Due to a family emergency requiring unplanned travel, I was not able to post last week. As it turns out, I did not miss much. The week beginning June 16 saw the market recover the losses from the prior week and then some, with new highs towards the end of that week. Then, last week the market see-sawed around but essentially ended the week about where it began. A somewhat disappointing update on Q1 GDP, coming in at a minus 2.9%, failed to shake things up, as the consensus seems to be it was all due to the weather. Obama administration scandals and ongoing geopolitical storms likewise have not seemed to have much effect on the markets. One of these days, that will change, but no one knows when.

Stocks on my lists that went ex-dividend last week were:

06/24/2014

Phillip Morris (PM), yield 4.13%.

06/25/2014

MFA Financial (MFA), yield 9.60%.

06/26/2014

Main Street Capital (MAIN), yield 6.29%. MAIN pays monthly.

Windstream Holdings (WIN), yield 9.85%.

Full Circle Capital (FULL), yield 10.54%. FULL pays monthly.

Prospect Capital (PSEC), yield 12.83%. PSEC also pays monthly.

American Capital Agency (AGNC), yield 10.96%.

National Health Investors (NHI), yield 4.25%.

Nucor (NUE), yield 2.93%.

06/27/2014

Realty Income (O), yield 4.88%. O pays monthly.

Annaly Capital (NLY), yield 10.30%.

Stocks on my lists going ex-dividend this coming week are:

07/01/2014

General Dynamics (GD), yield 2.11%.

Sysco (SYY), yield 3.06%.

Kimco Realty (KIM), yield 3.91%.

Medtronic (MDT), yield 1.90%.

07/02/2014

Cisco Systems (CSCO), yield 3.08%.

Upgrades / downgrades on my stocks that have come out the last two weeks are:

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

Williams Partners LP (WPZ) was upgraded from Hold to Buy at Tudor Pickering.

Cisco Systems (CSCO) was initiated at OverWeight at Morgan Stanley.

Medtronic (MDT) was upgraded from Equal Weight to OverWeight at Barclays.

Walgreen (WAG) was upgraded from Equal Weight to OverWeight at Barclays.

ConAgra (CAG) was downgraded from Buy to Hold at KeyBanc.

Kayne Anderson (KED) was downgraded from Buy to Hold at BAC.

ConAgra (CAG) was downgraded from Buy to UnderPerform at BAC.

Cisco Systems (CSCO) was initiated at Neutral at Buckingham.

Dr Pepper Snapple (DPS) was initiated at Sell at BTIG Research.

Dr Pepper Snapple (DPS) was downgraded from Buy to Neutral at Citigroup.

Hercules Technology Growth Capital (HTGC) was upgraded from Market Perform to OutPerform at Wells Fargo.

Total S A (TOT) was initiated at UnderWeight at Morgan Stanley.

Wal-Mart (WMT) was initiated at OverWeight at Morgan Stanley.

Southern Co (SO) was upgraded from Hold to Buy at Argus.

Williams Partners LP (WPZ) was reinstated at Buy at Citigroup.

BreitBurn Energy Partners LP (BBEP) was initiated at Accumulate at Global Hunter.

Kinder Morgan Inc. (KMI) was initiated at Buy at UBS.

Kinder Morgan Energy Partners LP (KMP) was upgraded from Neutral to Buy at UBS.

Medtronic (MDT) was upgraded from Hold to Buy at Jeffries.

Spectra Energy (SE) was initiated at Neutral at UBS.

Molson Coors (TAP) was upgraded from UnderWeight to Equal Weight at Morgan Stanley.

Walgreen (WAG) was upgraded from Hold to Buy at Jeffries.

El Paso Pipeline Partners LP (EPB) was initiated at Sector Perform at RBC Capital Markets.

Fifth Street Finance (FSC) was initiated at Market Perform at JMP Securities.

Stocks reporting since my last posting are as follows:

Darden Restaurants (DRI) reported on 6/20/2014 that FQ4 EPS was $0.84, missing by ten cents. Revenue of $2.32B, up 0.9% Y/Y, missed by $10M.

Walgreen (WAG) reported on 6/24/2014 that FQ3 EPS was $0.91, missing by three cents. Revenue of $19.4B, up 6.0% Y/Y, missed by $80M.

