7 Stocks for a High Yield Cash Flow Portfolio

If you're interested in a more conservative portfolio - one that provides an excellent yield (this one currently has 8.4%) and has a little growth potential - here's a starting point to start to put a diversified portfolio together. I'll be adding more candidates to the list in the future.

Canadian Oil Sands Trust (COSWF.PK)

Most recent dividends are as follows. Of course, this stock's dividend is highly correlated to the price of oil. Sustained payments of the current dividend would give the stock a yield of approximately 7.8%.

• 14-May-08 $ 1.00 Dividend
• 8-Feb-08 $ 0.75 Dividend
• 14-Nov-07 $ 0.55 Dividend
• 2-Aug-07 $ 0.40 Dividend

CPFL Energia S.A. (CPL)

This is a Brazilian utility which has the added benefit of providing some non North American exposure, in a traditionally stable utility sector. A growing GDP and middle class gives this stock some growth potential as well.

The current yield is at an attractive 8.9% (far superior to yields in North American utilities, and with more growth potential).

• 7-Mar-08 $ 2.682 Dividend
• 15-Aug-07 $ 2.691 Dividend

Frontline Ltd. (FRO)

Oil tankers and dry bulk shippers. This company benefits from global trade (the flattening of the world thesis) along with the commodities thesis as they ship oil, iron ore, fertilizers among other things needed to developing emerging economies and infrastructure required for the demographic shift to the middle class. It's also Cramer favorite, and I can see why, with diversification in oil tanker and dry bulk shipping, and a yield of 15.8%.

• 2-Jun-08 $ 2.75 Dividend
• 22-Feb-08 $ 2.00 Dividend
• 26-Nov-07 $ 1.50 Dividend
• 10-Oct-07 $ 3.25 Dividend
• 6-Jun-07 $ 1.50 Dividend
• 6-Mar-07 $ 4.744 Dividend

I wanted to highlight that the dividends in this industry are volatile as we can see from its payout history. Earnings are generally returned directly to shareholders, and this will fluctuate much like the Baltic Dry Index does. For that reason, I prefer to try to buy these down, because if you don't, you may find yourself with a low yielding stock in the end.

Genco Shipping & Trading Ltd. (GNK)

Similar to FRO, with less diversification and yield. But still interesting if it falls far enough.

Current yield is at 6.6%.

• 14-May-08 $ 1.00 Dividend
• 27-Feb-08 $ 0.85 Dividend
• 14-Nov-07 $ 0.66 Dividend
• 15-Aug-07 $ 0.66 Dividend
• 15-May-07 $ 0.66 Dividend
• 21-Feb-07 $ 0.66 Dividend

However, unlike FRO, I will note the consistency with GNK.

Pengrowth Energy Trust (PGH)

There is a slew of these Canadian Energy Trusts that have high yields. (Prime West - PWE, is another interesting name) PGH is similar to Canadian Oil Sands, but just not in the oil sands business. The yield is high and consistent, but subject to being able to replace reserves. That's a key factor in being able to sustain the dividend long term. There's also some risks associated with royalty payments and Trust tax advantages which could impact the stock. PGH is currently yielding a whopping 13.6%, and provides some room for growth with higher natural gas prices.

• 29-May-08 $ 0.226 Dividend
• 29-Apr-08 $ 0.223 Dividend
• 28-Mar-08 $ 0.222 Dividend
• 28-Feb-08 $ 0.223 Dividend

This dividend has been extremely consistent.

I'm also going to suggest (although their yields are not quite as high) MacDonald's (MCD) (at 2.6%) as a good stock for a dividend and growth, and Bank of Nova Scotia (BNS) (at 3.8%), a Canadian bank with exposure to Latin America. These two will add additional diversification to this list, that has otherwise been heavily weighted towards a global growth and commodities thesis.

Two important factors in putting together a high yield portfolio is making sure the dividend is stable/sustainable (FRO, GNK, COS are more likely to be a little volatile and lumpy), and that you do not pay up for the stock. Otherwise, that defeats the purpose of trying to get a high yield. Occasionally, the market will provide opportunities to buy select companies with very high yields and low prices. Once you have that, you can simply wait as the stock pays you, or it moves higher, gaining some growth in the stock. This list is intended to be a starting point or watch list for waiting for good entry points.

