Welcome back to the Monday morning quarterback.
Fall's first big weekend of football always brings fodder for water cooler conversations. Intermingled with today's pigskin pontificating, however, is serious talk about the markets; the carnage from last week and what the future holds for investors who were clearly shaken, not stirred, by Friday's cocktail hour.
"It was an ugly week," said Christopher Marinac, financial services analyst at SunTrust Robinson Humphrey securities. "It certainly didn't do much for investor confidence."
Want an end-around to avoid the pileup? Think yield.
Getting Paid to Wait
Stock dividends are nothing new. In fact, over the past 75 years, dividends have provided nearly one-third of equity investors' total return.
Today, dividends provide another benefit: A chance to get paid to wait out the current storm. A regular reader of this column put it best: "I consider a dividend payment for the risk of holding equities."
That doesn't mean investors should blindly chase yield. In fact, an unusually high yield may suggest balance sheet problems and possible dividend cuts ahead. A current example is
which sports a yield of more than 6%. Many investors think recent troubles will force the company to slash the dividend.
However, looking for companies with solid operating profits, clean balance sheets and a history of rising dividends can provide some comfort in today's market. Here are some ideas.
The REIT Stuff?
While the broader market has struggled, Real Estate Investment Trusts, or REITs, have shined. With the
down more than 17% this year, the SNL Securities Equity REIT Index has posted a 10.5% return, with major contributions from dividends. The average REIT currently yields 7.8%.
While REITs have performed well this year, they have been caught in the recent downdraft, and are off nearly 6% in two weeks. One fund manager says that presents an opportunity.
"In just two weeks, The REIT industry has gone from its most overbought to most oversold technical readings in the seven-plus years I've been investing in REITs," says Carl Tash, principal at Cliffwood Partners, a Los Angeles real estate investment management firm. "I suspect we are due for a pretty good snap back sometime this week."
Tash warns that yield is only part of the equation. "Though yield is nice, realistic management, a clean balance sheet and sound investment strategy is needed to weather a season of volatility and surprises."
He recommends investors look to
, 5.5% yield;
Manufactured Home Communities
Pan Pacific Retail
( PNP), 7.1%; and
, 7.7%, as names that fit those criteria. "All nice, boring businesses with careful management," Tash says.
Two names with slightly more development risk are
, 5.0%; and
, 6.2%. "These companies will not let you down or do anything stupid in a prolonged economic slowdown," Tash says. His firm owns all the names mentioned.
Portfolio Power With Utilities
The granddads of dividend plays are electric utilities. And, while some power companies have cut their dividends and increased their risk profile with new business ventures, other traditional utilities still provide investors with solid income and slow, steady growth, especially in today's market climate.
"If market conditions remain weak, we look for traditional utility stocks offering high yields to outperform," Lehman Brothers power analyst Dan Ford told clients last week. "Investors will try to minimize their downside risk in this difficult market."
Ford's favorite names include
, 4.5% yield and
, 5.4%. He rates both a strong buy and his firm has not provided banking services for either company.
Merrill Lynch utility analyst Steve Fleishman also likes
( TXU), 5.1% and
( SRP), 4.7% on the yield list. He rates both accumulate and Merrill Lynch has provided banking services for both companies.
Again, investors are cautioned not to simply focus on the highest yielding names. "While we are highlighting the dividend theme," notes Fleishman, "we do not recommend that investors focus solely on yield. Our sector strategy continues to be one of owning a balanced portfolio of beaten up generators and merchants, together with higher-yielding integrated electrics."
Banking on the Fed
A final place to look for total return with a yield component are the battered financials. With many banks and brokerages down more than 5% last week, both valuations and yields are becoming more attractive.
"The weakest names last week are the names that have a good chance to rebound more quickly, especially if talk of a surprise Fed move heats up," says Marinac. "Names like
Bank of New York
( MEL) and
were really battered."
Marinac also thinks investors might check out some regional banks for their yield. At the top of his list are
( UPC), 4.7% yield and
( ASO), 4.5%. Among small-cap names, he likes North Carolina's
which yields 4.3%. He rates Union Planters and First Charter market outperform and AmSouth neutral, and his firm has recently provided banking services to First Charter.
"Bank investors will look to dividend yield for comfort in this market," Marinac says.
In today's market, yield is comfort. After all, dividends are money in the bank.
Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to