JT’s DAILY (WEEKLY as of 12/9/2013) BLOG for Month Of June 2016
Note: All previous month's posts are available in the archives, as noted above.
All postings for the month are available here, sorted in descending order - i.e. most recent at the top.
1st Posting for Week Beginning Monday 06/27/2016
Posted Sunday 06/26/2016 9:00 AM
The summer doldrums ended abruptly last week, compliments of “Brexit”, the UK referendum on whether to stay in or exit the European Union. A major rally ensued on Thursday, prior to the vote, as polls indicated the “stays” were leading. But then Friday, as the shocking results ended up in favor of the “leaves”, markets worldwide crashed, including US stocks. The Dow Industrials average ended up dropping over 600 points on Friday, a significant one-day decline, even for the 18000 Dow Jones Industrials stock average.
Amidst the turmoil, my dividend payers continue to pay their shareholders. Stocks on my lists going ex-dividend this week are as follows, listed by date, with annualized yield as indicated:
National Health Investors (NHI), 5.05%.
American Capital Agency (AGNC), 12.44%. AGNC pays monthly.
Stag Industrial (STAG), 6.04%. STAG also pays monthly.
Windstream (WIN), 6.43%.
Prospect Capital (PSEC), 12.72%. This BDC pays monthly.
Annaly Capital (NLY), 11.15%.
Nucor (NUE), 2.97%.
Main Street Capital (MAIN), 6.57%. MAIN pays monthly.
Realty Income (O), 3.71%. O also pays monthly.
Sysco (SYY), 2.47%.
General Dynamics (GD), 2.17%.
Kimco Realty (KIM), 3.43%.
Raytheon (RTN), 2.17%.
Cisco Systems (CSCO), 3.56%. CSCO is listed with this week’s group since it must be owned by end-of-day Friday (7/1/2016) to receive the dividend, because of the July 4th holiday.
Four of my stocks are scheduled to report next week. General Mills (GIS) will report on Wednesday 6/29/2016, followed by Paychex (PAYX), ConAgra (CAG), and Darden Restaurants (DRI) on Thursday, 6/30/2016.
Upgrades/downgrades coming out last week on stocks I follow were:
Sysco (SYY) was initiated at Neutral at BofA/Merrill.
Archrock Partners LP (APLP) was upgraded from Neutral to Buy at Goldman, and from Equal Weight to OverWeight at Capital One.
Crestwood Equity Partners LP (CEQP) was re-instated at UnderWeight at Barclays.
Statoil (STO) was downgraded to Sell at Deutsche Bank.
CenturyLink (CTL) was initiated at Hold at Evercore ISI.
McDonalds (MCD) was downgraded from Buy to Neutral at Nomura.
HCP Inc (HCP) was downgraded from Equal Weight to UnderWeight at Morgan Stanley.
Welltower (HCN) was downgraded from OverWeight to Equal Weight at Morgan Stanley.
Wal-Mart Stores (WMT) was resumed at Buy at Nomura.
Darden Restaurants (DRI) was upgraded from Neutral to Buy at Tigress Financial.
AT&T (T) was downgraded from Buy to Neutral at Buckingham Research.
The question for the week ahead is whether the “Brexit” sell off will continue, or if the markets (in the US at least) will begin to recover. I don’t think anyone expects a quick rebound. Probably the best that can be expected is continued volatility, but only a minimal additional decline, followed by a long, slow recovery, lasting months. Some, possibly even a few besides the “perma-bears”, are predicting the sell off is not yet done, that one day was not enough to get it over with. Those in this camp expect high volatility and more selling, with stocks going down quite a bit further before stabilizing in a week or two, if then.
As far as making any moves, I once again sold all of my Realty Income (O) that I had bought back just a month ago, after selling out of my O position barely a month earlier, that I had owned for a couple of years. That initial sale was for a $20 per share gain, reflecting the over-valuation of O at that time, at $60.45. O then declined after I sold, briefly, to just below $59, where I bought back in. O then advanced again to the mid-sixties, and actually rose Friday even as most stocks were tanking, to more than $66. I had to take advantage of this quick advance of more than $7 in less than a month, so I sold again. O is probably the most popular stock in a popular sector (property REITs), as evidenced by the price. It is a great REIT, but a $7 gain is equivalent to 35 monthly dividends expected over the next three years. I had to take it, as much as I hate to part with my O shares. My approach is that I don’t start out looking to make a trade, I buy value, yield, and safety for the long term. But when the market gives you a gift, I believe you should take it.
