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Why Dividends Matter: Prospect Capital

For a very clear example of why dividends matter, consider the case of Prospect Capital (PSEC). I first purchased Prospect in late 2014, believing it to be cheap at the time and that the risk of a dividend cut was overstated.

Well, it turns out I was wrong about the dividend. Shortly after I bought it, Prospect slashed its dividend by 25%. Predictably, the price took a tumble, but I decided to give the position a little more time. The yield was high even after the cut, and the stock traded below book value.

I should have been more disciplined and sold the stock after the dividend cut, as it continued to drop for the next year. Even now, that initial position is down over 20% on a price basis. But when you adjust the price for dividends paid, you get a much different picture.


Adjusted for dividends paid, Prospect Capital is up about 15% from my original purchase price. That’s by no means a great return (the S&P 500 is up about 22% over the same period). And I haven’t taken into account tax effects. But it does make the power of dividends abundantly clear. After dividends paid, a disappointing loser becomes a respectable winner.

Disclosures: Long PSEC.

 

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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It’s About Time, Kinder Morgan!

Long-suffering Kinder Morgan (KMI) longs got some welcome news this week. After nearly two years of reduced payouts, Kinder Morgan will be aggressively hiking its dividend next year. Kinder will be bumping its annual payout from $0.50 to $0.80 next year, and plans to push it to $1.25 per share by 2020. That amouts to a 60% increase next year and 25% annual growth for the two following years.

KMI slashed its dividend in 2015.

And it doesn’t stop there. KMI is also undertaking a $2 billion share repurchase, which is equal to about 5% of the company’s market cap at current prices.

And perhaps most importantly, Kinder expects to do all of this — along with funding new growth projects — with current cash flows, without having to tap into the debt markets. From the press release:

“Importantly, these steps to return value to our shareholders will not come at the detriment of our balance sheet. In fact, we expect to continue to fund all growth capital through operating cash flows with no need for external funding for growth capital at KMI,” said Kinder. “As previously announced, we expect to end 2017 at a 5.2 times net debt-to-Adjusted EBITDA ratio, ahead of plan, and remain committed to a leverage target of approximately 5.0 times. We are extremely pleased with the company’s financial strength, and today’s announcement is confirmation of that strength.”

I’ve expected this for a while. Facing a hostile market and a prohibitively high cost of capital. Kinder opted to “self fund” its growth projects by slashing its dividend in late 2015. In the nearly two years that have passed, the company has added quality assets while also chipping away at its debt load.

Beyond 2020, KMI may never be the aggressive dividend-raising machine it was prior to its 2015 cut, but that’s ok. The newer, more conservative Kinder Morgan should still be a fantastic cash generator for yield-hungry investors.

Disclosures: Long KMI

 

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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The 7 Best Dividend Stocks to Buy for Q3 and Beyond

The following is an excerpt from The 7 Best Dividend Stocks to Buy for Q3 and Beyond

The theme for the first half of 2017 was something to the effect of “Buy Amazon.com (AMZN) and dump pretty much everything else.”

At least that’s what it seemed like. Recent pullback aside, 2017 has broadly been a great year for tech … but it has been a lousy year for “old economy” stocks like energy, retail and autos, and for dividend stocks in general.

But as they say, it ain’t over until the fat lady sings, and we still have another half of the year left to go. Today, we’re going to take a look at the best dividend stocks to buy for the third quarter and likely the rest of the year.

You’ll immediately notice that there are several names on the list that struggled in the first half of the year, and that’s by design. After a lengthy stretch of underperformance, I expect to see value stocks — and particularly dividend stocks — take leadership.

Last year, we saw a similar pattern. Energy stocks, REITs and dividend stocks in general started the year in the doghouse. But in the second half, they roared back to life.

I can’t promise the same will happen this year. But given some of the high dividend yields on offer, I’m comfortable showing a little patience here. We’re being paid handsomely in cold, hard cash to wait for the market to appreciate value.

So with no further ado, here are the seven best dividend stocks for the second half of 2017…

As I started this piece by saying, the dominant theme of 2017 has been the unstoppable rise of Amazon … and the equally unstoppable destruction of traditional brick-and-mortar retail.

Frankly, there is a lot of truth to this sentiment. Amazon really is upending shopping malls and big-box retailers. But there are plenty of areas of the retail economy that are healthy, and triple-net retail REIT VEREIT Inc (VER) has solid exposure to them.

VEREIT is one of the very cheapest REITS in the retail space. Part of this is due to the lingering stench of scandal following its predecessor company’s accounting restatement a few years ago. But investors who eschew VER because of the sins of its former management are really missing a good opportunity. VEREIT has a high-quality portfolio of restaurants, pharmacies, deep-discount stores and other tenants that tend to be Amazon-resistant.

VER also pays an attractive 6.7% yield that promises to rise in the years ahead as the company completes its planned divestitures and returns its focus to growth.

I consider VEREIT on of the few REITs that is priced to double your money in the next 2-3 years, so it belongs in any list of best dividend stocks for the second half of 2017.

