General Electric Co. (NYSE: GE) was trading at $14.94 on a dividend adjusted basis in August and the biggest conglomerate is now up 8% since then to 16.14. The 52-week trading range is $14.02 to $21.65 and the market cap is $171 billion. GE and the shares trade at about 10-times 2012 earnings expectations. The company’s return on equity is 11.3% and the latest dividend yield was 3.9%.
GE keeps gradually turning its ship around and
the company was weak during the most recent weakness. The company looks less and less like a bank stock compared to its past each quarter and it keeps having its customer credit metrics improve. The company is soon going to pay back Warren Buffett for that 10% preferred stake from the recession and the company has the ability to buy back stock and to gradually increase its dividend through time. The company’s portfolio is also said to be the best portfolio ever according to management, even if we did recently note that it has a go-along board of directors.
Government Properties Income Trust (NYSE: GOV) is our pick for getting a dividend from Uncle Sam or your local government. This is the landlord for mostly government office buildings. The REIT shares were trading at $21.23 when added to this portfolio in August, and shares are up by only 3.4% since then around $21.95 now. Its 52-week trading range is $20.53 to $28.28. Its market cap is now just above $1 billion and this trades at less than 11-times forward earnings. The company’s return on equity is 5.3% and the latest dividend yield was about 8.0%.
REITs tend to do better in low-rate environments. Now that the government’s debt-ceiling woes have been resolved, the trust is not facing as high of risks that its federal and local government clients will suddenly not be able to pay their office and property rents. 24/7 Wall St. believes that Treasury yields pay too low from the government, but being the government’s landlord offers a super-high yield. Our take is that this one has been perhaps overlooked rather than having increased worries. The consensus price target is also $26.17, implying close to a 19% upside with a high yield.
Kimberly-Clark Corporation (NYSE: KMB) has surged, almost unbelievably as investors buy safety and yield. This was trading at $61.87 on a dividend-adjusted basis and shares are up nearly 16% to $71.66. The 52-week trading range is $61.00 to $71.78, its market cap is now $28 billion, and the shares trade at about 13-times. The gain on Monday now has this one trading above the consensus analyst price target of $71.54. We think this can make it to $80 longer-term, but we would look to now only enter upon periods of weakness rather than chasing the stock. The company’s return on equity is 32.5% and the latest dividend yield was is now even down to 3.9%.
This is still the highest yielding consumer products giant, but the risk-reward is currently trading with a real safety premium. This is a global player so there is currency risk, and the sector is still in the midst of dealing with in-store promotion costs. We loved the pullback opportunity in August but and we see continued earnings power. This company is very shareholder friendly and we like that it is not a megacap. That being said, we would still want to be patient here to see if the stock can be bought on sale. Despite a lower dividend yield of closer to 3.3%, Procter & Gamble may be better on a share price risk-reward basis today.
Kinder Morgan Energy Partners LP (NYSE: KMP) has been a laggard of late as investors weigh their future in the world of MLPs. We also caution that the “dividend” is often treated as a return of capital, so the term “yield” is not exactly perfect. Shares were around $69.00 when added to the Great Dividend Portfolio, and shares are up only 1.5% at $69.94 today. The market cap is about $23 billion and the 52-week trading range is $63.42 to $78.00. The implied yield-equivalent here is about 6.6% and the payout keeps rising.
What makes MLPs so attractive is the tax treatment and the opportunities that lay ahead of the sector. There are also risks as the politicians are fighting over tax rate changes for wealthy investors. Kinder Morgan entities are still soft from the highs, but anything under Richard Kinder’s watch has made many millionaires (and some billionaires) over the years. This is one of the top MLP plays out there. If investors are being forced to chase yields now, having a solid oil or gas MLP in the mix is a must for long-term investors. Another great alternative in MLPs is Enterprise Product Partners LP (NYSE: EPD) with an implied dividend yield of 5.9%.
Senior Housing Properties Trust (NYSE: SNH), the well-run REIT for old folks homes, was trading at $20.40 when added to the portfolio in August and shares are now up about 7% at $21.95. The 52-week trading range is $19.09 to $25.28. Its market cap is $3.3 billion and the shares trade at about 11-times forward earnings. The company’s return on equity is about 7.3% and the latest dividend yield was 7.3%. We also like that the consensus analyst price target is up close to $24.75.
The company has held up despite some peer pressure and despite proposed changes in Medicare and Medicaid reimbursement rates. It has held up because management here has done well to avoid the pure government-dependent markets in healthcare and senior care. That situation may have changed as far as a favorable sector look, but this company has held its own. The REIT has also been able to grow its dividend though time and we expect that to continue here.
Wal-Mart Stores Inc. (NYSE: WMT) was trading at $48.41 when we added this on to the Great Dividend Portfolio in August and now shares are up an unexpected 13% to $54.81 now. Its 52-week trading range is $48.31 to $57.90. Its market cap is $188 billion and the shares trade at just over 11-times forward earnings. The company’s return on equity is 23.6% and the latest dividend yield is now down to 2.7%. The consensus price target is currently just under $59.50.
Wal-Mart recovered far faster than what we would have expected and it has been impossible to ignore that it pays to be a seller each time the stock hits $55.00. Wal-Mart still does offer perhaps the greatest dividend of all retailers and that is not going to change. Wal-Mart was looking like a lost company as recently as August and it still classifies as a value stock by some measurements. Wal-Mart also has at least a degree of winning in hard times as more of the American public becomes a customer.
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As you know by now, dividend investing is just one mean to an end. The Treasury bond market offers such low yields now that investors really are hiding in safety rather than trying to make investing income. The trick is to find companies and sectors that will thrive with earnings through good times and hard times and which also actually benefit from a low-rate environment.
Our first Great Dividend Portfolio had an implied dividend yield of close to 5.5%. That is closer to 5.3% today but the 10-Year yield is still lower than it was and is currently around 2.07%.
JON C. OGG
