Beat The Recession With Dividends - Part 2

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Includes: ADES, AHC, AJX, ARLP, CGA, CINR, CQH, CVI, CVRR, DMLP, DRD, EOCC, EQM, F, GLOP, GLP, HCLP, HIHO, LB, LOAN, MIC, MSB, PBFX, PBI, SALM, SHI, SID, SXCP, T, TCP, TKC, UFAB, VLP, VNOM, WLKP, XIN
by: Michael Bryant

Summary

It is almost impossible to find investments that would give $33,726 a year in dividends when only using $200,000-$300,000.

It is more manageable when using a range of $300,000-$400,000.

But be cautious when investing in high yield dividend stocks.

In my previous article with the same title, I created three portfolios of safe high yield dividend aristocrats with a combined dividend income of $33,726 per year, the estimated amount spent by the average retired household in 2018 minus social security. However, the portfolio size was between $850,000 and $950,000. Even if a retiree puts everything in AT&T (NYSE:T), which had the highest yield listed in the article at 6.20%, they need $543,968 to get $33,726 in dividends a year. Further, dividend growth for AT&T barely meets inflation and is about a third of the 5.8% rate of increase in retirement costs per year. Fidelity Investments notes that the average retirement account only had $210,300 as of March 16, 2018. That amount is also similar to the average retirement account balance of $201,300 found by the Federal Reserve, which also notes that the median was just $59,000. Thus, I will attempt to find sustainable dividend investments that would give $33,726 a year in dividends when only using $200,000-$300,000.

Below is a total of 35 companies with dividend yields above 6%, current ratio over one, and payout ratio below 100%. The current ratio equals current assets divided by current liabilities. It ensures the company has enough liquidity to cover current liabilities. The payout ratio is how much of earnings are paid out as dividends. Each stock is paired with several valuation statistics, with “good” numbers highlighted in green and “bad” numbers highlighted in red. The yellow highlighted rows are the companies with a dividend growth history, and the orange highlighted boxes are some of the best valuation numbers from each column.

Source: Finviz

Source: Finviz

Using $200,000-$300,000, an investment’s dividend yield would need to be 11.24%-16.86% for a retiree to make $33,726 a year in dividends. Unfortunately, only three companies from the above tables have yields in that range: Dorchester Minerals, L.P. (11.54%), CVR Refining, LP (11.96%), and Hi-Crush Partners LP (25.21%).

  • At 11.54% dividend yield, a retiree would need to invest $292,253.03 to make $33,726 a year in dividends.
  • At 11.96% dividend yield, a retiree would need to invest $281,989.97 to make $33,726 a year in dividends.
  • At 25.21% dividend yield, a retiree would need to invest $133,780.25 to make $33,726 a year in dividends.

Dividend yields above 10% seem to require buying Master Limited Partnerships (MLPs). But two non-MLPs listed are Highway Holdings (10.96%) and Pitney Bowes (10.33%)

  • At 10.96% dividend yield, a retiree would need to invest $307,718.98 to make $33,726 a year in dividends.
  • At 10.33% dividend yield, a retiree would need to invest $326,485.96 to make $33,726 a year in dividends.

But how are these companies based on the value statistics? I list each company below based on how many “good” and “bad” numbers it has.

  • 2 good numbers & 1 bad number – Manhattan Bridge Capital (LOAN), PBF Logistics LP (PBFX)
  • 2 good numbers & 2 bad numbers – Enel Generacion Chile S.A. (EOCC), L Brands (LB), Macquarie Infrastructure (MIC)
  • 2 good numbers & 3 bad numbers – TC PipeLines, LP (TCP)
  • 3 good numbers & 0 bad numbers – Hi-Crush Partners LP (HCLP)
  • 3 good numbers & 1 bad number – EQT Midstream Partners, LP (EQM), Turkcell Iletisim Hizmetleri A.S. (TKC)
  • 3 good numbers & 2 bad numbers – Great Ajax (AJX), Ciner Resources LP (CINR), Cheniere Energy Partners LP Holdings, LLC (CQH), DRDGOLD Limited (DRD), GasLog Partners LP (GLOP), Unique Fabricating (UFAB), Xinyuan Real Estate Co., Ltd. (XIN)
  • 3 good numbers & 3 bad numbers – Global Partners LP (GLP)
  • 3 good numbers & 4 bad numbers – Viper Energy Partners LP (VNOM)
  • 4 good numbers & 1 bad number – CVR Energy (CVI), CVR Refining, LP (CVRR), Ford (F), Mesabi Trust (MSB), Sinopec Shanghai Petrochemical (SHI), Westlake Chemical Partners LP (WLKP)
  • 4 good numbers & 2 bad numbers – Alliance Resource Partners, L.P. (ARLP), Salem Media Group (SALM), SunCoke Energy Partners, L.P. (SXCP)
  • 5 good numbers & 0 bad numbers – A.H. Belo (AHC), Highway Holdings (HIHO)
  • 5 good numbers & 2 bad numbers – Pitney Bowes (PBI)
  • 5 good numbers & 3 bad numbers – Advanced Emissions Solutions (ADES), Companhia Siderúrgica Nacional (SID)
  • 6 good numbers & 1 bad number – Valero Energy Partners LP (VLP)
  • 7 good numbers and 1 bad number – China Green Agriculture (CGA)
  • 7 good numbers and 2 bad numbers – Dorchester Minerals, L.P. (DMLP)