On average, this diversified portfolio at current market prices yields a whopping 8.4% (including MCD and BNS). And it wouldn't be surprising to be able to purchase some of these issues at even higher yields. I should also mention that taxation is a concern in developing a high yielding cash flow portfolio, so do your due diligence.

Dividend Info source: Yahoo Finance

Disclosure: Author is long mcd, pgh, bns

Comments

[Umm, yeah]

I own a couple of these. But can you honestly call most of these part of a truly "Conservative&quo... portfolio?

[Vito54]

The only comment I would add is that when considering the Canadian trusts, pay close attention to the IRS implications regarding taxes. Most of these Canadian trusts deduct Canadian taxes up front and you need to file additional paperwork to recoup them on the Federal forms. I do agree that solid dividend companies help stabilize a portfolio, but I recently have been leaning towards preferred shares of companies for steady div yields.

[buyitcheap]

Consider also, that these equities may fall in value depending on who wins the next election which may result in the lapsing of the low tax rate on dividends in 2010.

[boubou]

I have been running a similar portfolio for retirement income for years and have had no reason to regret it. Shipping co's such as FRO out of Bermuda or the Marshall Isles have no withholdings, and several others such as DSX, ONAV, ATB are worth looking at. The values cycle in a fairly predictable way so they can be aquired in dips which adds to the glee.

[MuddlingInvestor]

What about Altria (MO) with about 5% yield and Phillip Morris Intl (PM) with yield just under 4%?

[licketysplit]

check dis one out y'all - npf.to on yahoo finance, or newport partners income fund...yielding 19.28 % with a payout ratio of about 85% (yes that means they are generating free cash flow materially in excess of their distributions y'all which they are using to pay back debt and buy back units y'all... they are a buffet style conclomerate with a portfoglio of about 17 VERY HIGH QUALITY Canadian businesses their biggest positions are oil service companies and natural gas service companies and with ramp in natural gas these companies will be minting even more FFO y'all AND ALSO Y'ALL dividend tax coming into play at end of 2010 which gives u 2.5 years to ride this gravy train y'all and for all those fellow canucks out there (that means 'Canadians' to u yankees y'all) when corporate tax kicks in you'l get a full credit against your personal income taxes for an corporate tax paid y'all AND IF YOU GO to their website newport partners income fund you will see a yearly investor conference at the toronto stock exchange in which they make their case y'all for $6+ NAV and with units trading at 3.37 todays close y'all this is truly IMHO one underappreciated misunderstood and underfollowed opportunity y'all AND DID I MENTION INSIDERS HAVE HUGE HOLDINGS AND HAVE ALSO BEEN BIG BUYERS HAND OVER FIST Y'ALL?????

[licketysplit]

oops ticker is npf-un.to on yahoo finance, not npf.to y'all - they also have some low liquidity bonds with 7 to 7.5% yield trading at nice discounts to issue price y'all, with effectve yeilds of 13%+ y'all debt is trading like its distressed and i don't get it y'all

my position for purpose of full disclosure
long the units hand over fist y'all and also long the series a and series b bonds y'all

[Chemist29]

There is withholding on brazilian stocks I think, although it might be different for each company. Does Anyone know? I'm having trouble finding information. Anyways, I own PGH and they withhold 15%, but still worth it (plus unit price appreciaition). good stuff

[truthinvesting]

A better idea is UST RAI MO PM KFT

[WarrenBuffet]

I've own and traded PGH & PWE oiver the past 2 years. I agree they are consistent dividend payers.
My original premise was not only for the yield, about 14% for my cost basis...but a play on a lower dollar versus Canadian $ and also the growing demand for natural gas and energy.

The perfect scenario play was with canadian energy trusts.

These stocks (PWE & PGH) in my opinion are still undervalued and not recognized by most investors.

Bottom Line: BUY!!!

[WarrenBuffet]

In refernce to the posy:::"What about Altria (MO) with about 5% yield and Phillip Morris Intl (PM) with yield just under 4%?"

I also own JP Morgan/Chase (JPM) yielding 3.95% and it just bought Bear Stearns for 10 cents on the dollar back in March...a gift from the fed!

You have to figure that it will leveage that acquisition in the future and you get a good yield while waiting.

Cap gains & a great yield!

Bottom Line: BUY!

[WarrenBuffet]

Also don't forget that with JPM or any other stock...how about using options?

Thats right sell covered calls against your posityion and get some income there too!

