The shortened trading week just ended was positive three days in a row, before Friday saw a substantial decline. Still, the major averages all posted modest gains for the week. Oil prices appear to have found at least an interim bottom, in the mid-forties. There is much debate over which producers can survive and which cannot at these price levels. The shale producers may be able to hold on for some time, as long as another leg down does not occur, while the Canadian tar sands and deep offshore production is probably costing more to produce than the product can be sold for. The $64,000 question is, will the price recover relatively soon, or is this a “new normal” for oil producers?

Meanwhile, my dividend stocks continue to pay on schedule in most cases, although a few in the distressed energy sector are definitely at risk. Upcoming ex-dividend dates are:

01/28/2015    

Alliant Energy (LNT), yield 3.13%.

ConAgra Foods (CAG), yield 2.72%.

OENOK Partners LP (OKS), yield 7.38%.

American Capital Agency (AGNC), yield 12.07%. AGNC switched to a monthly payout not too long ago.

Prospect Capital (PSEC), yield 15.51%. PSEC pays monthly.

01/29/2015

Realty Income (O), yield 4.24%. O pays monthly.

Paychex (PAYX), yield 3.14%.

Kinder Morgan (KMI), yield 4.26%. KMI raised the dividend 10%, effective with this payout. Think back to the last time you had a 10% raise, say, from your employer. The recollection will likely result in an appreciation of just how significant this increase was.

EnerPlus (ERF), yield 11.7%, estimated. The actual yield for this monthly payer can vary slightly from month to month, due to exchange rates, as the payment is in Canadian dollars. The one-time “granddaddy of the Canadian Trusts”, now a C-corp, has fallen hard in recent weeks, along with all Canadian producers. I can remember when it was a $50 or more stock, in 2006, before the “Halloween Massacre” of 2006, which effectively ended the Canadian Trust form of business organization.

Earnings season continued to build last week, as a few more of my stocks reported:

Johnson & Johnson (JNJ) reported on 1/20/2015 that Q4 EPS was $1.27, beating by a penny. Revenue of $18.25B, down 0.6% Y/Y, missed by $310M.

Kinder Morgan (KMI) reported on 1/21/2015 that Q4 EPS was $0.08, missing by $0.26.

Revenue of $3.95B, up 2.1% Y/Y, missed by $350M.

Verizon (VZ) reported on 1/22/2015 that Q4 EPS was $0.71, missing by two cents. Revenue of $33.2B, up 6.9% Y/Y, beat by $530M.

General Electric (GE) reported on 1/23/2015 that Q4 EPS was $0.56, beating by a penny.

McDonald's (MCD) reported on 1/23/2015 that Q4 EPS was $1.13, missing by nine cents. Revenue of $6.57B, down 7.3% Y/Y, missed by $110M.

Two companies scheduled to report last week have moved their earnings releases to this week: General Dynamics (GD), to 1/28/2015, and Freeport-McMoran (FCX), to 1/27/2015.

Other firms reporting this week are listed below, by date. Reports will be for Q4, and will be released before the open, unless otherwise noted.

1/26/2015

MicroSoft (MSFT), Q2, and Norfolk Southern (NSC).

1/27/2015

3M Co (MMM), NextEra (NEE), Novartis (NVS), Pfizer (PFE), Procter & Gamble (PG), Q2, AT&T (T), and Nucor (NUE).

1/28/2015

American Electric Power (AEP), Roche Holdings LTD (ROCHE), for the full year, and Potlatch (PCH).

1/29/2015

ConocoPhillips (COP), Colgate Palmolive (CL), Northrop Grumman (NOC), Raytheon (RTN), Royal Dutch Shell (RDS.B), and Enterprise Products Partners (EPD).

1/30/2015

Chevron (CVX), Altria (MO), and NuStar Energy LP (NS).

A number of upgrades / downgrades came out last week on my stocks:

Exelon (EXC) was upgraded from Market Perform to OutPerform at Wells Fargo.

Intel (INTC) was downgraded from Market Perform to Market UnderPerform at JMP Securities.

Chevron (CVX) was downgraded from ? to Market Perform at Wells Fargo. The notation did not indicate the previous rating.