To read the rest, see:  The 7 Best Dividend Stocks to Buy for Q3 and Beyond

Disclosures: Long VER

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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STORE Capital (STOR): Thank you, Warren Buffett

$STOR Announces that Berkshire Hathaway has invested $377 mlnin the company, representing 9.8% of total shares out… https://stocknews.com/news/stor-announces-that-berkshire-hathaway-has-invested-377-mlnin-the-company/

— StockNews.com (@StockNews) Jun. 26 at 05:50 AM

For the record, I owned $STOR before Warren Buffett 😉

— Charles Sizemore (@CharlesSizemore) Jun. 26 at 08:29 AM

Thank you, Mr. Warren Buffett.

Yesterday, up-and-coming triple-net retail REIT STORE Capital (STOR) got a major boost when the company annoucned that Buffett’s Berkshire Hathaway (BRK.B) had recently purchased nearly 10% of the company.

Prior to the announcement, STORE had been having a rough year.  Amazon’s (AMZN) assault on traditional brick-and-mortar retail has been unrelenting, and investors have responded by dumping high-quality, triple-net retail REITs like STORE.

Hey, I get it. As we saw with Spirit Realty Capital (SRC),  a struggling retail tenant can cause major headaches for a landlord, and investors worry that this is only the tip of the iceberg. But as is typical, they’ve overreacted and thrown out the baby with the bathwater.

To start, about two thirds of STORE’s portfolio is invested in properties that cater to services, including everything from movie theaters to preschools. The remaining third is split roughly evenly between retail properties and light industrial properties.

Unless Jeff Bezos can find a way to deliver your children via aerial drone to Amazon-operated preschools (and hey, it could happen…), STORE would seem pretty close to Amazon-proof.

It’s also worth noting that STORE’s insiders have been steady buyers of the stock.

InsiderPositionDateBuy/SellSharesTrade Price ($)Cost ($1000)
Long Catherine F.CFO, EVP and Treasurer5/10/2017Buy4,90520.39100.01
Sklar Mark N.Director5/10/2017Buy5,00020.34101.7
Donovan Joseph MDirector5/9/2017Buy5,00020.81104.05
William FranklinDirector3/15/2017Buy4,00022.9991.96
Seadler EinarDirector3/13/2017Buy4,44022.4699.72
Long Catherine F.CFO, EVP and Treasurer3/13/2017Buy5,55022.52124.99
Volk Christopher HPresident and CEO3/10/2017Buy11,10022.75252.53
Burbach Christopher K.EVP - Underwriting3/10/2017Buy5,50022.65124.58
Smith Quentin P. Jr.Director3/9/2017Sell1,40023.0632.28
Donovan Joseph MDirector12/1/2016Buy4,35024.15105.05

Source: GuruFocus

While I would never buy a stock purely because its insiders were buying, I definitely see it as a major positive. The people running the company are generally going to have a better grasp of its competitive challenges than passive investors reacting to news headlines.

At any rate, it will be interesting to see if Mr. Buffett’s purchase causes a wide-scale reevaluation of triple-net retail REITs or if this was simply a one-off event that will quickly fade. But while we’re waiting for the market to handicap all of this, I’m happy to continue collecting the 5.6% dividend indefinitely.

Disclosures: I’m long STORE Capital via my Dividend Growth portfolio.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Monthly Dividend Stocks to Pay Your Bills

The following is an excerpt from 7 Monthly Dividend Stocks to Pay Your Bills.

I’m a big fan of monthly dividend stocks. Modern life is built around the idea of the monthly billing cycle: the mortgage payment, car payment, health insurance premiums, electricity, water and phone bills. Even Netflix! Virtually every regular expense we have runs on a monthly cycle, so why shouldn’t dividend stocks?

Bonds usually pay their coupon payments semiannually, and stocks generally pay their dividends quarterly. For retired investors living off of their portfolio income, this creates a mismatch. Expenses are regular, yet income is lumpy.

So, all else equal, monthly dividend stocks are a dream come true for investors. Now, some obvious, common-sense caveats apply here. You should never buy a stock because its dividend is paid monthly. The health of the underlying business, growth prospects, the quality of management and the stock’s valuation are all vastly more important than its dividend calendar.

But if I were hypothetically looking at two otherwise identical stocks, I’d clearly choose the stock with a monthly payout over the one with a quarterly payout. Some might argue that a monthly payout is nothing more than a cynical attention grabber designed to appeal to yield-starved retail investors. I disagree.

When I see a monthly payout, that tells me that management is making a real effort to give its investors what they want. So with that, let’s jump into our list of seven quality monthly dividend stocks.

I can’t make a list of monthly dividend stocks without including “The Monthly Dividend Company” itself, Realty Income Corp (O). Realty Income is easily one of the most uninteresting companies in the S&P 500, and I’m perfectly fine with that. When it comes to investing, boring is beautiful. Realty Income owns close to 5,000 properties leased to 250 scattered across 49 states and Puerto Rico. And all of its properties are leased under triple-net arrangements, meaning the tenant is responsible for all maintenance, taxes and insurance.

Once a tenant is moved in, Realty Income’s only responsibility is to cash the rent checks, which it then recycles into a steady monthly dividend. And about that …

As I write this, Realty Income has paid 562 consecutive monthly dividends and has raised its payout for 78 consecutive quarters. And at current prices, it yields a respectable 4.6%.

I own some shares of Realty Income that I expect will pay a good chunk of my retirement expenses a good 20-25 years from now when I actually retire. For now, I’m reinvesting the monthly dividends and watching my share count grow.

To finish reading the article, please see 7 Monthly Dividend Stocks to Pay Your Bills.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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