1st Posting for Week Beginning Monday 06/20/2016
Posted Sunday 06/19/2016 6:00 PM
Stocks lost ground overall last week, but not by a lot, with no really big moves on any day of the week. Crude oil declined slightly after breaking $50 the prior week. The big winner for the week was gold, which ended the week above $1300 for the first time in a long while. The summer doldrums are here, with very little happening in the markets right now.
The number of stocks on my lists going ex-dividend this week is minimal:
Solar Capital (SLRC), 6/21/2016, yield 8.47%.
Enerplus (ERF), 6/24/2016, yield 1.60%. ERF pays monthly, .01 CAN, which converts to .0077 US.
MFA finance (MFA), 6/24/2016, yield 11.03%.
Annaly Capital (NLY), 6/28/2016, yield 11.27%.
Windstream Holdings (WIN), 6/28/2016, 6.59%.
To fill out the list, I had to borrow a couple of stocks from next week’s list.
As for earnings, none of my stocks are scheduled to report this week.
Continuing with the theme of a minimal report this week, there were only a few upgrades/downgrades coming out on stocks I follow:
Ensco PLC (ESV) was upgraded from Hold to Accumulate at Johnson Rice.
Vodafone (VOD) was downgraded from OutPerform to Neutral at Macquarie.
Altria (MO) was initiated at Buy at Berenberg.
Reynolds American (RAI) was initiated at Hold at Berenberg.
Magellan Midstream Partners LP (MMP) was initiated at Buy at Seaport Global.
Annaly Capital (NLY) was downgraded from Neutral to Sell at Compass Point.
MFA Financial (MFA) was downgraded from Buy to Sell at Compass Point.
Plains All American Pipeline LP (PAA) was initiated at Neutral at Sun Trust Robinson Humphrey.
Cisco Systems (CSCO) was downgraded from Buy to Neutral at Goldman.
Procter & Gamble (PG) was initiated at Buy at Jeffries.
SCANA (SCG) was downgraded to UnderWeight at Morgan Stanley.
Philip Morris (PM) was upgraded from Neutral to OverWeight at JP Morgan.
The most pressing issue on the economic front currently is summed up in one new term – Brexit, which stands for a Britain exit from the European Union. The country will vote on this June 23. If the “leaves”, prevail, the consequences are unknown, with some leaders predicting disaster, while proponents admit it will be rough at first, but say Britain will be better off in the long run. The truth is, no one really knows, and that’s what affects markets more than anything – uncertainty. As for US stocks, most quality names are over-valued by most conventional measures, oil prices have topped out, and gold is not the bargain it has been, reaching levels last seen in January 2014. Mortgage REITs are selling off, BDCs are viewed as doomed, the terrific buys in energy stocks have evaporated, and the list goes on and on – there is just nothing to buy right now. Hold cash and await better opportunities to deploy capital.
Note that I will not be posting next week, as I will be "on vacation". My next post will be the weekend of July 9 - 10, at which time I will update happenings related to stocks I follow that occurred since this posting.
1st Posting for Week Beginning Monday 06/13/2016
Posted Sunday 06/12/2016 3:00 PM
Stocks mostly just churned in place last week, ending up Friday about where they began the previous Monday. The summer doldrums seems to have arrived, accompanied by the first really hot days here in Austin. With the presidential primaries over and the NBA finals threatening to end early, there is not much to get excited about at the moment. The chorus of doomsayers grows louder each day, with predictions of recession, financial collapse, the end of the dollar, the U.S. and of the Western democracies being imminent. While there are definitely reasons for concern regarding the approaching endgame for the monetary experiments being performed by the worldwide monetary authorities, the collapse isn’t likely to happen next week, I don’t think. So the search for yield continues, and for now, it can only be found with dividend-paying stocks.
Which brings me to my next topic, stocks on my lists going ex-dividend next week. The subject stocks are listed as follows by date, with annualized yield as of Friday’s closing price indicated:
Digital Realty (DLR), 3.42%.
Fifth Street Financial (FSC), 14.40%. FSC pays monthly. Like most BDCs, the yield is elevated because of the share price decline, as fears of recession lead investors to abandon these entities, which by their nature lend to or take equity positions in weaker economic firms. That is the rationale for the tax advantages of BDCs – so they will provide capital for smaller, riskier economic players.
