Stocks declined three days last week, and gained two, by substantial margins each day. While the end-of-week reading was only a little below the prior week, it was a real see-saw ride getting there. By recent standards, it was a volatile week. This week will end with the closely-watched monthly Jobs Report from the Department of Labor. Things may slow down a bit until Friday, as the market awaits the report.

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

Annaly Capital (NLY), 9/29/2014, yield 10.70%.

Raytheon (RTN), 9/29/2014, yield 2.38%.

Realty Income (O), 9/29/2014, yield 5.30%. O pays monthly.

Cisco (CSCO), 9/30/2014, yield 3.04%.

Sysco (SYY), sometimes referred to as “the other cisco”, 10/1/2014, yield 3.09%.

Kimco Realty (KIM), 10/1/2014, yield 4.09%.

Medtronic (MDT), 10/1/2014, yield 1.93%.

Upgrades / downgrades from last week on my stocks were:

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

Public Service Enterprise Group (PEG) was downgraded from Buy to Hold at Jeffries.

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

Freeport-McMoran (FCX) was downgraded from Strong Buy to Neutral at Tigress International.

Freeport-McMoran (FCX) was initiated at OutPerform at Scotia Bank.

Pan American Silver (PAAS) was downgraded from Buy to Hold at TD Securities.

Freeport-McMoran (FCX) was assumed at Neutral at Credit Suisse. I assume that “assumed” is synonymous with “initiated”.

Medtronic (MDT) was reinstated at Buy at BAC.

Northrop Grumman (NOC) was upgraded from Hold to Buy at Argus.

Statoil (STO) was downgraded from Hold to Sell at Carnegie.

Northrop Grumman (NOC) was upgraded from Hold to Buy at Deutsche Bank.

Paychex (PAYX) reported on 9/24/014 that FQ1 EPS was $0.47, beating by a penny. Revenue of $666.8M, up 8.8% Y/Y, beat by $4.18M. The ever-more-popular payroll processor popped up to even more ridiculous heights after the report, closing Friday at $44.00, bringing the yield down to 3.45%. PAYX is a great company, but the stock is at least 15% over-valued, and is not a buy at these prices.

None of my stocks are due to report this week.

The contract drillers continued to slide last week, reaching new lows. I extended my deep dive into Seadrill (SDRL), buying a little more right at $27. I will add to my positions in Transco (RIG) and Ensco below $30 and $40, respectively, if they continue on down. While I am not a big fan of closed-end funds (CEFs), the news that broke on Friday regarding Bill Gross exiting from Pimco has created a buy opportunity in some Pimco CEFs.  Two I am looking at, as brought to my attention by a Seeking Alpha article from author Morgan Myrmo, are Pimco Dynamic Income (PDI), yielding 7.21%, and Pimco Corporate Income Opportunity (PTY), yielding 9.08%. Two others are Pimco Dynamic Cr Income (PCI), yielding 8.53%, and Pimco Income Strategy II (PFN), yielding 9.31%. While Bill Gross won’t be managing these funds, I’m confident they will be well-managed by his successors, which likely were schooled by Mr. Gross. This is Mr. Myrmo’s take on it, and I agree with him. This a classic example of a market over-reaction to news creating opportunity. And in a market where value opportunities are lacking, when one comes up, it should be taken advantage of.

JT

Stocks started off the week last Monday on a sour note, but then mostly gained after that, to end the week modestly higher. The economic news has mostly come in a little less robust than expected, or at least as desired, as housing seems to be cooling off a bit. The geopolitical news feed has not improved by much, although the defeat of the Yes movement for Scottish Independence was greeted with relief by both the U.S. and European markets.

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

ENI S P A (E), 9/22/2014, yield 6.12%. The upcoming semi-annual dividend will be nearly $1.50 per share. Both the yield and the amount are before withholding of 20% imposed by Italy.

Phillip Morris (PM), 9/23/2014, yield 4.68%.

