Ever since the financial crisis began in 2008, the policy of the Federal Reserve has been to lower interest rates and keep them low. Many investors thought rates would have started to move higher after a few years at record low levels, but the economy has continued to be soft, even though a major stimulus spending plan was put in place about two years ago.
Federal Reserve chief Ben Bernanke recently said: "Interest rates are low because our economy is still in a fragile recovery." Europe remains deeply challenged with a debt crisis and recession, and the United States has a looming "fiscal cliff" later this year, which could cause additional weakness for the economy as the government raises taxes and reduces spending. All of this means that investors who stay in low-yielding investments will probably have little or nothing to show for it for the next 2-3 years, especially after factoring in taxes and inflation. That is why it could pay to find stocks that offer a generous yield. Here are a couple of ways investors can earn high-yields:
Enbridge Energy Partners, L.P. (EEP) provides energy transportation which delivers oil and natural gas through pipelines primarily from western Canada to refineries in Ontario, Canada and the United States. It also has storage services and natural gas processing and marketing operations in the Mid-Continent and Gulf Coast regions. This business model should continue to be stable even if the economy deteriorates because energy will be consumed and Enbridge is not exposed to falling oil or natural gas prices like some companies in the oil sector. Furthermore, a large percentage of Enbridge's revenues are based on long-term contracts which provides stable cashflow for the company and this lowers risk for investors. The company has increased the cash distribution by about 70% in the past 20 years, which means continued growth in the payout is possible. The shares look undervalued based on the yield, and also when compared to other companies with similar business models. For example, Enterprise Products Partners (EPD) which offers similar energy services, yields about 4.7%. With a yield of about 7.5%, and a stable revenue source, this stock makes sense for some investors seeking a high-yield while keeping risks relatively low.
Here are some key points for EEP:
- Current share price: $28.94
- The 52 week range is $24.66 to $33.85
- Earnings estimates for 2012: $1.04 per share
- Earnings estimates for 2012: $1.40 per share
- Annual dividend: $2.17 per share which yields 7.5%
Chimera Investment Corporation (CIM) shares have not participated in the uptrend that most mortgage real estate investment trusts have recently experienced. Many popular stocks in this sector, like Annaly Capital Management (NLY) have been hitting new 52-week highs recently. Chimera shares have been under pressure for months as the company has not filed required financial reports with the SEC on a timely basis. The delays are due to an expected restatement, but Chimera recently stated it does not expect changes to "the company's previously reported GAAP or economic book values, actual cash flows, dividends and taxable income for any previous period." Chimera is managed by Annaly Capital, so when the company completes and files the restatement, the stock could move higher. The current yield for Annaly is about 13%. There seems to be too much disparity with Chimera yielding about 3% more. While Annaly deserves a premium, the gap in valuation might close in Chimera's favor once the company restatement issue is finalized. In the meanwhile, this stock continues to reward investors with a very generous dividend.
Here are some key points for CIM:
- Current share price: $2.33
- The 52 week range is $1.81 to $3.30
- Earnings estimates for 2012: 47 cents per share
- Earnings estimates for 2013: 45 cents per share
- Annual dividend: 36 cents per share which yields about 16%
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
