5 Dividend Stocks to Avoid and 5 to Buy for 2016

Brett Owens, Chief Investment Strategist
Updated: January 14, 2016

Most stocks that pay meaningful yields today do so because their stock prices are cheap. Their dividends are being paid from earnings that aren’t there.

Big oil is a big dividend trap. A low payout ratio – the percentage of earnings a company pays out to investors – is generally a good thing. Until that number turns negative, that is.

BP plc (BP) lost $2.49 per share over the last 12 months while stubbornly paying out $2.40 in dividends – for a big yet unsustainable current yield of 7.8%.

How’d it fill the gap? Almost $5 billion in additional long-term debt.… Read more

3 Bargain REITs To Buy For Yields Up To 7.6%

Brett Owens, Chief Investment Strategist
Updated: January 8, 2016

I’ve always avoided “paper payout tigers”  – stocks that look great on paper and have great, but unsustainable, payout yields. If you own any of these, sell now. Many of these “zeros” looked like heroes thanks to semi-permanently low rates.

But with Wall Street’s new focus on interest rates, the landscape has shifted for many industries that have relied upon cheap capital. With so many out there, it can be hard for an investor to find an issue without risk.

Last month I cautioned that mortgage REITs (mREITs) like Annaly Capital (NLY) should be sold immediately. As interest rates climb, the borrowing costs for these firms increase.… Read more

This Bargain Tech Stock Will Soar in 2016

Brett Owens, Chief Investment Strategist
Updated: January 6, 2016

A great way to spot winning dividend-payers is to start with what I call the “Rodney Dangerfield stocks” — companies that get less respect from investors than they deserve.

Right now, I’m eyeing an underappreciated stock in the tech sector, of all places. It’s poised to turn in easy double-digit gains in its share price and dividend over the next five years.

This deal is available because “first-level investors” are missing the big picture. That’s the exact setup to look for when searching for a tech bargain. A cheap valuation isn’t enough, because a stock may very well be cheap for a reason (usually when its technology is obsolete, or heading that way).… Read more

The Best, And Worst, Dividend Stocks for 2016

Brett Owens, Chief Investment Strategist
Updated: January 4, 2016

With the first trading day of the New Year upon us, it’s time to clean up that portfolio. Get rid of those dividend dogs, and replace them with winners that’ll boost payouts and appreciate in price in the year ahead.

First, let’s call out the paper payout tigers. These stocks may look good on paper (thanks to their yields) – but if you own them, you should sell these ticking time bombs. Best case, they’ll see marginal dividend growth in 2016. Worst case, they’ll chop their payouts – their stocks will get punished by 20% or more.

Dividend Dogs of 2016

Mortgage REITs should be sold immediately, such as poster child Annaly Capital (NLY).… Read more

5 Stocks For 2016 With 6%+ Dividends & 10%+ Upside

Brett Owens, Chief Investment Strategist
Updated: December 30, 2015

Most “first-level investors” spent the holiday season dumping any and all fixed income holdings like expired eggnog. The Fed rate hike got in their heads, and in their panic they tossed some perfectly good funds in the return bin.

Many closed-end funds are now trading at double-digit discounts to their net asset values (NAVs). Doubleline Capital founder and famed bond guru Jeffrey Gundlach recently told CNBC that buying a fund trading at a 15-20% discount is “sort of a no-brainer.”

Reason being, you’re getting $1 worth of assets for just 80 or 85 cents. That’s free money for us calculated second-level thinkers.… Read more

This Popular Dividend Stock Could Fall Hard in 2016

Brett Owens, Chief Investment Strategist
Updated: December 28, 2015

Many investors see dividend aristocrat McDonald’s Corp. (MCD) as a slam-dunk for big gains and another hike in 2016. Too bad – like many dividend growth disciples, betting on what they see in the rearview mirror.

Year-to-date, MCD has been piping hot: it’s surged 26% in 2015, good for the second-strongest rise among Dow components, behind only Nike Inc. (NKE). But I’m concerned McDonald’s could give back much of that gain in 2016.

A Big Bet on Breakfast

It’s worth noting that MCD didn’t make much headway until late October, when it reported third-quarter earnings per share (EPS) of $1.40, up from $1.09 a year earlier and ahead of the Street’s forecast of $1.27.… Read more

5 High-Yield Stocks Trading Well Below Book Value

Brett Owens, Chief Investment Strategist
Updated: December 23, 2015

The fat yields on business development companies (BDCs) just got even fatter.  Many annualized yields are now north of 10%, but that’s not thanks to a surge in payouts. Rather, it’s a byproduct of plummeting prices.

BDCs loan money to private companies. Many of the loans are floating rates, so the recent rate hike wasn’t the issue. Investors’ broader concern – and reason why many BDC stocks crashed by more than their annual dividend in a week’s time – is borrower risk.

Regular readers know we’ve been keeping an eye on the free-fall in high yield bonds. Of late, that’s accelerated.… Read more

This Stock Could Yield 5.2% In 2016

Brett Owens, Chief Investment Strategist
Updated: December 21, 2015

If you want to double—or even triple—your dividend income overnight, there’s an easy way to do it: seek out companies that regularly pay special dividends.

Management usually announces these one-time payouts (which are always larger than regular quarterly dividends) after reporting a blowout quarter, or if they suddenly find themselves sitting on a ballooning cash pile. And with S&P 500 firms holding onto a combined $2.1-trillion stash, special dividends are becoming a lot more common these days.

They can instantly turn a company with a ho-hum dividend yield into an income investor’s dream.

Microsoft (MSFT) famously paid out a $3.00 special dividend in November 2004 that amounted to $32 billion from its long-term money pile.… Read more

2 REITs To Profit From Baby Boomers

Brett Owens, Chief Investment Strategist
Updated: December 18, 2015

Baby boomers are retiring in incredible numbers – 10,000 a day according to Social Security eligibility. A large majority of these are flush with the dual rewards of stock market investments and Social Security income.

But like death and taxes, growing old is an eventuality that we all must face. The details of how long we live – and where we do it – are as much dependent upon our health as they are money.  The one thing we can say for sure is that it’s not getting any less expensive to live longer.

It’s why the senior housing industry and these two REITs – Welltower (HCN) and Ventas  (VTR) – are permanently attached to my watch list.… Read more

10 Dividends About To Get Cut

Brett Owens, Chief Investment Strategist
Updated: December 16, 2015

Dividend darling Kinder Morgan (KMI) just reminded us why we need to know what’s funding that payout we love receiving every quarter.

KMI investors who didn’t see the dividend cut coming were flying blissfully blind. Everyone else, meanwhile, saw the business problems from a mile away. They sold the stock down 58% in the six months prior to the actual announcement…

This is the problem with “first-level” income investing. We can’t just buy a stated dividend and trust that it will be there next quarter. Instead, we must employ more nuanced second-level thinking to look beyond the obvious. This way, we can buy bargains the market is missing… and avoid time bombs like KMI.… Read more