PennantPark Investment Corporation (PNNT), 9/24/2014, yield 9.90%. BDC’s are the place to be for yield these days. Just don’t expect any gains in the stock price. Also, be prepared for the worst if the economy falters.

MFA Financial (MFA), 9/25/2014, yield 9.78%.

Nucor (NUE), 9/26/2014, yield 2.57%.

National Health Investors (NHI), 9/26/2014, yield 5.15%.

Windstream (WIN), 9/26/2014, yield 8.87%. As noted a few weeks ago, WIN has plans to break up into two companies, one of which will be a REIT, with the combined yields of both companies slated to be less than the present yield. Further, there is nothing in the plan that I can see that will improve the declining economics of the combination.

American Capital Agency (AGNC), 9/26/2014, yield 11.58%.

Although the ex-dividend date for Annaly Capital Management (NLY) won’t be until next week, 9/29/2014, in the interest of completing the circle of upcoming dividends on the mortgage REITs on my Tier3 list, I am reporting on NLY as well. The yield for NLY is currently 10.61%.

All three of the mortgage REITs I follow (NLY, MFA, and AGNC) maintained their dividends at the same level as the prior quarter. Regarding the place to be for high yields, mortgage REITs are higher-yielding than even BDCs. Of course, these creatures of financial legerdemain are considered very risky, possibly even more than BDCs. Yet the high payouts have lasted longer than anyone thought possible a couple of years ago.

The point to be made with all of these high-yielders is to be aware that you are not latching on to a stock that has had (or ever will have) a track record of multiple decades without a dividend miss or reduction, like many blue-chips can offer.

Upgrades / downgrades from the prior week on my stocks were:

Paychex (PAYX) was initiated at UnderPerform at Bernstein.  

Eaton (ETN) was downgraded from Buy to Hold at Stifel.

Emerson Electric (EMR) was initiated at Buy at Stifel.

General Electric (GE) was also initiated at Buy at Stifel.

General Mills was downgraded from Hold to Sell at Societe Generale. Note that neither I, nor more importantly Josh Peters (editor of Morningstar Dividend Investor, my top-rated advisory), concur with the downgrade.

Kellogg (K) was downgraded from Buy to Hold at Societe Generale.

3M Co (MMM) was initiated at Hold at Stifel. MMM is one of the bluest of blue chips, but unfortunately, is priced accordingly.

MicroSoft (MSFT) was resumed at OutPerform at RBC Capital Markets.

Dr Pepper Snapple (DPS) was initiated at Market Perform at Cowen and Co.

Coca Cola (KO) was initiated at Market Perform at Cowen and Co.

Pepsico (PEP) was initiated at OutPerform at Cowen and Co.

Molson Coors (TAP) was initiated at OutPerform at Cowen and Co.

One earnings report from the week before last that I overlooked was Darden Restaurants (DRI), which reported on 9/12/2014 that FQ1 EPS was $0.32, in-line. Revenue of $1.6B, up 4.6% Y/Y, beat by $10M. There is a battle brewing for control of the board as Starboard, a hedge fund, is challenging the existing management. All the while, DRI announced that the dividend will continue at $.55 per quarter for the moment, regardless of the firm’s challenges.

Then, last week saw two more of my stocks report:

General Mills (GIS) reported 0n 9/17/2014 that FQ1 EPS was $0.61, missing by eight cents. Revenue of $4.27B, down 2.3% Y/Y, missed by $110M. These weak results caused a modest drop in the stock following the report.

 ConAgra Foods (CAG) reported FQ1 EPS of $0.39, beating by four cents. Revenue of $3.7B, down 0.5% Y/Y, was in-line with estimates.

The only stock on my lists reporting this week is Paychex (PAYX), before the open on Wednesday 9/24/2014.