General Mills (GIS) reported on 6/25/2014 that FQ4 EPS was $0.67, missing by five cents. Revenue of $4.28B, down 2.9% Y/Y, missed by $140M. The miss resulted in a decline of nearly three dollars, which is as good a buying opportunity as you’re going to see in this market, for a venerated blue chip. Realizing this fact, I bought some shares at $51.75 last week, to start a new position in GIS.

ConAgra Foods (CAG) reported on 6/26/2014 that FQ4 EPS was $0.55, in-line with estimates. Revenue of $4.43B, down 2.9% Y/Y, beat by $30M.

As for the week ahead, only one of my stocks is scheduled to report; Paychex (PAYX), after market hours on 7/1/2014.

This bull that won’t quit shows no sign of abating anytime soon. My cash levels are at highs not seen since the last market peak in 2007. As noted, I bought some GIS last week, and also, just as grudgingly, a few shares of Procter & Gamble (PG), which also declined just a bit last week. Both stocks will be going ex-dividend in July, and both yield over 3%, even at today’s pricing, so at least I will get paid soon in both cases. To quote Janis Joplin’s lyrics from one of her songs, “get it while you can” is my watchword for now, whenever I can get a quality stock with any kind of discount applied.

JT

Stocks combined three minor up days with two substantial down days to finish the week a bit lower than at the start. Still, with Friday posting a modest gain, investors seem in no mood to panic. The arguments continue as to whether stocks are over-valued, in a bubble, or merely fairly-valued, but almost no one is arguing that stocks are under-valued. Probably the richest valuations are utilities, consumer staples, and integrated oil companies. The deep water oil-driller contracting firms rebounded a bit, and if the recent IRAQ unrest continues to pressure oil prices, these bargains will evaporate soon, even more than they have already.     

Stocks on my lists going ex-dividend this week are:

06/16/2014 

BlackRock Kelso Capital (BKCC), yield 9.52%.

06/17/2014 

Gladstone Investment (GAIN), yield 7.58%. GAIN pays monthly.

Solar Capital LTD (SLRC), yield 7.67%.

PennantPark Investment (PNNT), yield 9.96%.

06/18/2014 

Greif (GEF, GEF.B). GEF yields 3.05%, while GEF.B, very thinly traded, yields 4.17%.

06/19/2014

General Electric (GE), yield 3.25%. GE continues to progress towards regaining stature as an industrial stalwart, and a highly-respected dividend payer, after the 2008 dividend cut and fall from grace.

None of my stocks reported earnings last week, and only one report is on tap for this week – Darden Restaurants (DRI), on Friday, 6/20/2014, before the open.

Several upgrades / downgrades of note from last week are:

Enerplus (ERF) was downgraded from OutPerform to Sector Perform at RBC Capital Markets.

Medley Capital (MCC) was downgraded from Market OutPerform to Market Perform at JMP Securities.

Smucker J M (SJM) was upgraded from UnderPerform to Market Perform at Wells Fargo.

Waste Management (WM) was initiated at Hold at Deutsche Bank.

Colgate Palmolive (CL) was upgraded from Market Perform to OutPerform at BMO Capital.

Chevron (CVX) was initiated at Buy at Deutsche Bank.

ConocoPhillips (COP) was initiated at Buy at Deutsche Bank.

Exxon Mobil (XOM) was initiated at Hold at Deutsche Bank.

ConocoPhillips (COP) was upgraded from Sector Perform to Sector OutPerform at Howard Weil.

Entergy (ETR) was upgraded from Sell to Neutral at UBS.

Reynolds American (RAI) was upgraded from Neutral to Buy at BAC.

Molson Coors (TAP) was upgraded from UnderPerform to Buy at BAC.

ConocoPhillips (COP) was initiated at Hold at Jeffries.

Greif (GEF, GEF.B) was upgraded from UnderPerform to Buy at BAC.

Intel (INTC) was upgraded from Hold to Buy at Drexel Hamilton.

Intel (INTC) was upgraded from Neutral to Buy at Roth Capital.

