Friday, November 7, 2008

High Growth Rate Dividend Achievers

Over this past week, we've been looking at picking up some reliable, high-dividend paying stocks. In Wednesday's blog, I suggested looking at the components of the High Growth Rate Dividend Achievers, an index based on criteria set by Mergent's Dividend Achievers. From this index of one hundred stocks, I selected three (plus one other not from this list) that had dividend yields (DY) greater than 4.5 and that I felt would have the most chance of success in this credit-starved market environment.

Here are my top picks:

Pfizer (PFE). Current price: $16.86, DY = 7.6%. Pfizer has been steadily declining since 2000 (down 65% ) and its current chart is not encouraging. Sure, the stock has been trading in an upward-sloping channel, but volume has been decreasing. This is a bearish sign, and judging from its previous decline, I expect the price to drop another $2 or so from this level. However, if President-elect Obama begins to spruce up the healthcare system, the drug stocks (and anything in the drug and healthcare sectors) could benefit. When (and if) the price does decline further and the stock looks like its on a rebound, you might want to sell an out of the money cash-secured put.

Polaris Industries (PII). Current price: $32.51, DY = 4.7%. Polaris makes snowmobiles and other all-terrain vehicles (ATVs). It beat last quarter's estimates and raised full-year guidance, although fourth quarter profits are projected to be flat. Stock-wise, the company lost half its value in the last couple of months. It just broke major support at $36 and although it bounced off support at $25, that doesn't mean it can't go lower, especially if consumers feel that a new snowmobile is a budgetary extravagance. If the stock heads up, try selling the $30 puts. If it falls below $30, sell the $25 puts.

Kinder-Morgan Energy Partnership (KMP). Current price: $53.40, DY = 7.6%. KMP specializes in pipeline transport and energy storage of various materials including crude oil, natural gas, and coal. It operates as a Master Limited Partnership (MLP). Many analysts feel that MLPs are safe havens in this market and their low debts and high cash-flows are perfectly structured to weather the credit storm. Now is a great time to pick up these puppies. KMP has strong resistance at $55 and unless oil falls a lot further, I wouldn't be too worried about picking up some shares right now.

Enterprise Products Partners (EPD). Current price: $24.50, DY = 8.5%. Although not on the Dividend Achiever list, EPD is another oil and gas MLP, similar to KMP above. Even its chart pattern is similar to KMP's. Resistance is at $25, and I'd be a buyer of this one at this level. The reason that EPD probably didn't make the index cut is that the company has only been around for 10 years. It has steadily increased dividends since 2000 with many annual increases greater than 10%.

More on MLPs
A week or two ago entrepreneur Mark Cuban said in a CNBC interview that he was buying up MLPs because of their relative stability and high dividends. He's a billionaire and I'm not, and what he had to say made a lot of sense. I think a little hitchhiking around the MLP universe is in order which will hopefully turn up a few more high growth dividend achievers.

But I'll leave that adventure for next week. Have a good weekend! Go Cal! Beat 'SC!!!

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