Sell The Top 'Dogs' And Increase Your Dividend Payouts

Includes: BP, EXC, PPL, RNF, T, UAN, VZ
by: Jonathan Wolfe

Both AT&T (NYSE:T) and Verizon (NYSE:VZ) are at 52 week highs currently. Both of these stocks were ranked #1 and #2 for the 2012 Dogs of the Dow. If you bought them the first week of January, you have beat the market, as AT&T has gone up 16.5% YTD and Verizon is up 7.8% YTD with the total market up around 3% YTD. The dividend yields started the year at 5.9% and 5.0% respectively. Today, those values are at 5% and 4.65% respectively. These are still strong dividends, but I suggest you take some stock appreciation and trade up on dividends. I believe the run up of the prices of these stocks is soon to end, and there are some better values out there. I believe you can play this right, and buy into an unpopular sector currently, get a healthier dividend payout, some stock appreciation, and move on.

One sector that has been hurt this year, and hurt mostly due to inexpensive natural gas, is the Utilities sector, and especially companies that have electric generation units that use a fuel other than natural gas. Strong dividend performers such as Exelon Corporation (NYSE:EXC) and PPL Corporation (NYSE:PPL) have sat near 52 week lows, while paying out over a 5% yield. Exelon has a 5.6% yield, now that the stock has taken some hits with the merger with Constellation Energy, and lower generation revenues. PPL is paying over 5.2% yield while its stock holds flat as they try to produce more earnings from its distribution until generation becomes more profitable again. There are other utilities as well in a similar boat, but these are two that you could definitely increase dividend profits from. PPL has raised its dividend yearly, while Exelon has held steady since 2008.

One company outside of utilities with a healthy (and increasing) payout is one that many in the Gulf may not like, BP plc (NYSE:BP). Currently BP's yield is just under 5%, with a PE of under 6. BP did cut its dividend during the 2010 issues, but came back with a 42 cents per quarter dividend in 2011. The dividend increased by 14% this year to 48 cents per quarter. Both AT&T and Verizon can also boast dividend increases, but theirs are in the 2% range per year.

Below is a chart of the percent change of dividend payout for ATT, Verizon, PPL and BP since the start of the year. It is interesting to see that Verizon and ATT, the change is nearly the same.

T Dividend Yield Chart

T Dividend Yield data by YCharts

I also have some other suggestions for an even larger yielding sector - fertilizer stocks. I am a huge fan of them, and I believe a little bad press about crop prices hurt them a couple months ago. Now, more than ever, these stocks could be a cash cow for your portfolio. One word of warning however - these companies are MLPs, meaning that you are not getting dividends, you are actually getting income, and that income is taxed via a schedule K1, and possibly at a higher rate. However, the yields are too big to pass up. For a large amount of information on these stocks, you can refer to a previous article of mine. Below I will summarize the price and yield for a couple of these stocks.

Rentech Nitrogen Partners (NYSE:RNF) is trading in the $23 range. They project a distribution of $2.86 this year. This would equate to over a 12% yield. So far, $1.06 of that has been paid, so it appears there is still about $1.80 per share to make for the rest of 2012.

CVR Partners (NYSE:UAN) is trading just over $20. They project a distribution this year of between $1.65-1.85, and distributions in the future of just below $2 a share.

Conclusion: I'm a big believer in the Dogs of the Dow philosophy, but I believe it's time that you trade in your communication Dogs for some energy, power and fertilizer.

Disclosure: I am long PPL, EXC, RNF, UAN.

Additional disclosure: I may initiate a position in BP within the next 72 hours.

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