Next week will present some notable reads on the state of the Housing Market, on Industrial Production and Capacity Utilization, and CPI, plus it is a Fed meeting week. The most significant happening right now that is affecting the markets is the turmoil in IRAQ, with oil prices hitting multi-year highs last week in reaction. The failure of the Maliki government to reconcile the Sunnis and Kurds with the majority Shiites is now threatening the national government, and recovering Iraqi oil production. So far, a broad-based stock sell-off has not occurred, effectively since 2011. If the geopolitical situation gets much worse, we may finally see the long-awaited stock market correction.

JT

Ho, Hum, another week, another round of new highs on the major indexes. The market has not had a decline of as much as 10% since 2011. One will come along someday, but when, none can say. While the debate rages as to whether stocks are over-valued, or not, one thing is certain – they are definitely more expensive than they have been in several years, at least in most cases. It will be a slow week ahead for ex-dividend dates, and even slower for earnings – none are expected to be announced.

Stocks on my lists going ex-dividend this week are:

06/09/2014 

Triangle Capital (TCAP), yield 8.01%.

06/10/2014 

Medical Properties Trust (MPW), yield 6.04%.

Newmont Mining (NEM), yield .43%. Yes, this one-time 4% yielder now yields a tenth of what it was yielding just a few months ago. The dividend rate is tied to the price of gold, and with the gold price crashing these past months, the stock now pays 2.5 cents per quarter per share.

Seadrill (SDRL), yield 10.16%.

06/12/2014

Coca Cola (KO), yield 2.88%.

Ares Capital (ARCC), yield 8.81%.

Fifth Street Finance (FSC), yield 10.63%.

TICC Capital (TICC), yield 11.84%.

 Last week, Greif (GEF, GEF.B) reported FQ2 EPS of $0.61, missing by seven cents. Revenue of $1.1B, up 0.9% Y/Y, missed by $20M.

 Also reporting last week was J. M. Smucker (SJM), which announced that FQ4 EPS was $1.21, beating by five cents. Revenue of $1.24B, down 7.5% Y/Y, was in-line.

None of my stocks are scheduled to report this week.

There were only a half-dozen or so upgrades / downgrades last week on stocks I follow:

Medley Capital (MCC) was initiated at Buy at MLV & Co.

Enterprise Products Partners LP (EPD) was initiated at Buy at Global Hunter Securities.

MicroSoft (MSFT) was upgraded from Market Perform to OutPerform at FBR Capital.

Entergy (ETR) was upgraded from Market Perform to OutPerform at BMO Capital.

Frontier Communications (FTR) was downgraded from Buy to Hold at Jeffries.

There is not much to add to my observations as reported in recent weeks. Quality stocks are mostly priced for ideal conditions, with yields moving down as prices move up. Business Development Companies (BDCs) are one group that has pulled back recently. In addition to a couple of firms with specific issues, the entire group has declined as a consequence of being removed from the S & P 500 and the Russell 2000 indexes, and this has presented a rare buying opportunity. While the yields are very enticing, and I own a number of these stocks, one has to be aware that these firms will be the first to struggle when the next economic slowdown occurs. Recent buys I have made are Prospect Capital (PSEC), Medley Capital (MCC), Full Circle Capital (FULL), Hercules Technology Growth Capital (HTGC), and PennantPark Investment (PNNT). My approach is to spread my purchases around, so I am not overly affected by any one firm’s missteps, and also to limit the total funds allocated to the group to less than 10% of my portfolio. BDCs are performing well overall in the current environment, and hopefully, the various management teams learned something from the 2008 meltdown, and will avert disaster if things fall apart again. So I am willing to take some risk to have a portion of my portfolio in stocks yielding at or near double-digits, especially when I consider the available alternatives.

JT

Stocks advanced three out of four days in the week after Memorial Day, and managed to post still more new highs on the blue-chip indexes. While the gains have been subdued, and the volatility has been as low as we have seen since 2007, at this point nothing seems to threaten the continuation of the bull market.

The dividends just continue to keep on rolling in on my dividend payers. Ex-dividend dates to be reached this week are as follows, by date:

06/03/2014

Enerplus (ERF), yield 4.80%. ERF pays nine cents Canadian monthly per share. The actual yield varies slightly, per exchange rates.

