Income Stocks on Sale Once Again

When the stock market gets hammered like the last few days, my thoughts turn to the income stocks in my portfolio. Falling prices mean higher yields, and you know these stocks will recover as long as the dividend stays intact (always the big “if” with high yielding stocks). The last time I highlighted income stock was on 12/03/07. 2 of the 3 stocks discussed then are higher now and all have paid regular dividends.

The stocks I research and write about basically fall into two camps, growth stock, where I expect price changes in multiples, and income stock, where I look for high, sustainable dividends. The 20 Stock Portfolio currently has 8 of what I would classify as high yield income stocks. Here is a quick thought on each. Yields are from Yahoo Finance:

• Nordic American Tanker (NAT): Yield: 6.8%. Pure play, spot market oil tanker company. Last 2 quarter’s dividends have been disappointing. My least favorite in this group.
• Ship Finance International Ltd. (SFL) Yield: 8.2% Low risk and nice yield on this ship (mostly oil tankers) leasing company. Dividend should start rising again soon.
• Penn West Energy Trust (PWE) Yield: 14.2%. Yes, 14%! Largest of the Canadian oil and gas trusts. Share prices on these trusts have fallen after announced Canadian tax law changes for 2011. Monthly dividend looks stable for the next couple of years.
• Thornburg Mortgage (TMA) Yield: 10.2%. The once-upon-a-time 68¢ dividend is now a quarter (25¢). The company must still navigate the treacherous mortgage waters. I believe the company will survive, thrive and raise the dividend.
• Terra Nitrogen Co. LP (TNH) Yield: 12.5%. Last 4 quarterly dividends have been: $1.57, $3.00, $2.10 and $4.45 as the company rides the agricultural boom. With very little room for capacity increases, they live on pricing. Not for the faint hearted, but who knows when the ride will stop.
• Inergy LP (NRGY) Yield: 8.2%. Propane distribution company has increased the dividend every quarter since it’s IPO in 2001. Sounds good to me!
• Atlas Pipeline Partners (APL) Yield: 8.2%. Natural gas transport and processing. Closely tied to production of Atlas America (ATLS). Natural gas price play and growth possibilities. Read my recent post and comments.
• Monmouth Real Estate Investment Corp (MNRTA) Yield: 7.4%. Small cap, REIT to round out the portfolio. Well run company that could be acquired for a premium.

Equally weighted, this bunch has an average yield of 9.5%. I have tried to purchase the ones I own during pull backs where the market hammers all, good and bad, equally. Of course, do your own research to see if these stocks fit your investment needs, but I see some compelling stories here.

Disclosure: Stocks above are stocks in my 20 Stock Portfolio. I currently have long positions in: SFL, TMA, PWE, NRGY.

Comments

[Bhakta:]

Thanks for some good recommendations. I may add Pengrowth Energy Trust, (PGH) And Paramount Energy (PMT.UN) which have been good for me. Dividends in the energy sector should rise with the price increases.

2008 Mar 03 09:27 AM

[OJO Zafado:]

I also own PWE. AAV,BTE,PGH, PVX, HTE,& ENY are all in my portfolio. I would note the unusual stong performance of BTE against it's peers. My speculation is that along with AAV, it being a small cap in the sector it is possibly a target. PWI was recently taken out at a +20% premium. The tax changes in Canada and Alberta are shaking these units out. The bottom line will remain their proven,probable reserves, their equity to debt ratio, and the globalization of the NA gas market. The US is importing 15% of their gas from Canada. Canada is now also our largest supplier of imported oil. Mexico's largest oil field saw a 15% production decline last year. LNG cargoes are typically receiving a $6-7 premium per MM`BTU for delivery in Japan, N Europe and Turkey. This makes the NA market price of ~ $10 tenuous at best. Despite the 2011 tax change deadline looming for these trust units, they are excellent trading vehicles if you note their 5 year charts! Trading! They are generally not good investments after the early summer as the market goes into a shoulder season especially for Nat Gas. Pre-MLK Holiday they are typically at great valuations. If you are unfortunate enough to get a position at or near a 52 week high you still are at least paid hansomely to ride out the next cycle. AAV is my favorite pick in this sector right now as it is pure vulture meat. It should go away at C$13-14.50 /unit. Perhaps it is a different asset class but near term CALL, preferred securities look awfully good now. Many of the adjustables are selling below default yields (BAC-PrE,UBS-PrD & FNM-PrP) most are 15% tax qualified. The exceptions are the likes of HJJ-6% way beaten down yielding +7% and with a March 2009 CALL date at $25. These financials are now floating new subordinated debt at 7.25-8.5% and still getting A & AA ratings on this BB yielding debt. When things eventually turn around in 2010?, the high yield debt will not be redeemable with mostly +3 year dates to the first call dates. Still to improve debt to equity the financials are quite likely to reddem many near term call dated preferreds. Caveat emptor! The $2.5 /0.5 Billion bailout proposal that a consortium of 8-9 banks and brokerages are sponsering for ABK, was labeled as inadequate by one of the ratings agencies last week. Inadeaquate to save the AAA rating or the company (ABK) from bankruptcy? WB is expected to float another preferred or CV offering to the tune of $350-450Million as their participation in the Equity infusion portion of the bailout. When finally crafted you can expect the 8% WB-PrS to drop in price below par. This would most likely make the WB-S a +8% yield in a security of the country's 4th largest bank with a 10 year Call date, and 15% tax qualified!