Frontier Communications (FTR), 8.20%. FTR, a rural telecom, has survived and paid out dividends far longer than most thought possible, but the ever-present question remains – for how much longer?
Ares Capital (ARCC), 10.43%. Another BDC, one of the largest and strongest, but still suspect – after all, it is a BDC.
Coca Cola (KO), 3.06%. Seemingly on a path of secular decline as sugary carbonated drinks continue to be condemned, KO seems more and more like a tobacco stock. But people world-wide will be having a Coke and a smile for long after I’m gone, so I’m keeping my KO shares.
Merck (MRK), 3.22%. A prominent member of the hated “big pharma” clique, MRK and friends will continue to do well as long as the U.S. government doesn’t run out of money and their lobbyists continue to wield influence. I actually prefer GSK, with a yield exceeding 5%.
Altria (MO), 3.43%. The prime tobacco stock. Holders have been rewarded with a huge price run-up the last three years. Certainly the demise of the group has not occurred, as yet. With the long-term prospects no better than ever, I would sell now if I owned it. A 3% yield is not enough to entice me to own a tobacco stock, even in a yield-starved world.
Washington Real Estate (WRE), 3.90%. REITs are looking very good these days, as far as safety and yield are concerned. But a REIT yielding less than 5% is not a REIT I would be interested in buying.
TICC Capital (TICC), 20.24%. Another BDC, which in this case is believed to be on very shaky ground. If this one survives and continues to pay out at the current rate for at least another couple of years, it could be a great speculation.
Medical Properties Trust (MPW), 6.09%. This hospital operator REIT has paid me steadily since 2007. Definitely a keeper.
Crown Castle International (CCI), 3.75%. This REIT specializes in wireless infrastructure. It was much more enticing before the price increased enough to put the yield under 4%.
Gladstone Investment (GAIN), 10.61%. Another BDC. GAIN is definitely not a blue chip, but it has paid a steady monthly dividend for many years.
BlackRock Capital (BKCC), 10.71%. Formerly BlackRock Kelso, BKCC is yet another high-yield high-risk BDC, which accounts for the 10% yield.
Main Street Capital (MAIN), 6.58%. I consider MAIN to be probably the strongest BDC. MAIN also frequently pays extra dividends as things go well, in addition to the generous regular monthly dividend.
PennantPark Investment (PNNT), 16.77%. As you might have guessed, PPNT is another BDC.
Greif (GEF), 4.13%. I bought GEF recently for $26.65, collected one dividend, then sold at $34.25. I should have bought more than I did initially, then just kept it. GEF will be affected, no doubt, if the predicted recession hits, but it will be a survivor.
General Electric (GE), 3.04%. My largest position. Definitely rehabilitated as the foremost US. Industrial stock. The mid-fifties share price of the early 2000’s will not be seen anytime soon, however, as that was a product of the role played by GE Finance at that time. It was great while it lasted, but not when the financial bubble popped in 2008.
Apollo Investment (AINV), 14.55%. I have owned this beaten-down BDC since before 2008. It just keeps on paying me, but for how much longer, I can’t say.
Last week’s scheduled earnings reports from Greif (GEF) and JM Smucker (SJM) came out as scheduled. For details, see the firm’s press releases, articles on the mainstream financial media, brokerage compilations, or my preferred resource, Seeking Alpha.
None of my stocks are scheduled to report this week.
Upgrades / downgrades out last week on my stocks were as follows:
Enerplus (ERF) was upgraded from Neutral to OutPerform at Macquarie, and was assumed at OutPerform at Raymond James.
Wal-Mart Stores (WMT) was upgraded from Hold to Buy at Jeffries. I bought WMT under $60 not that long ago, as the pundits were saying the retailing giant was on the decline. I suspected that it was premature to count the 800 LB retailing gorilla out, and the latest earnings report from WMT has confirmed that I was right. WMT is currently over $70.
General Electric (GE) was initiated at Market Perform at Cowen.
Public Service Enterprise Group (PEG) was downgraded from Neutral to UnderPerform at BofA/Merrill.
Royal Dutch Shell (RDS.B) was upgraded from Hold to Buy at Evercore ISI.
ONEOK Partners LP (OKS) was downgraded from Buy to Hold at Jeffries.
Medtronic (MDT) was initiated at Neutral at Guggenheim.
Greif (GEF) was downgraded from OutPerform to Market Perform at BMO Capital.