Colgate Palmolive (CL) was downgraded from Buy to Neutral at UBS.

Energy Transfer Partners LP (ETP) was upgraded from Neutral to OutPerform at Credit Suisse.

JM Smucker (SJM) was upgraded from Neutral to OutPerform at JP Morgan.

Verizon (VZ) was downgraded from OverWeight to Equal Weight at Barclays.

Emerson Electric (EMR) was downgraded from OutPerform to Neutral at RW Baird.

3M Co (MMM) was initiated at Buy at UBS.

Eaton (ETN) was initiated at Buy at UBS.

Emerson Electric (EMR) was initiated at Neutral at UBS.

General Electric (GE) was initiated at Buy at UBS.

Kimberly Clark (KMB) was upgraded from Market Perform to OutPerform at BMO Capital Markets.

Chevron (CVX) was downgraded from OutPerform to Neutral at Credit Suisse.

Nucor (NUE) was upgraded from Neutral to Buy at Goldman Sachs.

Exxon Mobil (XOM) was downgraded from Neutral to UnderPerform at Credit Suisse.

Things are definitely heating up as we move past the holidays and into earnings season. Market followers will be paying close attention to the Q4 reports coming out of the oil patch. If it turns out better than expected, try not to get too giddy. Remember, with hedges and contracts in place, the effect of the oil price collapse will not be as severe for this quarter as it will become after the hedges roll off and the current contracts expire, which will require several more quarters. Nearly all pundits agree 2015 is not going to see an oil price recovery. The question is, will said recover come along in 2016? Or anytime in the next five years? At this point, no one knows.

JT

Note: I have decided to stay with my usual weekly schedule, even though stocks will not be trading on Monday, January 19, because of the MLK holiday.

As for the week just ended, it was down four days in a row, with Friday being a turn-around day, as a rally offsetting nearly half of the previous four-day decline occurred. Oil prices appear to have stabilized in the upper forties, at least for the moment. The price referred to is the “spot” price, which is the current price. Pundits have noted that the crude oil futures market is currently in “contango” status, which is futures-speak for the observance that future prices are higher than the spot price, reflecting the fact that futures traders believe prices will be going up from current levels. I’m sure a lot of over-leveraged energy firms hope these traders are right. Meanwhile, most stocks are at sky-high valuations, with the exceptions being energy-related issues, business development companies, and mortgage REITs, all of which are on sale. The energy majors, especially US-based, have not been marked down all that much, however. I’ve been disappointed in the opportunities for acquiring Chevron (CVX) and Exxon Mobil (XOM), which are cheaper than seen for a while, but still not all that cheap.

Stocks on my lists slated to go ex-dividend this week are:

Colgate Palmolive (CL), 1/21/2015, yield 2.08%.

Procter & Gamble (PG), 1/21/2015, yield 2.82%.

Gladstone Investment (GAIN), 1/21/2015, yield 9.80%. GAIN pays monthly.

Another monthly payer announced too late to make last week’s list. Fifth Street Finance (FSC) went ex-dividend on 1/13/2015, and currently yields 14.10%.

Note that the quoted yield is always annualized, and based on the most recent closing price. I mention that a stock pays monthly when that is the case, so it will be clear what the actual dividend represents. For example, the monthly dividend for FSC is $0.0917, and the latest price is $7.805, so the yield is (12 x .0917) / 7.805 = .1410, or 14.10 %. 

Speaking of yield, if somehow it could be known that the current yields for BDCs and MREITs would be sustained regardless of the economy, it would be a no-brainer to put everything into these sectors, especially with yields for most blue chips formerly known as dividend stalwarts barely at 2%, or even less. Of course, if another economic tsunami occurs, the higher risk dividends may well disappear, while stalwarts such as PG and CL will no doubt maintain their miserly payouts.   

Two of my stocks reported Q4 results last week:

Greif (GEF, GEF.B) reported on 1/14/2015 that FQ4 EPS was $0.85, beating by eight cents. Revenue of $1.05B, down 7.1% Y/Y, missed by $90M.

