Three Yields for Current Conditions

By Chloe Lutts

A 3% Yield

A 4.5% Yield

And a 7.6% Yield

The market was only open for three-and-a-half days last week, and it still managed to lose approximately 5% of its value. I don’t have to tell you that’s not good.

I’ve been discussing the overall market a lot lately (if you didn’t catch last week’s market video, you can watch it here) so today I think we’ll ignore it–and focus on stocks that ignore it too (more or less). Below are three recommendations from the latest Dick Davis Dividend Digest. Each one of these three stocks is a conservative dividend payer with relatively low correlation to larger market moves. Sounds pretty good right about now, doesn’t it?

The first is Macquarie Infrastructure Company (MIC), which yields about 3%. MIC is one of the few stocks that has managed to stay above its 50-day moving average lately, and the strength has not gone unnoticed: it was recommended by two analysts in the latest Dividend Digest. The first was George Southerland, editor of Special Investment Situations, who wrote on October 25:

“Macquarie Infrastructure Co. owns and operates a handful of infrastructure assets consisting of relatively basic services where cash flows are predictable. The flagship asset is a 50% equity interest in NJ-based International-Matex Tank Terminals, or IMTT, that operates a bulk liquid storage terminal business that stores petroleum products and an array of chemicals. Capacity is over 43 million barrels, and the business isn’t particularly sensitive to the economy since storage contracts last from three to five years. IMTT enjoys a distinct competitive advantage as one of its main facilities (Bayonne) is located near New York harbor and can load and unload ships quickly due to the depth of the water in front of its docks. … A kicker here involves the dividend, currently at $0.20 per quarter for a 3.2% yield. Management is working with its partner in the IMTT investment to distribute excess capital that the business is generating. We anticipate an increased distribution probably beginning in Q1 2012, and could see the dividend nearly double within a year. Note also that a rising payout should prompt capital appreciation from the shares. MIC is a buy up to 26 and becomes particularly interesting on dips below 24.”

The second Macquarie recommendation came from Jennifer Dowty, a managing director and portfolio manager at Manulife Asset Management who writes for Investor’s Digest of Canada. On November 18, she wrote:

“On November 2, the company reported strong operational third-quarter results, with revenue climbing nearly 18% year-over-year. Five analysts rate Macquarie a ‘buy.’ Their average one-year price target is US$29.50 a share. A key catalyst for the company is speculation that management could substantially boost the dividend in early 2012. … The company has been unable to resolve a dispute regarding distributions with the co-owner of International-Matex Tank Terminals. A hearing on the issue is set for January 9 and the company anticipates the process will be completed by the end of March. But if the outcome favors Macquarie and the economy is good, the company is likely to raise the dividend by roughly $0.70 a share.”

Our next stock is very small–its market cap is only $78 million–but it is actually hitting new 52-week highs right now. White River Capital (RVR) pays a 4.5% dividend. On October 14, Eric Dany, editor of Stock Prospector, wrote:

“There’s more upside ahead for this sub-prime auto finance company because they are buying back shares and growing their financing portfolio. … The share repurchase program could remove 6.9% of the outstanding shares, which would boost book value to about $25.00. The sub-prime auto finance company operates Coastal Credit in 24 states. They acquire the subprime notes through franchised and independent auto dealers and then service the notes. … My earnings estimates are $2.25 in 2011 and $2.50 in 2012. With a P/E ratio of 10x my 12-18 month target price is $25.00 a share. … Strong Buy.”

RVR looks a little over-extended here though, so wait for a pullback before buying in.

Finally, a perennial Dividend Digest favorite, with a 7.6% yield, recommended by Roger S. Conrad and Elliott H. Gue in MLP Profits on October 28:

Linn Energy (LINE) has hedged all of its oil output through 2013 and all of its natural-gas production through 2015. The firm has boosted its average daily hydrocarbon output by more than 30% over the past 12 months, leading to a 30% surge in third-quarter cash flow. These solid operating results enabled Linn Energy to cover its quarterly distribution by a margin of 1.1 to 1. Management expects to cover its full-year distribution 1.18 times. Management also continued to opportunistically lock in favorable pricing with new hedges. The firm also repurchased 530,000 units at an average price of just $32.76, some 15% below the current price. CEO Mark Ellis projects that Linn Energy’s capital investments will continue to deliver quarter-over-quarter production growth of at least 6%. … Few energy producers are lower-risk plays than Linn Energy LLC; the stock rates a buy up to 40.”

LINE can be volatile at times, but the 7%-plus yield is such a draw that most sell-offs are quickly corrected. The current weakness (such as it is) will probably prove to be another such buying opportunity. LINE looks like a good buy right here for the large dividend.

Until next time, hang in there.

Wishing you success in your investing and beyond,

Chloe Lutts
Editor of Investment of the Week

P.S. Click here for more details on Macquarie Infrastructure Company (MIC), White River Capital (RVR) and Linn Energy (LINE), as well as other top high-yielding dividend-payers featured in Dick Davis Dividend Digest.


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