06/04/2014

Kimberly Clark (KMB), yield 2.99%.

Public Service Enterprise Group (PEG), yield 3.80%.

Pepsico (PEP), yield 2.97%.

Waste Management (WM), yield 3.36%.

Potlatch (PCH), yield 3.49%.

Ventas (VTR), yield 4.34%.

06/05/2014

Westar Energy (WR), 3.88%.

CenturyLink (CTL), yield 5.73%.

Frontier Communications (FTR), yield 6.91%.

Ensco PLC (ESV), yield 5.70%.  

06/06/2014

SCANA (SCG), yield 4.04%.

Reynolds American (RAI), yield 4.49%.

There were only a few new upgrades / downgrades on my stocks last week:

McDonalds (MCD) was initiated at Strong Sell at Standpoint Research.

Wal-Mart (WMT) was also initiated at Strong Sell by Standpoint.

These two ratings had me taking another look to be sure I read it correctly. Usually when coverage is initiated it is because of a positive view of the stock. Even though neither of these blue chips is a bargain at today’s prices, I can think of many other stocks that are more richly valued than these two. Plus, not just a Sell rating, but a Strong Sell. My reaction is Standpoint Research needs to do a bit more research on WMT and MCD.

Waste Management (WM) was initiated at OutPerform at Imperial Capital.  

Calumet Specialty Products Partners LP (CLMT) was initiated at Market Perform at Wells Fargo.

Digital Realty Trust (DLR) was downgraded from Buy to Hold at Cantor Fitzgerald.

Prospect Capital (PSEC) was upgraded from UnderWeight to Equal Weight at Evercore Partners.

ConocoPhillips (COP) was upgraded from Neutral to Buy at Guggenheim Securities.

Pfizer (PFE) was Reinstated at OverWeight at JP Morgan. The upgrade / downgrade categories in some cases continue to amuse me. Reinstated? Had PFE been suspended, perhaps for drug use? Who knows?

Vodafone (VOD) was downgraded from Buy to Hold at Berenberger.

Only one of my stocks will be reporting earnings this week, Greif (GEF, GEF.B) on Wednesday 6/4/2014, after the close. The “B” shares have a higher dividend, but are very thinly traded.

Last week, Seadrill (SDRL) reported Q1 EPS of $6.23, noting this result was not comparable to consensus of $0.67. Revenue of $1.44B, up 14.3% Y/Y, beat by $30M.

As noted in last week’s post, I have added three offshore oil drilling contract firms to my Tier3 high-yield, high-risk group. The three are Ensco PLC (ESV), yielding 5.84%, Transocean (RIG), yielding 7.05%, and Seadrill Limited (SDRL), yielding 10.78%. Concerns about an over-supply of rigs available and cutbacks in exploration by the oil majors has seen this entire sector decline over the past several months, especially the higher-yielding stocks. Some may fear this business segment is going to see a replay of the oil tankers group, where overbuilding led to a collapse of shipping rates, slashing of dividends, and even a few bankruptcies. SDRL especially has been viewed as high risk because of the out-sized dividend. Barclays has recently stated that this group is a collection of value traps, which means that a price decline is not a value to be bought, but rather a pre-cursor to further declines, and thus should be avoided. I will concede this is a high risk group. I have bought in to small positions in all three of these firms, and I mean really small. I believe the demand will be there, and that these firms have the staying power to hang on through tough times, if it comes to that. But my conviction level is not high enough to wager more than a modest amount. Things could go south in a big way for this group, no doubt, if all the bad actors in the world with oil within their borders suddenly make nice, along with new discoveries and technological breakthroughs leading to a collapse in oil prices and slackening demand. Remember, in investing, anything is possible.       

JT

Stocks fell hard on Tuesday of last week, then rebounded on Wednesday, making it all back and more, and eked out modest gains on the other three days of the week. The end result was a positive week for all of the major averages, with the S & P 500 closing above 1900 for the first time, marking a noteworthy milestone, at least symbolically. So, once again, stocks have rebounded from what had looked like a looming correction a little over three weeks ago, notching yet another false alarm.