Intel (INTC) reported on 1/14/2015 that Q4 EPS was $0.74, beating by eight cents.

Revenue of $14.72B, up 6.4% Y/Y, beat by $20M. Guidance was that management expects Q1 revenue in the range $13.2B-$14.2B vs. a $13.77B analyst consensus. Management expects mid-single digit 2015 revenue growth, corresponding with the analyst consensus of 4.2% growth.

Earnings will continue to roll in this week for the quarter just ended, which will be Q4 for firms on a calendar year, and other than Q4 for firms on a fiscal year track. All of this week’s firms are on a calendar year basis, so all reports are for Q4. Reports expected on stocks I follow, by date, are:

1/20/2015

General Dynamics (GD), Johnson & Johnson (JNJ), Freeport-McMoran (FCX), all before the open.

1/21/2015

Kinder Morgan (KMI), after the close. KMI was shown (by E*Trade, the resource I mostly use for upcoming earnings) as reporting last week, but this was apparently incorrect.

1/22/2015

Verizon (VZ), before the open.

1/23/2015

General Electric (GE), Kimberly Clark (KMB), and McDonalds (MCD), all before the open.

Upgrades / downgrades that came out last week on stocks I follow were:

ConAgra Foods (CAG) was downgraded from Buy to Neutral at Citigroup.

Kellogg (K) was downgraded from Buy to Neutral at Citigroup.

Kraft Foods (KRFT) was downgraded from Neutral to Sell at Citigroup.

Digital Realty (DLR) was from Buy to Hold at Jeffries.

Conoco Phillips was initiated at UnderWeight at JP Morgan.

Public Service Enterprise Group (PEG) was upgraded from Sell to Neutral at Goldman Sachs.

HCP Inc (HCP) was downgraded from OutPerform to Market Perform at Wells Fargo.

Verizon (VZ) was downgraded from Buy to Hold at Evercore Partners.

DrPepper Snapple (DPR) was upgraded from Sell to Neutral at Goldman Sachs.

Johnson & Johnson (JNJ) was downgraded from Neutral to Sell at Goldman Sachs.

Kimco Realty (KIM) was upgraded from Neutral to OverWeight at JP Morgan.

Kraft Foods (KRFT) was upgraded from Neutral to Conviction Buy at Goldman Sachs. They apparently do not agree with Citigroup on KRFT.

Phillip Morris (PM) was downgraded from Neutral to Sell at Goldman Sachs.

Molson Coors (TAP) was downgraded from Buy to Neutral at Goldman Sachs.

Intel (INTC) was downgraded from Buy to Market Perform at Charter Equity.

Eni SpA (E) was downgraded from Buy to Hold at Canaccord Genuity.

Greif (GEF, GEF.B) was downgraded from Market Perform to UnderPerform at BMO Capital.

Altria (MO) was upgraded from Neutral to Buy at Nomura.

Merck (MRK) was upgraded from UnderWeight to Equal Weight at Barclays.

As we move further into the New Year, we have seen the major averages decline, but not really all that much, only about 2%. We are seeing a bifurcated market, with energy firms down huge in some cases, 40% to 50%, along with business development companies (BDCs), while industrials, consumer staples, property REITs, and Utilities continue to post new highs. The consensus view seems to be that the Fed will have to begin the process of raising rates, which will crater stocks, but the “doves” on the Fed roster will seize on any opportunity to delay the return to “normalcy” that presents itself. Keep in mind that at one time the expectation was that we would be well along the path towards “normal” interest rates by now, and that hasn’t happened. One wonders what they are waiting for – perhaps for a Republican administration to come in, so they can take the blame when the economy and the markets crash?

JT

The first week of the New Year saw the return of volatility to the market, with triple-digit moves in the Dow Industrials each day, two up and three down. The end result was the market ended the week lower than where it started. Oil prices (WTI) dropped below $50 on Monday, and remained there the rest of the week, fluctuating in the $48 to $49 range.

 For the upcoming week, stocks on my lists going ex-dividend are as follows:

Consolidated Communications (CNSL), 1/13/2015, yield 6.39%.

Freeport-McMoRan (FCX), 1/13/2015, yield 5.33%.