I tried my hand at bottom fishing last week, picking up more shares of Seadrill (SDRL) on Thursday, early in the AM, at $30.18. By the end of the day, it appeared that the $30 level was a floor, and that I had been successful. But then on Friday, the stock dropped precipitously, closing at $28.26. The yield is now over 14%. I will allow myself one more incremental purchase if the price approaches $25. While I am underwater on the position at the moment, I will enjoy a nice payout while it lasts. The stock is priced for a collapse in rates for the firm’s huge drilling platforms, and a concurrent collapse in the company’s revenues. Anything is possible, and it will probably get worse before it gets better, but I still think the market has over-reacted here. If you don’t own SDRL at this point, I recommend buying some now, near $28, and keeping some dry powder available to buy more if it approaches $25. As for my earlier advice to nibble when it was in the mid-thirties, I can only quote Will Rogers, the famed humorist, also from Oklahoma: “buy a stock, then when it goes up, sell it. If it don’t go up, don’t buy it”. Or more accurately phrasing the message of the last sentence of the quote to reflect the lesson, “if it don’t go up, don’t have bought it”.

JT  

Stocks declined more than they advanced last week, as evidenced by the two most-watched blue chip averages closing below the recently achieved notable milestones. Specifically, rounding to whole numbers, the Dow Jones Industrials closed at 16988, below the 17000 threshold, and the S & P 500 average closed at 1986, below the milestone 2000 level. There has not been any single, over-riding factor to account for the decline. It seems to be more of a cumulative effect of the continuing drumbeat of geopolitical bad news, combined with a sense of unease that our political leadership is not up to the challenges our nation faces – too busy golfing and fund raising.  

Stocks on my lists going ex-dividend this next week of September, by date, are as follows:

9/16/2014

Solar Capital (SLRC), yield 7.95%.

Medical Properties Trust (MPW), yield 6.39%.

9/17/2014

Gladstone Investment (GAIN), yield 9.44%. GAIN pays monthly.

Greif (GEF,GEF.B), yield 3.48% (GEF) and 4.85% (GEF.B). As noted, Greif has two classes of dividend-paying stocks. I prefer the higher yielding B shares. Note that they are very thinly traded, and limit orders should be used in trading them.

Blackrock Kelso (BKCC), yield 8.99%.

Main Street Capital (MAIN), yield 6.27%. MAIN pays monthly.

9/18/2014

Total SA (TOT), yield 5.05%. Note that the quoted yield is before 30% withholding by France

General Electric (GE), yield 3.38%.

The volume of upgrades / downgrades picked up a little last week. Stocks on my lists receiving attention are as follows:

Linn Energy LLC (LINE) was initiated at OutPerform at Credit Suisse.

Newmont Mining (NEM) was upgraded from Market Perform to OutPerform at Cowen.

ConocoPhillips (COP) was upgraded from UnderPerform to Neutral at BAC.

Chevron (CVX) was downgraded from Neutral to UnderPerform at BAC.

Enterprise Products Partners LP (EPD) was initiated at OutPerform at BMO Capital.

Kinder Morgan Energy Partners LP (KMP) was initiated at Market Perform at BMO Capital.

ONEOK Partners LP (OKS) was initiated at Market Perform at BMO Capital.

Spectra Energy Partners LP (SEP) was initiated at OutPerform at BMO Capital.

Sysco (SYY) was initiated at Market Perform at BMO Capital.

Molson Coors (TAP) was downgraded from Buy to Neutral at BTIG Research.

Total S A (TOT) was upgraded from UnderPerform to Neutral at BAC.

Unilever (UL) was upgraded from Neutral to Buy at BTIG Research.

Williams Partners LP (WPZ) was initiated at Market Perform at BMO Capital.

Digital Realty (DLR) was initiated at Hold at Stifel Nicolaus.

MicroSoft (MSFT) was resumed at Buy at MKM Partners.

Fifth Street Finance (FSC) was initiated at Buy at Wunderlich.

Medtronic (MDT) was initiated at Neutral at Sterne Agee.

