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My investment focus is on growth and income with high yielding dividend stocks. I am nearing retirement and I love dividends, but love dividends even more if the dividends grow. As most of you know, many high dividends are high (on a percentage basis) because the prices of the stocks have been battered. To add insult to injury, the stocks are often battered for good reason, and sometimes end up cutting those hefty dividends leaving you will a smaller income. For that reason, and understandably, many people shy away from high yielding stocks. However, I look at it a different way. I have found that there are always some high yielding stocks that don't fit the profile of a battered stock or a company in trouble. I am on a mission to find those stocks. For the purpose of this article, I will investigate stocks with yields over 8%. I will walk through various screens to find the contenders, and then analyze the ones that remain.

It looks like between Europe and China and the Fiscal Cliff, investors may be on a roller coaster ride for awhile, so I'm going to try to sort out which high yield stocks might be good buys in a pullback. I'm looking for stocks that have high dividends and possible dividend growth. The past is not always a consistent indicator, so let's look some past, more recent, and possible future information. I will use some screens to boil it down to a few candidates to look at more closely. All information was dug out of the Schwab, MSN, Zacks, Dividend.com, Morningstar and DividendChannel.com databases.

My conclusion will be that if we do get a market pullback as the fiscal cliff approaches, PennantPark Investment Corp (NASDAQ:PNNT) is a buy for me, and Exterran Partners LP (NASDAQ:EXLP) and Crestwood Midstream Partners LP (NYSE:CMLP) are a possible buy if those two pull back far enough. I would avoid Buckeye Partners LP (NYSE:BPL) and Vanguard Natural Resources, LLC (NASDAQ:VNR) for now. I feel strongly that the market will bounce down again as the news about the Fiscal Cliff takes over the TV stations. But my personal opinion is that it will end up being a nonevent, and an opportunity to buy.

1) Past - Which high yield stocks have consistently looked out for their investors since the beginning of 2008?

For my first screen here, I asked myself the question, which high yield stocks were able to at least maintain their dividends every quarter in 2008 and increase dividends on a year over year basis up to the present? I started by sorting out all of the highest dividend stocks from the Schwab database. I started with the highest yielding and moved down the list till I got to ones that are currently yielding 8.0%. I took the stocks one by one and looked at DividendChannel.com (or Dividend.com when some information was not available) to assess their dividends paid by quarter. I copied down all that had at least maintained their dividends during 2008 and increased dividends year over year thereafter. I extrapolated any that didn't have all of their dividends for 2013 posted yet based on the last dividend posted. Surprisingly to me, the 9 below are the only ones that met this criteria. This initial group was scattered from various segments. My assessment is that every company had an excuse to cut dividends in 2008 when the economy tanked, but these companies didn't, so at least some of these companies may really be concerned about income for their shareholders.

$Div2008

$Div2009

$Div2010

$Div2011

$Div2012Increase From 2008 till NowCurrent Yield
Pennant Park Investment Corp0.920.971.041.091.12+22%10.32%
Navios Maritime Partners L. P. (NYSE:NMM)1.261.611.661.741.77+40%11.51%
Stonemore Partners LP (NYSE:STON)2.122.222.232.332.35+11%9.87%
Exterran Partners LP1.741.851.861.922.00+15%9.16%
NuStar Energy L.P. (NYSE:NS)4.014.244.274.344.38+9%8.99%
Crestwood Midstream Partners LP1.321.501.621.812.00+52%8.94%
Buckeye Partners LP3.423.633.834.034.14+21%8.59%
Warwick Valley Telephone Company(WWVY)0.800.880.961.041.08+35%8.14%

Vanguard Natural Resources, LLC

1.682.002.152.282.40+43%8.01%

Above data from DividendChannel.com and Dividend.Com

Some of these stocks have had not only consistent, but also impressive dividend increases. So, since they appear to be looking out for their shareholders, the next questions that comes to mind are what have they done more recently, and whether there are indications that they can continue to raise dividends.

2) More Recent

Stonemore Partners and NuStar Energy have increased dividends only about 1% from the previous year as you can see in the above chart. They also had the lowest total dividend increases since 2008 in the group, so I'm throwing them out as they are not being our best candidates for dividend growth. As it turns out, Warwick Valley Telephone has projected earning estimates for this year of a negative 20¢ according to MSN. They hope to turn it positive next year, but it's hard to pay dividends when you are losing money. So, I have eliminated them too.

The next question for me becomes whether any of these companies are likely to increase their earnings next year. If a company has paid out a lot to shareholders in the past, and the company has the earnings to do it again, they may be one of the stocks I'm looking for!

3) Future - Within the six remaining stocks, what are analysts thinking their earnings will be next year? It's hard to increase dividends if your earnings aren't up.

Earnings Estimate 2012

Earnings Estimates 2013
Pennant Park Investment Corp$1.08$1.16
Navios Maritime Partners L. P.$1.21$1.03
Exterran Partners LP$0.54$0.73
Crestwood Midstream Partners LP$0.65$1.14
Buckeye Partners LP$2.69$3.40

Vanguard Natural Resources, LLC

$1.34$1.73

Above data from MSN.com

That eliminates Navios MaritimePartners L. P. as analysts are thinking earnings are going to decrease in 2013. So these last 5 stocks should be pretty strong candidates right? Let's dig a little deeper.

PENNANTPARK INVESTMENT CORP - PennantPark Investment Corporation is a BDC (business development company) that is required to pay out at least 90% of its investment company taxable income to stockholders. They generate current income and capital appreciation through debt and equity investments. They primarily invest in U.S. middle-market private companies in the form of senior secured loans, mezzanine debt and equity investments. The companies they invest in are typically highly leveraged, often as a result of leveraged buy-outs or other recapitalization transactions.