General Dynamics (GD), 1/14/2015, yield 1.78%.

Main Street Capital (MAIN), 1/16/2015, yield 7.02%.

Only one of my stocks reported last week:

RPM International (RPM) reported FQ2 EPS of $0.52, missing by three cents. Revenue of $1.07B, flat Y/Y, missed by $50M.

Greif (GEF, GEF.B), initially to report last week, will be reporting this week on 1/14/2015, after the close.

Kinder Morgan (KMI), recently reorganized, will report for the first time since the consolidation, after the close on 1/13/2015.

Intel (INTC) is scheduled to report after the close on 1/15/2015.

The reports upcoming will be for the quarter just ended. Looking ahead, we will soon be entering an extended earnings season, with both quarterly and annual results to be announced, sometimes concurrently, sometimes not.

With the start of the New Year, the analysts are apparently back at work, as we have a number of upgrades / downgrades to report on my stocks:

Ventas (VTR) was downgraded from Top Pick to OutPerform at RBC Capital.

Chevron (CVX) was downgraded from Buy to Neutral at RBC Capital.

DrPepper Snapple (DPS) was downgraded from Neutral to UnderPerform at BAC.

General Mills (GIS) was downgraded from Neutral to UnderPerform at BAC.

Intel (INTC) was upgraded from Neutral to Buy at MKM Partners.

Coca Cola (KO) was upgraded from Equal Weight to OverWeight at Morgan Stanley.

Merck (MRK) was upgraded from Market Perform at Bernstein.

Novartis (NVS) was upgraded from Market Perform to OutPerform at Cowen & Company.

Darden Restaurants (DRI) was upgraded from Perform to OutPerform at Oppenheimer.

General Electric (GE) was downgraded from Buy to Hold at Deutsche Bank.

Ensco PLC (ESV) was upgraded from Hold to Buy at Societe Generale, as the ratings firm apparently believes the contract driller will survive the current oil price crash.

Breitburn Energy Partners LP (BBEP) was downgraded from Buy to Hold at MLV & Company. BBEP has seen the share price drop to levels not seen since the financial crisis of 2008.

General Dynamics (GD) was downgraded from OutPerform to Sector Perform at RBC Capital.

Linn Energy LLC (LINE) was downgraded from OverWeight to Equal Weight at Barclays.

Noble Corp PLC (NE) was downgraded from Buy to Neutral at Citigroup.

Molson Coors (TAP) was upgraded from Neutral to Buy at Nomura.

Exelon (EXC) was upgraded from Sector Perform to OutPerform at RBC Capital Markets.

Noble Corp PLC (NE) was upgraded from Sector Perform to OutPerform at RBC Capital Markets.

Barring some major geopolitical or economic development, trade is likely to be subdued as market participants await the next round of earnings reports. One major question mark is the near-term future outlook for oil prices. The price may be bottoming in the upper forties for West Texas Intermediate (WTI), in which case the best buy opportunities in the sector are either right now or already past. On the other hand, oil prices may go down even further, with even better buy prices for energy firms ahead. Either way, the consensus seems to be that a quick bounce back up for oil prices into the seventies or eighties is not likely in 2015, that it will take time for the supply-demand imbalance to resolve. Of course, there is always the possibility for a Middle East explosion to impact supply dramatically, in which case all bets are off. Welcome to the world of energy investing!

JT

Stocks gained during the week prior to Christmas, then gave it all back prior to New Year’s day, such that the major averages ended the two week span about where they began it. The venerable Dow Jones Industrial Average dropped back down below the 18000 milestone level it had breached during Christmas week. Crude oil prices, meanwhile, continued to slide, with the benchmark WTI holding barely above $52 a barrel. As will be seen shortly, the repercussions are now being reflected in reduced payouts for some high-yielding energy firms.

Before presenting upcoming dividends on my stocks, I have a bit of catching up to do, since my last posting was two weeks ago. Stocks on my lists that went ex-dividend after 12/25/2014 and before 01/05/2015 are as follows:

Kraft Foods (KRFT), 12/23/2014, yield 3.51%.

