Friday, June 29, 2007

Top 5 Dividend Plays

Stocks and funds which pay regular dividends are great dollar-cost-average material for investment accounts. Many of these stocks enjoy strong capital growth to further boost earnings potential; it often doesn't take long before these stocks are yielding 15-25% on your original purchase price by dividends alone. For example, I began dollar-cost-averaging into Southern Peru Copper (PCU) in August 2005 (a year after the stock had featured in one of my stock pick scans [$]) but currently only re-invest dividends back into the stock. However, the dividend payment has risen from a then $0.52 and $0.85 per share for the last 2 Qs of 2005 to a current $1.50 and $1.70 for the first half of 2007. Meanwhile the stock has gone from a post-split mid-$20s up to its current $90s. This outperformance is unlikely to last forever and if it can maintain its dividend (a big 'if') then the next big correction - when it comes - will be an opportunity to add to the position using the dividend re-investment.

So what of the 5 stocks to watch:

[1] Central Securities Corp (CET) is a closed-end-fund which is yielding 7.7% according to Yahoo!. It is in a base building phase contained by the highs of 2000. Now is an ideal time to accumulate before resistance breaks and momentum takes hold. A rough price projection is up in the low $60s - but this should be treated as an investment over a trade. It makes two dividend payments a year; a nominal $0.20 in the first half and a more substantial (and variable) payment in the second half (around November). Last years was $2.02.

[2] Oneok Partners (OKS) has had a successful last couple of years with the stock moving from lows of $40s in 2005 to its current mid-$60s. It yields a healthy 5.8% with 4 payments over the year. The 2006 payments of $0.88, $0.95, $0.97, $0.98 compare to 4 payments of $0.80 in 2005. In 2007 it made a payment of $0.99. The stock has been steadily rising since 1995 and if it was to correct back to the $50s it would be excellent value to add over and above dollar-cost-averaged purchases.
ONEOK Partners, L.P. engages in the ownership and management of natural gas gathering, processing, storage, and interstate and intrastate pipeline assets, as well as natural gas liquids (NGLs) gathering and distribution pipelines, and storage and fractionators in the United States.

[3] Mueller Industries (MLI) is interesting because it makes bi-monthly dividend payments of $0.10. Dividend payment is a relatively new theme for the stock having only started doing so in 2004. The yield is only 1.2% - the scan having been skewed by a once off payment of $15 in 2004. The stock trades within a $27 - $40 range which sees an average around $33 and brings the yield closer to 2%. One to watch to see if they start raising the payment.
Mueller Industries, Inc. engages in the manufacture and sale of copper, brass, plastic, and aluminum products. The company operates in two segments, Plumbing and Refrigeration and the Original Equipment Manufacturers (OEM).

[4] DNP Select Income Fund (DNP) is another closed-end fund which sports a 7.3% yield and pays out a monthly dividend of $0.065. The last dividend increase came in 1997 when it went from $0.06 to $0.65 - will it make the leap to $0.07 soon? The fund bounds between $8 and $11 which would put the average price close to $9.50. Not a bad option if looking to include a monthly payment plans in your dollar-cost-average portfolio.

[5] American Capital Strategies (ACAS) is the third closed-end fund (debt) has been steadily increasing its dividend payment - the most recent rise was June's $0.91 from February's $0.89; last summer's payment was $0.82 when it traded around $34. It sometimes throws in a few extra pennies at the end of year. The fund can be volatile losing almost half its value in 1998 and 2002 - but this volatilty can be an asset using a dollar-cost-averaging strategy. More importantly, the dividend continued to rise during these 'crashes'.
American Capital Strategies, Ltd. is a principal investment firm specializing in management and employee buyouts, recapitalization, special situations, middle market, and growth capital investments. The firm seeks to provide mezzanine and debt financings for buyouts and also makes direct investments in public and private companies. In special situations, it invests in troubled situations and in distressed situations.