ARE YOU A YIELD CHASER?

Summary

  1. It is ok to be a yield chaser
  2. Metric criteria for immediate income investors
  3. Use “I Prefer Income” Filter program to select potential high yield stocks

If you chase yields, it may be time to admit the fact that yield is one of the key criteria you focus on.   To many investment authors and analysts, being a yield chaser is one of the worst things that an income investor can do. But the truth is that yield is one of the main criteria all income investors use when determining whether to invest in a stock.

Whether you are a “dividend growth” or an “immediate income” investor, I would suggest that the goal is to invest in stocks that have the highest yield while also providing solid earnings, dividend, payout, debt and valuation metrics that meet your individual requirements. If there were 2 companies with the same historical metrics and guidance that you require, I would think that you would go with the company providing the highest yield.

Immediate Income Investors

Immediate income investors focus on securities providing higher yields. Capital gains and total returns are not as important as the safe and reliable income it can generate. To do that, it will probably mean changing your requirements for key metrics. That does not mean that yield is your only requirement; it is just that the emphasis is on dividend and earnings stability rather than growth. When I am searching for a few higher yielding immediate income stocks to add to my portfolio, here are some of the criteria that I look for:

  1. Yield: Above 6%
  2. Dividend growth: Stable or growing.
  3. Earnings: Stable or growing.
  4. Payout ratios: Equal to or better than industry average.
  5. Debt: Equal to or better than industry average.
  6. Valuation: I prefer undervalued securities; however, I will consider overvalued stocks if yield is high enough.

Using the I Prefer Income database program along with the Filter program, here are a few higher yielding immediate income securities that meet the criteria I have listed below.

Preferred Stocks criteria:

  1. Price < 26
  2. Yield > 6
  3. Y-T-C > 6
  4. Type = Cumulative Preferred
  5. Dividend payout ratio < .9
  6. Pref payout ratio < .3
  7. Debt-to-Equity < 3
  8. Show Redeem = No

Out of 278 cumulative preferred stocks, the filter criteria returned 21 issues. Here are 2 issues that meet the criteria:

YIELD CHASER
(Source: I Prefer Income)

The parent company is displayed in the gray row. The preferred stock issue is shown directly under the parent. CDR is the parent company and CDR-C is the preferred stock. Price of the preferred is under the call price with a yield of 6.9% and Y-T-C of 9.4%. They report non-gaap earnings with the last 5 years and quarters all profitable. Payout ratios for both common stock and preferred are good.

ET is the parent company for ETP-C. The price is just below the call price and has a yield of 7.4% with YTC of 7.5%. Since there was a recent corporate change, they do not have yearly earnings, but the last 5 quarters were all profitable. Both common and preferred stock payout ratios are low.

To view the full list of 21 stocks that met the criteria, please view the video to see the results.

Lets now turn to MLP / Midstream stocks. I use these metrics based on the market conditions, stock prices, yields and metrics currently available in the marketplace.

MLP / Midstream criteria:

  1. Yield > 6%
  2. Type = midstream
  3. Earnings growth > 3
  4. Dividend growth > 3
  5. Dividend payout ratio < .8
  6. Debt-to-Equity < 5

There are 40 midstream companies in the database and the filter criteria returned 6 stocks. Here are 2:

Yield Chaser
(Source: I Prefer Income)

CNXM and MMP are 2 of the 6 midstream stocks that met the criteria listed. CNXM has better metrics than MMP in all categories, and it provides a yield of 10.8% compared to 6.4% for MMP. However, there is one other metric that was not part of the filter criteria that appears to be of great importance to the marketplace: the number of consecutive years that the companies have increased their dividend. MMP is the clear winner with 19 years vs 5 for CNXM.   It is no secret that energy is the worst performing sector in the S&P, and in spite of having great metrics, both companies report being undervalued by 71% and 35% (based on current yield compared to 10-year median yield).

There are 4 other midstream companies that meet the criteria listed. Please view the video to see the full results.

Lets now review equity REITs to uncover a few good high yield stocks. Again, I use these metrics based on the market conditions, stock prices, yields and metrics currently available in the marketplace.

Equity REITs criteria:

  1. Yield > 6%
  2. Type = all
  3. Earnings growth > 1
  4. Dividend growth > 1
  5. Dividend payout ratio < .8
  6. Debt-to-Equity < 3

There are 154 REIT companies in the database and the filter criteria returned 8 stocks. Here are 2:

Yield Chaser
(Source: I Prefer Income)

BPY and GEO are 2 of the 8 REIT companies that met the criteria listed above. Both have good metrics in most categories, but GEO’s yield is 11.8% compared to 6.8% for BPY. Both are designated as dividend diamonds as they have increased their dividends every year for 7 and 8 years. As is the case with MLP stocks, both of these companies are undervalued based on current yield to 10-year median yield.

There are 6 other REIT companies that meet the criteria. Please view the video to see the full results.

And finally, lets review the dividend diamond 25+ stocks to search for a few good high yield stocks. I use these metrics based on the market conditions, stock prices, yields and metrics currently available in the marketplace.

Dividend Diamonds 25+ criteria:

  1. Yield > 4%
  2. Earnings growth > 1
  3. Dividend growth > 1
  4. Dividend payout ratio < 1
  5. Dividend to FCF payout < .50
  6. Debt-to-Equity < 3

There are 138 DD25+ companies in the database and the filter criteria returned 5 stocks. Here are 2:

Yield Chaser
(Source: I Prefer Income)

T & UVV are 2 out of 5 stocks that met the criteria listed above. Both are considered as true dividend growth stocks by the fact that they have increased their dividends every year for 36 and 48 years respectively. They have good metrics and similar yields of 5.4% and 5.7%. The big difference is yield valuations. T is overvalued by 1.4% and UVV is undervalued by 35.3%. Does this mean that UVV is a great opportunity? It is a tobacco stock, but tobacco stocks have weathered many problems over the years and are still prospering. Time for more research.

SUMMARY

It is ok to be a yield chaser as long as yield is just one of many metrics to consider when doing research. This article is aimed at investors who are looking for a few good higher yielding securities to add to their portfolio.   I use the “I Prefer Income” programs to filter out stocks using metrics from dividends, earnings, payout and debt ratios. Once the filter criteria is applied to each of the 4 group of stocks, I obtained between 5 and 21 companies that met the criteria. From that list, I picked out 2 for display in this article along with the metrics for each.

To see the full list of stocks along with all of the demographic and financial metrics, please view the video that accompanies this article. You can also login to the IPI Program to access and run the filter program from each program. The results may surprise you. But there is more. “I Prefer Income” has a ranking program that will compare, score and rank each of the stocks in the list. Even better, it allows each member to select the criteria and weight to rank the stocks. Please remember that further research is recommended by clicking on the web address to access the company website. You can then review company earnings reports, guidance, sec documents, etc. And don’t forget any recent articles.

I hope you find this article to be of value. Remember that the “I Prefer Income” programs are FREE and available to anyone that is interested in “relying on yourself investing”.

Here is the video. (Please note that if video is not clear, click on settings at bottom right corner and select HD1800)

Thanks. I will talk to you later,

Rich Hill
I Prefer Income!

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