My dividend payers just keep on paying, thank goodness. Ex-dividend dates to be reached this week are as follows, by date:

05/28/2014

Molson Coors (TAP), yield 2.30%.

Total S A (TOT), yield 4.56%, which is before 30% withholding imposed by France.

Prospect Capital (PSEC), yield 13.12%. PSEC pays monthly. PSEC has taken a tumble lately because of an SEC ruling regarding the firm’s accounting, which may require some re-statements. I saw this as a buying opportunity in a market with very few such opportunities, so I added shares below $10 a few days ago.

Transocean (RIG), yield 7.05%. RIG is a new Tier3 holding.

05/29/2014

McDonalds (MCD), yield 3.18%.

Kellogg (K), yield 2.72%.

NextEra Energy (NEE), yield 3.01%.

Northrop Grumman (NOC), yield 2.33%.

Realty Income (O), yield 5.10%.

Safety Insurance Group (SAFT), yield 4.58%.

As can be seen, with the exception of high-yield higher-risk entities, such as BDCs, quality blue chip dividend payers are struggling to yield as much as 3%. If BDCs, Mortgage REITs, and unproven, new MLPs are too risky for one’s risk threshold, high quality property REITs, such as Realty Income (O), may be a reasonable compromise yield play.  

There were only a few new upgrades / downgrades on my stocks last week:

AT&T (T) was upgraded from Market Perform to OutPerform at Raymond James.

Ensco PLC (ESV) was downgraded from Buy to Hold at Jeffries. ESV is a new addition to my Tier3 list.

Kimberly Clark (KMB) was downgraded from Buy to Hold at Argus.

CenturyLink (CTL) was downgraded from OverWeight to Equal Weight at Morgan Stanley.

General Dynamics (GD) was downgraded from Buy to Hold at Argus.

Digital Realty Trust (DLR) was downgraded from Buy to Hold at MLV & Co.

Vodafone (VOD) was downgraded from something to Neutral at Redburn. The notice did not specify what the rating was prior to the downgrade.

Fifth Street Capital (FSC) was initiated at Hold at MLV & Co.

Gladstone Investment (GAIN) was downgraded from Buy to Neutral at Ladenburg Thalman.

None of my stocks will be reporting earnings this week, other than SDRL, another new Tier3 firm. However, I misspoke when I said the same thing a week ago. One name on my lists did report last week:

Medtronic (MDT) reported Tuesday, May 20^th that FQ4 EPS was $1.12, in-line. Revenue of $4.57B, up 2.5% Y/Y, missed by $10M. MDT now yields under 2%. Further, with the unsettled state of the entire medical arena just now, and the extent of government involvement, I would be leery of any medical firm. Still, for now, I will leave MDT on my Tier2 list.

BDCs have been in the doldrums lately because of a decision by S&P to drop them, as a group, from the S&P 500. Further, it appears they may also be dropped from the Russell 2000 small cap index. There are some buying opportunities in the sector as a result. These stocks will face headwinds for a time, however. Another group, one that I have stayed away from previously, is offshore oil well contract drillers. While most firms in the space pay dividends, yields are not excessive, and volatility has been a concern. I am adding three firms in this category to my Tier3 list, which represents high risk, high yield firms, or firms with outsize gain (or loss) potential. The three are Ensco PLC (ESV), yielding 5.84%, Transocean (RIG), yielding 7.05%, and Seadrill Limited (SDRL), yielding 10.78%. SDRL actually will be reporting earnings on 5/28/2014, before the open. All of these firms’ dividends could be in jeopardy if business conditions deteriorate further in the offshore contract drilling sector. Investor concerns about the earnings and sustainability of the dividends are the reason these firms are “on sale”, which is in turn the reason they have come up on my radar. Like all Tier3 firms, one should start small, tread cautiously, and set a firm limit to one’s total exposure to the fortunes of this business segment, and also to any single company in the sector. Or for that matter, in any sector. I find myself going out on the risk curve further and further these days, as far as new buys, as the yields on “safe” stocks continue to decline. It is not only the low yields, but also the likelihood of sub-par returns overall that discourages me from buying “solid blue chip” stocks at high valuations. As a value investor, I just can’t work up any enthusiasm for buying over-valued stocks, even of great companies.   

JT