Looks like Dorchester Minerals, L.P. is the best high yield dividend stock based on value and sustainability of the dividend, followed by China Green Agriculture (9.52%) and Valero Energy Partners LP (6.15%). CVR Refining, LP seems okay with 4 good numbers and 1 bad number. Hi-Crush Partners LP only has 3 good numbers but has no bad numbers. Both Highway Holdings and Pitney Bowes have 5 good numbers, but Highway Holdings has no bad numbers while Pitney Bowes has 2 bad numbers.

  • At 9.52% dividend yield, a retiree would need to invest $354,264.71 to make $33,726 a year in dividends.
  • At 6.15% dividend yield, a retiree would need to invest $548,390.24 to make $33,726 a year in dividends.

But when focusing on the companies that had growing dividends and grew their dividend at least twice, as listed below, Valero Energy Partners LP (6.15%) and Salem Media Group (6.75%) become the best high yield dividend stock based on value, dividend growth, and sustainability of the dividend

  • 2 good numbers & 1 bad number – Manhattan Bridge Capital, PBF Logistics LP
  • 2 good numbers & 2 bad numbers – Enel Generacion Chile S.A., L Brands, Macquarie Infrastructure
  • 3 good numbers & 1 bad number – EQT Midstream Partners, LP
  • 3 good numbers & 2 bad numbers – Ciner Resources LP, Cheniere Energy Partners LP Holdings, LLC, GasLog Partners LP
  • 4 good numbers & 1 bad number – Ford, Mesabi Trust, Sinopec Shanghai Petrochemical, Westlake Chemical Partners LP
  • 4 good numbers & 2 bad numbers – Salem Media Group
  • 6 good numbers & 1 bad number – Valero Energy Partners LP

The table below lists the above dividend growth companies with its dividend yield (1), the number of divided years (2), how many times the company raised its dividend (2), its three-year average dividend growth rate (3), its five-year average dividend growth rate (3), and its trailing and forward dividend in dollars per share (4). I included Macquarie Infrastructure (highlighted in yellow) despite the recent divided cut, because it had seven straight years of dividend growth. I also included Enel Generacion Chile S.A. (also highlighted in yellow), because it grows its annual dividend every year despite that its 6-month dividend dips every year.

Sources:

  1. Finviz
  2. Street Insider and Nasdaq
  3. Seeking Alpha
  4. Yahoo Finance

The highest dividend growth stock listed is GasLog Partners LP at 10.19%, followed by PBF Logistics LP at 9.27% and L Brands at 9.08%.

  • At 10.19% dividend yield, a retiree would need to invest $330,971.54 to make $33,726 a year in dividends.
  • At 9.27% dividend yield, a retiree would need to invest $363,818.77 to make $33,726 a year in dividends.
  • At 9.08% dividend yield, a retiree would need to invest $371,431.72 to make $33,726 a year in dividends.

Conclusion:

It is almost impossible to find investments that would give $33,726 a year in dividends using $200,000-$300,000. But finding investments that would give $33,726 a year in dividends with a range of $300,000-$400,000 is more manageable. Be cautious when investing in high yield dividend stocks, checking its valuation statistics, dividend growth, and sustainability of the dividend before investing.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in T, HIHO, LB, MIC over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.