Pennant Park looks like a buy to me right now, and I will stock up in a pull back. In 2008, most BDCs were pummeled and some got hit so hard they never returned. This was because BDCs typically lend to smaller business who had a very tough time when the recession hit. Pennant was a relatively new company, but found their way thro ugh and actually increased dividends that year during the peak of the stock market dive, and have every year since. Their 3 year total return on Morningstar is 20% with a 15% for the last year. Out of the 10 analysts following it on MSN, two have it as a hold, and the other10 have it as a strong buy. That's pretty impressive. There has been no insider trading over the last 6 months and their cash flow has remained positive, but is down from the previous quarter according to MSN. You would expect this stock to be selling at a premium with it's track record, but it's price to book ratio is about 1.07 according to Ycharts.com. That's typical for BDCs. On the downside, earnings growth has slowed down compared to the previous year, but is still decent as earnings per share are estimated at $1.08 this year and $1.16 for next year. This looks like a slow steady dividend grower who has managed their way through turbulent waters very well. With a current yield starting at a whopping 10.32% and slow steady dividend growth, this looks like a winner for good and bad times.

Exterran Partners LP - Exterran provides natural gas contract operations services to customers throughout the United States. The Company engages in acquiring certain contract operations customer service agreements and a compressor fleet.

This company has a solid history of increasing dividends. However, their total return for the last year was only 3% according to Morningstar, and their dividend increases have been smaller on average than the others. Analyst rating are good on this one with 3 strong buys, 1 moderate buy, and 1 hold on MSN. Earnings per share are $0.54 this year and estimated to increase to $0.73 next year. Earnings appear to be accelerating over the past 3 years. There was some insider selling back in March according to MSN, but nothing since, and the stock is a couple of dollars lower since then. Cash flow looks good. I'm on the fence about this one. If their dividend growth was greater, and they had a better return in the past year, I would be more excited about it. They have expanded operations of a general partner in Latin America, the Middle East and Asia, which they claim will lead to increased dropdowns for them and consequently increased bottom line growth which has been relatively flat recently. They expect this over the next year and appears to be factored in the analysts estimates. It can likely hold its dividend which is currently at 9.16% with a possibility for big growth if the general partner operations pan out as they believe. So, this looks like decent bet in big market pull back.

Crestwood Midstream Partners LP - Crestwood Midstream Partners LP is engaged in the gathering, processing, and treatment of natural gas. Its assets include Cowtown, Lake Arlington and Alliance systems.

Crestwood has a solid history of dividend increases and, in fact, dividends have increased 52% since 2008. Their earnings estimates look very promising going from $0.65 for 2012 to $1.14 for 2013. Their one year total return shows a -14% on Morningstar and is concerning. There are no direct insider transactions in the last six months according to MSN. Earnings per share took a hit from 2011 to 2012 and their Debt/Cap ratio is high at 51%, while their future earnings estimates look very good. So, it has some big pluses, but minuses too. Of note though is that they have continued to increase their dividends consistently, and if earnings rise as much as expected next year, they will likely increase dividends which are already at 8.94%. I'm not convinced about the big earnings numbers the analysts are coming up with because they are based in part on acquisitions which have many unknowns, but it seems likely that the numbers will go up. The company's cash flow looked weaker last quarter according to MSN, so they are going to have to have a big enough increase to make that up or float more shares to raise cash, but the predictions are for a huge jump in earning this year to next. Analyst ratings were mixed with 3 strong buys, 1 moderate buy, 2 holds, and 1 moderate sell on MSN. It seems likely to me that they will have increased earnings. Even if they are not as big as projected, they have always been good about increasing dividends to shareholders, so this might be worth considering in a big pullback too.

Buckeye Partners LP - Buckeye owns and operates one of the nation's largest independent petroleum products common carrier pipeline networks providing end-users with all-weather transportation of refined petroleum products. Buckeye also operates and maintains pipelines that it does not own, primarily in the Gulf Coast region, under contracts with oil and petrochemical companies.

While the screening numbers looked good on this one, I discovered that 3 insiders sold $7,303,000 worth of shares in August according to MSN. Three analysts still rate it a strong buy, with 6 at hold, and 1 at moderate sell according to MSN. I don't feel very good about this one. This quote I found at Zacks may explain why the insiders were selling. "We downgrade our recommendation from Neutral to Underperform for Buckeye Partners on account of high fuel and diesel price sensitivities which could negatively influence the partnership's short- term top-line growth. In addition, uncertain outcomes on the airline tariff case and recent proposal for implementation of market-based rates for petroleum product supply to federal regulatory body are issues that will not bode well with the partnership's growth. Other potential risks include unplanned damages to pipeline and plant infrastructures as well as intense competitive environment. However, acquisitions of high- performing assets, solid financials and development of large-scale storage facilities could provide some relief." That makes me nervous. I'm not buying this one anytime soon.

Vanguard Natural Resources, LLC - Vanguard is a publicly traded limited liability company focused on the acquisition and development of oil and natural gas properties. It has a great dividend record having increased dividends by 43% since 2008. However, I was very troubled to discover that two different insiders sold a total of $3,730,000 worth of shares very recently in October according to MSN. Quarterly earnings estimates have been dropping recently too. Earnings per share estimates for this year are down 67% from last year, although they slide up 30% for 2013. I don't need to look much further. There are more solid choices out there for a dividend portfolio.

Conclusion

If the stock market turns down as the so called Fiscal Cliff takes over the news, I will buy Pennant Park Investment Corp on a 5% pull back and consider Exterran Partners LP and Crestwood Midstream Partners LP on a bigger pull back.

Source: Retirement Income: 2 High Yielding LPs And A BDC For An Uncertain Market