In our never ending quest for retirement income, during a zero interest rate world, sometimes we need to look beyond the Johnson & Johnson's (JNJ) of the world and seek out some of the second-tier stocks that we might ordinarily overlook.
To be clear, I would not place any of the ones I am about to suggest within our core portfolio as "forever" stocks, but sometimes we can add some higher paying dividend stocks for shorter periods of time as long as we are willing to monitor them a tad more closely.
Think of it as if you were buying a CD with a 1-3 year term, but with some really juicy returns. Mix in some undervaluation and diversity and we have a nice little basket of somewhat higher risk, higher paying dividend stocks. Why not? We could do a heck of a lot worse.
A Little Risky Basket Of Lovely Dividend Paying Stocks
All stocks have some risk. There is no free lunch. When the yields are high, it will normally mean there is more risk. More risk, more reward? I guess it's a balance that each of us needs to accept, or not.
National CineMedia (NCMI): Price: $14.51/share, Dividend Yield: 6.00%, ESS Rating: Neutral
This stock dropped 4.16% Friday July 20, mostly due to the horrible tragedy that occurred in a Colorado movie theater. It moved the dividend yield above 6% for the first time in several months and is an attractive stock to pick up at bargain pricing.
Fast Fundamental Facts
- The market cap is roughly half of the entire enterprise value
- Last quarter revenue growth grew by 11% year over year
- An operating margin of over 44%
- Gross profit of $336 million
- Total debt of $889 million
- Dividend payout ration of 145%
Ok, so it is not one of the dividend winning stocks we hold forever, but with a low BETA of 0.74 it also has lower volatility as well as a really sweet dividend to grab.
PDL BioPharma (PDLI): Price: $6.64/share, Dividend Yield: 9.00%, ESS Rating: Neutral
A drop of 3% in the share price pushed the yield to 9% on this stock. Let me clear about this one. It makes it's money by purchasing patents from drug companies and gets royalties from the drug companies themselves. Sounds good right? No muss, no fuss, they put up the bucks, partner up with some of the big pharmaceutical companies and get profits if the drugs are a hit.
Thus far it has worked, but when you look a bit closer, some of their best profit maker drugs are set to expire somewhere between 2014-2016. That could hamper profits going forward, but hey, if we can get the kind of dividend this stock is paying, even for a few years, why shouldn't we put some money to work? Oh, and one more thing; they just partnered up with Roche on a potential $1 billion dollar drug, Perjeta, a breast cancer drug, which could add $100 million to PDLI's top and bottom line.
Fast Fundamental Facts
- An incredible 95% operating profit margin
- $356 million in revenues last quarter
- $371 million in total debt
- A ridiculously low payout ration of 49%
- A wonderfully low BETA of 0.26
We do need to monitor the drugs that come "off line" that will impact just about everything; however, I think this is a very cool addition to a well balanced portfolio.
H&R Block (HRB): Price $16.55/share, Dividend Yield: 4.90%, ESS Rating: Bullish
I am going to give you my personal spin on this stock. H&R Block has been around for a very long time. At one time they were the tax experts for mainstream America. With thousands of offices dotting the entire nation, some year round and some just for the tax season, they were the go to company for regular folks to have their State and Federal income tax forms filled out very reasonably and for the most part, accurately.
As with all other businesses, the internet changed and rocked their world. TurboTax became the online resource for the masses and offered a similar service for the computer literate crowd at much cheaper prices.
HRB was slow to respond but in recent years they have been doing a significant amount of cost cutting by eliminating many brick and mortar shops and focusing more and more energy to the internet.
Intuit's (INTU) TurboTax has about 60% of that market segment however the winds of change have been sweeping by. The more money HRB tosses into refining it's online presence, the more they can chip away at that business. Keep in mind that 2013 could be a very challenging year as well and with the constant training of new H&R Block tax consultants, even their brick and mortar shops could have a banner year (or longer) with the massive new tax changes coming.
I like HRB from here and with a lofty dividend, it absolutely makes sense to me.
Fast Fundamental Facts
- $2 billion in total cash vs $1 billion in debt
- Levered free cash of about $780 million (plenty to work with)
- They beat their own forecasts for revenues and profits but missed street estimates
- Roughly $100 million was cut from operating costs which will help the bottom line dramatically
- Tax return preparations were up by 4.3% in 2012, and that figure can bust open in coming years with new tax laws
- More cost cutting via 200 location closings and 350 job eliminations, will continue right through 2012
These stocks are by no means mega cap blue chip, dividend winners, by any metric. However, they do offer retirees some viable alternatives to put money to work even for the shorter to intermediate terms.
Three stocks in different market sectors, at attractive share prices, and with lovely dividends; Why not?
Disclosure: I am long JNJ.