Amerigas Partners LP (APU) was downgraded from Neutral to Sell at UBS. I noted that UBS also downgraded two other propane distributors, so the downgrade was more of a dim view of the future of the propane business outlook, rather than any company-specific problems with APU.
Alliant Energy (LNT) was downgraded from OverWeight to Equal Weight at Barclays.
JM Smucker (SJM) was downgraded from Buy to Hold at Jeffries.
I don’t have much to say that I haven’t already said at the conclusion of my last several postings. Investors are desperately searching for yield with quality, and the result is firms perceived to have both have been bid up to the point where the yields are lacking. Meanwhile, firms with dividends perceived to be at risk, such as BDCs, have been sold off to such an extent that their yields are tremendous, into double digits in many cases. These are tempting, but one must understand the risks before diving in. If a severe downturn materializes, these dividends will likely be cut or eliminated, and some of these firms may not make it to the “other side”, just like Linn Energy LLC (LINE) and Breitburn Energy Partners LP (BBEP) did not make it through the oil price collapse, as the modest recovery we have just seen came too late. I’m holding on to my quality names, and also holding on to BDCs I have had for a long time, but I’m not buying more. Mostly, I am in a holding pattern, awaiting better buying opportunities. Cash earns nothing, but it doesn’t go bankrupt, which makes it a better holding than shares in a company going down the drain.
1st Posting for Week Beginning Monday 06/06/2016
Posted Sunday 06/05/2016 6:00 PM
Stocks ended the month of May on Tuesday of last week, finishing about where they began the month, then followed suite the first three days of June, also ending about where they began the new month. An unexpected drop in new jobs was presented to investors on Friday, as the monthly employment survey from the Department of Labor disappointed all observers. Surprise, surprise, the news has likely stalled the Fed’s march (crawl?) towards interest rate “normalcy”. Another hike in June had been anticipated, before the Friday bombshell.
Meanwhile, dividends continue to be paid by most stocks on my lists. Ex-dividend dates coming up next week are as follows, by date:
Triangle Capital (TCAP), yield 9.49%.
Potlatch (PCH), yield 4.34%.
Newmont Mining (NEM), yield 0.31%. NEM is obviously not a dividend stock. It was recommended as a play on a gold price recovery, which has worked well. Now is a good time to sell, as NEM is at a three-year high.
Public Service Enterprise Group (PEG), yield 3.66%.
Westar Energy (WR), yield 2.70%. WR jumped up over $3 Tuesday, as it was announced that Great Plains Energy (GXP) would be acquiring WR. The stock was overpriced even before the announcement. If you own WR, sell, as in “take the money and run”. If you don’t own it, stay away.
Reynolds American (RAI), yield 3.37%.
SCANA (SCG), yield 3.28%.
Vodafone (VOD), yield 4.97%. This is the first of two dividends expected this year, as VOD pays semi-annually. I bought it at $33.55 Thursday, not a screaming bargain, but reasonable. The yield is 4.97%.
Kimberly Clark (KMB), yield 2.88%.
Dr Pepper Snapple (DPS), yield 2.30%.
I missed Kraft Heinz (KHC) from last week, which went ex-dividend on 5/25/2016. With a yield of 2.71%, I would have passed on KHC regardless.
The only stock on my lists reporting last week was Medtronic, which posted stellar numbers on 5/31/2016. FY2016 revenues were up 42%, while FY2016 earnings were up 32%. The Obamacare medical device tax doesn’t seem to have impacted MDT much. A dividend boost is likely soon, but with a current yield of only 1.83%, it will be awhile before MDT’s yield excites anyone.
As for the week coming up, only two of my stocks are scheduled to report; Greif (GEF) on 6/8/2016, and JM Smucker (SJM) on 6/9/2016.
Upgrades / downgrades out last week on my stocks were as follows:
Statoil (STO) was downgraded from Sector Perform to UnderPerform at RBC Capital Markets.
Spectra Energy Partners LP (SEP) was initiated at Buy at Stifel.
Westar Energy (WR) was downgraded from Buy to Hold at Gabelli & Co, and from Buy to Neutral at Mizuho.
Newmont Mining (NEM) was downgraded from Buy to Hold at Jeffries.
Exxon Mobil (XOM) was downgraded from Buy to Neutral at BofA/Merrill.
Norfolk Southern (NSC) was initiated at UnderWeight at Morgan Stanley.
