Traders work on the floor of the New York Stock Exchange minutes after the closing bell in October, 2010.Mario Tama/Getty Images
With the 10-year U.S. Treasury yielding less than 2.7 per cent and possibly falling if the Federal Reserve initiates QE2, dividend stocks are looking more attractive.
TheStreet's model rates equities based on expected risk-adjusted performance. Here are 10 of its favourite dividend stocks. They offer yields between 6.4 per cent and 10 per cent and regularly increase payouts. They are ordered by yield, from high to highest.
10. Kinder Morgan Energy Partners LP is a master limited partnership, or MLP, which owns oil and gas pipelines in the U.S. Its third-quarter distributable cash flow decreased marginally to $318-million, but cash flow per unit dropped 8.9 per cent to $1.02 cents, hurt by a higher share count. The operating margin narrowed from 23 per cent to 20 per cent. Kinder Morgan Energy increased its quarterly distribution to $1.11 a share, equaling an annual yield of 6.4 per cent. The stock has a three-year distribution growth rate of 29 per cent. It has delivered 11 per cent annualized gains since 2007.
9. Getty Realty Corp. is a real estate investment trust, or REIT, that owns fuel and convenience store properties. During the past three years, it has grown sales 5.4 per cent annually, on average. Third-quarter funds from operations rose 17 per cent to $16-million, but on a per share basis, funds from operations decreased marginally due to a larger float. Getty pays a quarterly distribution of 58 cents, converting to an annual yield of 6.5 per cent. The stock has a three-year distribution growth rate of 1.2 per cent and a five-year growth rate of 1.8 per cent. It has returned 2.3 per cent a year since 2007.
8. W.P. Carey & Co LLC is a REIT that invests in commercial properties and advises similar companies. It is scheduled to release third-quarter results Nov. 4. The second-quarter occupancy rate improved to 92 per cent. W.P. Carey paid a $1.01 distribution out of $1.22 of adjusted cash flow per share, translating to a payout ratio of 83 per cent. The REIT has not only increased its distribution every year since going public, but it has also boosted the distribution for 37 consecutive quarters. The stock has a three-year distribution growth rate of 7.7 per cent. It has advanced 11 per cent in 2010.
7. Universal Health Realty Income Trust is a REIT that specializes in health-care properties. During the past three years, it has grown sales 1.9 per cent annually, on average. Third-quarter funds from operations decreased 9.6 per cent to $7.5-million and funds per share fell 13 per cent to 61 cents, all of which was distributed to shareholders. The REIT offers an annual yield of 6.6 per cent. Universal Health has been expanding its float since the fourth quarter of 2009. It plans to issue $50-million, in total, of new equity. The REIT has a three-year distribution growth rate of 1.7 per cent and a five-year distribution growth rate of 2.6 per cent.
6. CenturyLink Inc. is an integrated telecommunications company, formed through the merger of CenturyTel and Embarq. The company is currently attempting to merge with Qwest(Q_). It is scheduled to release third-quarter results Nov. 3. Second-quarter net income more than tripled to $239-million, but earnings per share climbed a more modest 16 per cent to 79 cents due to a larger float. CenturyLink pays a quarterly dividend of 73 cents, equaling an annual yield of 7.1 per cent, with a payout ratio near 100 per cent. It has rallied 12 per cent in 2010 and 24 per cent in 12 months.
5. EarthLink Inc. is an Internet service provider for businesses and individuals. Its revenue has tumbled 21 per cent annually, on average, since 2007, but it has grown net income 56 per cent a year over that span. Third-quarter tenure rates improved to 89 per cent for customers there for two years or more and 54 per cent for customers there for five years or more. Profit fell 28 per cent to $771-million, or 20 cents a share, as revenue decreased 17 per cent. EarthLink ended the quarter with $771-million of cash, a $32-million increase. It offers a 7.2 per cent dividend yield, with a payout ratio of 24 per cent.
4. TransMontaigne Partners LP is an MLP that stores and terminals oil and natural gas. Second-quarter revenue inched up 2.6 per cent to $37-million. TransMontaigne generated $14-million of distributable cash flow and paid out $9.4-million, or 67 per cent. The MLP has $4.6-million of cash and $110-million of debt. It offers a quarterly distribution of 60 cents, equaling an annual yield of 7.2 per cent. Since 2007, TransMontaigne has boosted sales 14 per cent annually, on average. Its stock has a three-year distribution growth rate of 29 per cent and a five-year distribution growth rate of 40 per cent.
3. Mesabi Trust is a grantor, deriving income from royalties from the production of iron ore at Minnesota mining properties. The Agreement of Trust has a duration ending 21 years after the death of the last survivor of 25 individuals living at inception of the Trust, all of whom were alive several years ago when the matter was investigated. Mesabi offers a yield of 8.9 per cent. It has a three-year distribution growth rate of 31 per cent and a five-year growth rate of 14 per cent. It has more than tripled in 2010 on commodity optimism. Investors should investigate further.
2. Main Street Capital Corp. is a business-development company, investing in small and middle-market companies. Its second-quarter distributable net investment income surged 131 per cent to $5-million, or 33 cents a share. Revenue more than doubled to $8.7-million. The operating margin contracted from 81 per cent to 78 per cent. Main Street pays a quarterly dividend of 38 cents, translating to an annual yield of 9.1 per cent. It carries $4.7-million of cash and $139-million of debt on its balance sheet. The stock has delivered three-year annualized gains of 3.8 per cent. It is flat in 2010.
1. Ituran Location and Control is an Israel-based company that provides location-based services, including stolen-vehicle recovery and tracking systems. During the past three years, it has grown sales 6.6 per cent annually, on average. Second-quarter profit nearly doubled to $4.8-million, or 23 cents a share, as revenue rose 23 per cent. The operating margin declined from 22 per cent to 21 per cent. Ituran has $42-million of cash and $6.3-million of debt. The company pays an annual dividend, announced in February. Last year's $1.50 payout translates to a current yield of 10 per cent.