Example I sold back on June 6th when JPM was @ $42.15 January 2009 $50 Call Leaps for $1.90 ticker VJPAJ. granted I've owned JPM for several years and have a low cost basis. But that $1.90 equals a 4.5% return @ $42 per share from June 2008 until Jan expiration or 8 months. or a 6.8% yield!!!!

So the dividends plus the option premium toghter come to a 7.13% in 8 months or 10.7% annualized. now figure in the $8 gain from $42 to the $50 strike???

Bottom Line $8 cap gain or +19% plus 7.13% yield from option premium and dividend yield = over 26% total return from June until January 2009.

But wait...that's if its over $50...if not I keep the premium and do the whole thing over and continue to lower my cost basis.

Get the picture!

[jt]

The problem with all of those listed above is the fact of the TRUE rate of inflation. It ain't even CLOSE to the one the Bureau of Lying Statistics puts out, and the Fed decided they weren't going to tell us what M3 is starting in March '06...their reasoning...it cost too much--something like $25M/yr, this from the same Mafiosos who roll out of bed on a Monday and bail out their Family Mob banker buddies to the tune of hundreds of $Billions!! There was one and only one reason to stop printing it publicly...yep...24/7 fiat creation...off the charts.

Our CPI isn't even close to 3.5-4%...the CPI was changed during the Clinton administration with all sort of gimmicry added to keep the govt from having to pay out ever-increasing COLAs on their entitlement programs. Using the CPI from Carter's administration and preceding, the CPI now (and even this is conservative) is closing in on 11%. But that doesn't tell you the rate of inflation, which is NOT price increases, but expansion of the money supply, which sooner or later ALWAYS finds its way into prices we pay. M3 is still being calculated privately (see shadowstats.com) and we're nearing 20% annualized (actually the rate over the past 6-9 months has reached closer to 30% during some stretches).

The Point?...unless your return in FRNs..."dollars&q... greater than the rate of inflation, you're losing money in the end. You can hope to be the "least loser" and figure that he who loses the least wins. But that actually only works in theory. Only FRO is reaching that figure at the moment with cap. gains and divies, but the Fed has now made it exquisitely clear for all who can hear, see, read (except, of course, those who b/c of their extremely low IQ and finely tuned sense of self-aggrandizement get themselves elected to positions in the govt) that they will NOT fight to stop inflation, but only to maintain as long as possible their fiat currency hegemony.

Therefore...in all you getting, make sure you take some significant proportion of your earnings and promptly trade in those always more worthless pieces of fiat paper for REAL money...gold and silver coins, bullion...PHYSICAL...i... possession.... Americans may no longer remember, but the world does, that gold and silver always have been and always will be the real money...and when the fiat fraud comes crashing down, as they all have done historically...either have a well oiled wheelbarrow for all your paper money when you come to the grocery store, or have silver and gold. jt

[berberick]

sorry Jt ,
Won't happen , the average person has no clue what a gold coin is worth ! Paper money is here to stay whether you like it or not .

[riskmanager jeff]

To "Umm, yeah"; Can I call this a conservative portfolio? I suppose that's a relative question. It's conservative, when compared to the other names in the commodities space such as Coal and Agriculture. Just buy them down, not up. This is a conservative "growth portfolio" with a big payout. Can't have your cake, ice cream, pie and eat it all too.

I like the idea of adding in MO or PM into the bunch, but I'm trying to keep the dividend high. Close to 10%. Perhaps switching out BNS for one of them is a good idea.

[Umm, yeah]

Thank you for your response, Jeff!

[dubious]

the gas & oil trusts, and shippers, do indeed provide excellent returns, especially for the income investor when compared to puny 3% CD rates. Be prepared however, to do a lot of paperwork at tax time. Shippers may have a return of capital, which is usually announced the day after you send in your tax return. Oil/gas trusts have depletion, costs, and basis calculations, K-1s maybe, or foreign tax recovery work maybe. The small or novice investor who does his own taxes may be in for a real surprise trying to figure it all out at tax prep time. Even the tax prep professionals sometimes get it wrong so you have to know your stuff. It's worth the effort, but it's a lot of effort.

[Malkiel]

As per taxes, I think we all know the trick by now that you do this kind of investing on your tax-exempt accounts like your IRA or 401k, where all that paperwork on taxes doesn't matter. For your fun money it doesn't pay to do much of anything other than straight stock transactions (even certain ETF's contain some shocking paperwork tricks when you finally sell shares in a taxable account...)

[write-inRon Paulforpresident]

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