws with all these companies, but we are truly looking for a "dividend in the rough" so to speak, and maybe a little bit of stock appreciation.
Ferrellgas Partners LP
Pros: They have paid a 50 cent per quarter dividend since 1995. That now equates to over a 14% yield. Sales have increased from $1.03 Billion in 2002 to $2.42 Billion in 2011.
Cons: This article sums it up. Massive debt to equity ratio, and they aren't even making enough money to cover interest at this point. There was low demand for propane this past winter due to the excessively warm winter. Amount of outstanding shares has more than doubled in the past 10 years.
I would also consider Suburban Propane Partners LP (SPH) as they have an extremely better debt to equity ratio, nearly an 8% yield and they are also within 10% of their 52 week low. Amerigas (APU) also has similar stats to SPH and fit the criteria.
Solar Capital Ltd
Pros: They have paid a 60 cent per quarter dividend since 2010. Assets are 4 times greater than liabilities. Earnings continue to grow/projected to grow from 2011-2013. They have surpassed earnings estimates 2 out of the last 4 quarters.
Cons: Earnings do not cover dividend payouts (though they may in 2012). Earnings report will be out on May 1st, and investors could run if any dividend cut (or possible) cut is talked about.
Eagle Rock Energy Partners LP
Pros: Read this article from a man I respect here on SA, Bret Jensen. Dividend has dramatically increased since May 2009, and it now pays 21 cents a quarter.
Cons: Dividend was cut in the past when there were cash flow issues. Earnings do not cover dividend payments (cash distributions). Company has not had consecutive positive earnings years.
Natural Resource Partners LP
Pros: Solid increase in dividend payouts, from 21 cents a quarter per share in 2003 to 55 cents a quarter per share today. NRP also has a history of increased sales over the last 10 years.
Cons: Net income for NRP went from 154 million in 2010 to 54 million in 2011. Outstanding shares of the company have continued to increase, showing a large jump in 2010 from 70 million shares to 106 million.
Buckeye Partners LP
Pros: BPL's projected earnings are dramatically increasing for 2012 and 2013 (3.17 and 3.70) respectively. BPL has increased their dividend every quarter since 2004 and the quarterly dividend has increased from 27.5 cents in 1988 to $1.038 the last quarter.
Cons: BPL has missed earnings for the past 5 quarters. Even with higher projected earnings, BPL still does not have the earnings to cover their dividend. Earnings will be reported on May 4th, and if they continue their trend, the stock price may come down even farther.
In summary, based on my search criteria of a high yield and 10% within a 52 week low, I knew I would find stocks that do have their flaws so to speak. The majority of these stocks have found a way to continue to pay their high yield and have made their way through uneven earnings. So SA readers, I leave it up to you, what should my next stock be?
I will purchase one of these stocks 5 business days after publication of this article and my position will be long.