The Worst High Yield Investment Today

Brett Owens, Chief Investment Strategist
Updated: January 20, 2016

There’s a new bond king in town – and he’s warning investors about a high yield darling that’s really a backdoor energy trap.

Barron’s swapped out Bill Gross for Doubleline Capital founder Jeffrey Gundlach in its 2016 Roundtable. The publication says that Gross decided to resign his post. Whatever the case, it’s a good trade as Gundlach has had better calls and performance for years. Long live the new bond king!

His magistrate is currently warning investors about unexpected “collateral damage” from $30 oil. His warnings will sound familiar to regular readers, as we’ve already called out big oil as a big dividend trap, and picked on MLPs with unsustainable payouts.

Now, let’s dive into Gundlach’s second-level analysis that identifies a subtle but serious problem with a popular payout vehicle. …
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This Stock Will Boost Its Dividend 4 Times in 2016

Brett Owens, Chief Investment Strategist
Updated: January 19, 2016

Call it China’s revenge—and the sequel to last summer’s horror show is no less terrifying than the original. Just ask the thousands of panicked investors who are, yet again, madly tossing their stocks over the side.

But time and again, history has shown you’re far better off buying into hysterical markets like these than selling. But where should you look for safety AND upside?

I recommend the good old US of A. By doing so, you’ll instantly dodge two big headaches: the grinding emerging market slowdown and the surging greenback, which is pummeling any profits American companies earn overseas these days.

For an extra margin of safety, hunt for stocks that defy gravity in times like these.

Realty Income Corp.: Built for Gyrating Markets

Case in point: …
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3 Double-Digit Dividends Set To Fall Hard

Brett Owens, Chief Investment Strategist
Updated: January 15, 2016
Oil-Well-Sunset

Oil’s hitting 12-year lows as we speak – and that’s crushing a favorite vehicle of many income investors. If you’re not yet out, get out.

Reason being, it could easily get even worse for the goo. In fact, it probably will. A surge in either the U.S. Dollar or a depreciation of the Chinese yuan of just 15% could send crude in the $20 range. So could a continued liquidation of massive hedge fund bullish bets – they’re still long nearly 50,000 futures contracts. Yikes.

In 2015 alone the Alerian MLP Index lost 31%. Oppenheimer’s senior oil and gas analyst Fadel Gheit suggested that half of U.S. shale producers could go bankrupt over the next few years until crude finds its footing.

On December 16 I said …
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9 Dividends Stocks To China-Proof Your Portfolio

Brett Owens, Chief Investment Strategist
Updated: January 13, 2016

China’s financial grease fire has officially spread to American stocks. If your portfolio isn’t yet “China-proof” then you’d better protect yourself now. Sell your dividend-paying disasters and get your capital into issues that do pay yields but aren’t hooked on dragon dust.

I get it – you probably didn’t think good ol’ U.S dividend-paying stocks would get crushed like this. They do outperform the market over time, after all.

Problem is, not all stated yields can be taken “as is.” For example, the big oil and BDC dividend dogs that I warned you about last month are underperforming in an already-bad market. They’ve lost an average 10.6% just 8 trading days into the year!

Hopefully You Sold These Disasters As Discussed…

Dividend-Disasters
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1 Dividend Stock To Buy, And 1 To Dump Immediately

Brett Owens, Chief Investment Strategist
Updated: January 11, 2016

Plenty of investors see telecom stocks like AT&T Corp. (T) and Verizon Communications (VZ) as cornerstones of any income portfolio. Heck, many even like Comcast (CMCSA) as a dividend-growth staple.

But do they really deserve that honor? And if so, which stock is best for you?

Below, we’ll zero in on a few crucial numbers that tell the tale.

But first, I should point out that none of these three tops my list of favorite dividend-payers now. That title goes to a company throwing off a safe 7.3% dividend yield I’ll tell you about a little further on.

That said, in a head-to-head matchup between AT&T and Verizon, I do have a clear favorite. Let’s start at the top—with dividend yields—and work our way out from there. …
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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.

Meanwhile Chevron (CVX) and Exxon Mobil (XOM) – paying 5% and 3.9% respectively – are, to their credit, making money. But Chevron’s payout ratio has ballooned to 94% over the past year, and Exxon’s has increased to an uncomfortable 61%. …
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3 Bargain REITs To Buy For Yields Up To 7.6%

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

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. Worse, their portfolio holdings are being devalued with every Fed interest rate hike.

As these firms are forced to cut their payouts, their stock prices will plunge – …
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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).

In this case, there’s a misperception we second-level thinkers can capitalize on. …
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The Best, And Worst, Dividend Stocks for 2016

Brett Owens, Chief Investment Strategist
Updated: January 4, 2016
Sad-Dog

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). The firm holds fixed rate securities that decline in price when rates rise. …
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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. All we need to do to collect it is buy these issues on sale, wait for the discount to close, and collect monthly yields of 0. …
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