The recession talk is in the air once again, as the dramatically disappointing employment report has exposed the labor market problems that were hidden by the headline numbers. Even with a headline 4.7% unemployment rate, no one is fooled, with the accompanying drop in the labor participation now recognized as the reason for the low rate. If you don’t count all those working-age people who have given up ever finding a decent job, it isn’t too hard to generate a 4.7% unemployment rate. It’s a lot like firms that report earnings “pro forma”, which usually indicate much better performance than GAAP earnings. Pro forma earnings are sometimes referred to as earnings calculated “ignoring all the bad stuff”. The market may be setting up for a summer swoon. Considering the dearth of attractive buys available just now, a pull-back in stock prices wouldn’t be such a bad thing. That assumes, of course, that it doesn’t pull back too far or stay down too long. At any rate, the advice remains the same – conserve cash and await better entry points.
1st Posting for Week Beginning Tuesday 05/31/2016
Posted Monday 05/30/2016 11:30 AM
Stocks posted gains on all the major averages last week, as substantial rallies on Tuesday and Wednesday outweighed minor declines on Monday and Thursday, and Friday ended quietly with a modest advance. The crude oil WTI benchmark held steady just below $50, a level which appears to be presenting resistance to further advances.
Stocks on my lists going ex-dividend this week are as follows, by date:
Waste Management (WM), yield 2.68%.
Pepsico (PEP), yield 2.95%.
Total S A (TOT), yield 5.52%. Note that the yield is before foreign tax withholding of 30%.
Ensco (ESV), yield 0.42%. A quarterly dividend of one cent per share seems like it is not worth the bother, but it keeps the dividend mechanics in working order in case things improve enough to see the dividend increased later on.
McDonalds (MCD), yield 2.88%.
Northrop Grumman (NOC), yield 1.68%.
Iron Mountain (IRM), yield 5.27%.
Ventas (VTR), yield 4.42%.
Molson Coors (TAP), yield 1.65%.
I can’t help but notice that the yields on most stocks are woefully anemic. A 3% yield is high these days for anything other than a REIT, BDC, Telecom, or highly-stressed firm with a dim outlook, at least as far as the market is concerned. Iron Mountain (IRM) is an example, as the firm’s bread-and-butter business, document storage and destruction, is seen as a no-growth business, with revenues declining. My take is that the company will be around for a long while, as the “paperless” office has yet to become the norm. Plus, the firm is expanding aggressively into the IT data center business, although a minus is the debt it is taking on to fund that effort.
The only stock on my lists reporting last week was Tier4 (stocks no longer recommended) holding Seadrill (SDRL), a one-time high dividend payer now just trying to survive. As per the report, the company is doing about all that can be done to ride out the oil price collapse. It remains to be seen whether it will be enough. For details, see the firm’s press releases, articles on the mainstream financial media, brokerage compilations, or my preferred resource, Seeking Alpha.
As for the week upcoming, the only firm on my lists scheduled to report is Medtronic (MDT), on 5/31/2016. MDT is a highly-regarded stock, as evidenced by the minimal yield of 1.87%. At one time, I usually dropped firms from my lists yielding less than 3%, and certainly any yielding less than 2%. I may yet give up on several one-time decent payers, as it seems more and more likely that they will never again sport a respectable yield, but for now I will just keep the lists “as is”.
Upgrades / downgrades out last week on my stocks were as follows:
Energy Transfer Partners LP (ETP) was upgraded to Buy at Goldman.
Fifth Street Finance (FSC) was downgraded from Buy to Hold at Maxim Group.
General Mills (GIS) was downgraded from Neutral to Sell at Goldman. Apparently the analysts at Goldman are not fond of Cheerios.
Medical Properties Trust (MPW) was initiated at Buy at Sun Trust Bank.
Statoil (STO) was downgraded from Buy to Hold at HSBC Securities.
Smucker J M Co (SJM) was initiated at Sector Weight at KeyBanc Capital Markets.
McDonalds (MCD) was assumed at Market Perform at Bernstein.
Amerigas Partners LP (APU) was assumed at Buy at Janney Capital.
Darden Restaurants (DRI) was initiated at Market Perform at Bernstein.
The week ahead should be a quiet one for stocks, as we move into the summer. The news cycles will most likely be dominated by politics, as the final primaries occur. In fact, the news will remain dominated by politics for a long time, as we next have the conventions, followed by the general election. It looks to be an “interesting” time. As for investing, now is a good time to lay low and conserve cash, awaiting better opportunities, which some say may be coming soon.