2008 Mar 03 09:52 AM

[leviticus1935:]

I am in my 50s and believe the yields offered in this market are the highest I will see for the rest of my career. The massive increase in number of retirees is still ahead and they will be hungry for income investments. If these high single digit to mid-teens yields can hold, a big if, these income stocks will appreciate nicely.

2008 Mar 03 11:15 AM

[granger:]

Thank for the thoughts. I have a substantial holding in ERF, for anyone that wants to take a look. Nice, consistent monthly yield.

2008 Mar 03 12:42 PM

[notsosmart:]

i have owned "fro" tankers & the return has been great.if you email the ceo in bermuda he answers. i dont know why this stock is ignored.

2008 Mar 03 12:51 PM

[Philip Obal:]

TELOZ is paying 15% dividend and is USA based oil & gas trust. DIVIDEND is INCREASING - as production from the Gulf of Mexico is now fully restored with high oil and gas prices. WOW! Check TELOZ out

2008 Mar 03 01:36 PM

[whisperonth...:]

I already have a few of the ones in the article and a few of the ones mentioned in comments. I'm about to add a few more now! Thank you all!

2008 Mar 03 06:49 PM

[Timmothy Posey:]

Good luck with TMA after they got slaughtered today with a 51% drop.

2008 Mar 03 08:19 PM

[Thomas Smic...:]

We appear to think alike!

2008 Mar 03 08:35 PM

[ALPHAMASTER:]

GOOD CALL ON THORNBURG!!!! The stock only lost about half of its' value yesterday. Tomfoolery aside, SFL is a pretty decent company, I have owned it for since Frontline spun the company off. It is low-risk and a consistent dividend payer.

2008 Mar 04 06:13 AM

[benny:]

Don't foget the Dry Bulk Shipper Diana Shipping (DSX). They just increased div's, at the current price of $28 the yield is almost 9%! I've owned them for about two year, not only have the divs increased but the stock is up 100%+ in that time.

2008 Mar 04 09:07 AM

[OilTrader23:]

PWE is safe and Steady. With it's addition of CNE, it's now rock solid for continuing. While I don't know how much it's price will move, it appears the most sound choice from the list due to insulation from 'energy-price-induced' market lagging.

2008 Mar 04 04:00 PM

[User 160460:]

Great column by Tim Plaehn and great feedback too. Based on the poor rates offered now at the banks I started shifting dollars around and recently purchased "O" (Realty Income) with a "monthly" dividend currently at 7% annual yield. I will research all recommendations offered herein. Thanks.

2008 Mar 05 12:05 PM

[Woodrebel:]

Last night on Mad Money Jim said to sell PWE and get out of the Canadian energy stocks and move to the US energy stocks.

2008 Mar 06 02:43 PM

[MacinCT:]

Thank you, Jim Cramer, for creating a better buying opportunity for PWE, ERF et.al.

2008 Mar 07 08:46 AM

[Ames Tiedeman:]

Tim:

I think the Canadian Oil Trusts make enormous sense. You get appreciating assets with a declining dollar and a fat dividend. Even if Oil goes back to 50, the yields will still be attractive. PGH and PVX look particularly good. As does HTE. Not a lot of reason to dislike any of them. PGH does look quite undervalued, however.

2008 Mar 13 03:07 PM

[boat:]

I have shares in eagle and it pays a good div. What do you think.

2008 May 06 01:09 PM

[boat:]

On May 06 01:09 PM boat wrote:

> I have shares in egle and it pays a good div. What do you think.

2008 May 06 01:11 PM