National Health Investors (NHI), 12/29/2014, yield 4.32%.

Nucor (NUE), 12/29/2014, yield 3.04%.

Prospect Capital (PSEC), 12/29/2014, yield 15.80%. PSEC pays monthly, and the indicated payment will be the final payout at that rate, as the dividend has been reduced going forward from $0.1106 per month to $0.0833 per month. The yield will be reduced to 11.90%. 

Annaly Capital (NLY), 12/29/2014, yield 10.87%.

American Capital Agency (AGNC), 12/29/2014, yield 11.83%.

Windstream Holdings (WIN), 12/29/2014, yield 12.05%.

Enerplus (ERF), 12/29/2014, yield approximately 11.0%. ERF currently pays nine cents Canadian monthly. Like all energy producers, the payout is at risk, although no cut has been announced thus far.

Sysco (SYY), 12/30/2014, yield 3.01%.

Kimco Realty (KIM), 12/30/2014, yield 3.77%.

Medtronic (MDT), 12/30/2014, yield 1.70%.

Realty Income (O), 12/30/2014, yield 4.53%. O pays monthly.

Cisco Systems (CSCO), 01/02/2015, yield 2.75%.

Now, for the upcoming week, stocks on my lists going ex-dividend are as follows:

Raytheon (RTN), 01/05/2015, yield 2.23%.

AT&T (T), 01/07/2015, yield 5.55%.

Verizon (VZ), 01/07/2015, yield 4.68%.

Darden Restaurants (DRI), 01/07/2015, yield 3.77%.

General Mills (GIS), 01/08/2015, yield 3.09%.

RPM International (RPM), 01/08/2015, yield 2.07%.

Universal (UVV), 01/08/2015, yield 5.01%.

Linn Energy LLC (LINE), 01/08/2015, yield 11.0%. LINE pays monthly, with the annualized payout reduced from $2.90 per unit to $1.25 per unit, beginning with the indicated payment. Surprisingly, the shares actually gained following the announcement.

Breitburn Energy Partners (BBEP), 01/09/2015, yield 13.0%, even after a dividend cut. BBEP pays monthly, and the new rate of $1.00 annualized, or $0.0833 per month, effective with the indicated date, represents a 50% reduction from the prior rate.  

Only one of my stocks reported results during my outage:

Walgreen (WAG) reported on 12/23/2014 that FQ1 EPS was $0.81, beating by $0.06. Revenue of $19.55B, up 6.7% Y/Y, beat by $50M. On December 31, 2014, Walgreen completed a planned merger with UK-based Boots Alliance, with a new name and ticker symbol now applicable to the new entity, Walgreens Boots Alliance (WBA). The WAG symbol is retired, and the new WBA ticker will be listed on the NASDAQ.

A couple of my stocks are due to report their most recent quarterly results next week:

RPM International (RPM) is scheduled to report on 01/07/2015, before the open.

Greif (GEF, GEF.B) is scheduled to report on the same date, after the close.

Several upgrades / downgrades of note were issued during my break:

Breitburn Energy Partners LP (BBEP) was downgraded from Accumulate to Neutral at Global Hunter, and from Buy to Hold at Stifel Nicolaus.

Kimberly Clark (KMB) was upgraded from Market Perform to OutPerform at BMO Capital.

Procter & Gamble (PG), was downgraded to Neutral at BTIG.

The major opportunity I see now continues to be in the energy sector. The best bets, in my opinion, are the major oils, such as ConocoPhillips (COP), Chevron (CVX), and ExxonMobil (XOM), or foreign firms Royal Dutch Shell (RDS.B), Total (TOT), ENI (E), or Statoil (STO). For those able to handle more risk, beaten-down energy production MLPs such as LINE or BBEP represent tremendous value IF even a modest oil price recovery occurs. Certainly, the major question is when or if energy prices will recover, and for any given firm, what is the prognosis if a recovery is further away than nearly anyone today believes is possible. One thing to keep in mind is that few saw any meaningful decline as a possibility a year ago, and to my knowledge, no one predicted West Texas Intermediate (WTI) crude prices under $60 by year-end 2014.

JT