Washington Real Estate Investment Trust (WRE) was initiated at Equal Weight at Capstone. Oops, WRE is not on my lists at the moment. It is, however, a stock that I own. It is probably solid enough to be on my Tier2 list, and certainly my Tier3 list. I will probably add it on my next revamp.

While none of my stocks reported earnings last week, two are scheduled to report next week. The “out of phase” firms with reporting cycles at variance from the usual quarterly “earnings season” timing are:

General Mills (GIS), to report before the open on 9/17/2014.

ConAgra Foods (CAG), to report before the open on 9/18/2014.

Buys I made last week, all at my lowest allowable volume increment, reflecting my caution, were:

Conoco Phillips (COP) at $79.75.

Seadrill (SDRL) at $33.95. SDRL later on dropped below $31.00 a couple of days later. Arghh!

Phillip Morris (PM) at $83.75. Ex-dividend upcoming, 9/23/2014. 

American Capital Agency (AGNC) at $22.95. Ex-dividend expected towards the end of this month.

Ventas (VTR) at $61.10. The catalyst moving me to action was a $3.00 or so price drop on Friday, apparently in sympathy with a similar drop experienced by Health Care REIT (HCN), which issued shares Friday. The only tie here is both firms are medical facility REITs.

None of these was a compelling buy opportunity that could not be passed up, though VTR was close. When I have too much cash, often I will buy (just a small quantity) a stock that is approaching an ex-dividend date, even though the price is above my buy level. My reasoning, faulty though it may be, is that if I have to over-pay, at least pick something that pays me back just a little relatively soon. On the other hand, when the “blood is running in the streets”, as the old market saying goes, and stocks are crashing, I focus on buy levels alone, and mostly ignore ex-dividend dates.

JT

Stocks ended the week slightly higher than they began it, after four lackluster trading days. Even with an avalanche of economic data, including a disappointing monthly Payrolls report, stocks did not really react much. It seemed like an extension of August. 

Stocks on my lists going ex-dividend this second week of September, by date, are as follows:

9/08/2014

SCANA (SCG), yield 4.02%.

Reynolds American (RAI), yield 4.55%.

Triangle Capital (TCAP), yield 7.83%.

9/09/2014

Newmont Mining (NEM), yield .39%. Note that dividend of NEM is pegged to gold prices.

9/10/2014

Ventas (VTR), yield 4.39%.

9/11/2014

Coca Cola (KO), yield 2.92%.

Merck (MRK), yield 2.88%.

Altria (MO), yield 4.79%.

Dr Pepper Snapple (DPS), yield 2.64%.

Digital Realty (DLR), yield 4.97%.

Ares Capital (ARCC), yield 8.91%.

Fifth Street Finance (FSC), yield 11.16%, FSC pays monthly.

Frontier Communications (FTR), yield 6.00%.

9/12/2014

Potlatch (PCH), yield 3.26%.

TICC Capital (TICC), yield 11.92%.

Upgrades / downgrades on my stocks from last week were as follows:

Northrop Grumman (NOC) was upgraded from Sector Perform to OutPerform at RBC Capital.

Freeport-McMoran (FCX) was downgraded from OverWeight to Equal Weight at Morgan Stanley.

Frontier Communications (FTR) was downgraded from Equal Weight to UnderWeight at Morgan Stanley.

Greif (GEF, GEF.B) was initiated at Market Perform at BMO Capital.

National Health Investors (NHI) was initiated at Neutral at Mizuho Securities.

Emerson Electric (EMR) was initiated at Neutral at Buckingham Research.

None of my stocks reported earnings last week. Only one firm is due to report this week, Darden Restaurants (DRI), before the open on Friday 9/12/2014. While DRI yields 4.58% currently, it is reasonable to be concerned about the sustainability of that yield, considering the challenges of the crowded, underperforming “formula” restaurant sector. This week will see if there has been any improvement. My view is that the answer is, “not likely”.

Stocks remain elevated in most sectors. About the only bargains available are in the stressed offshore exploration contractors group. Of stocks on my lists, that would be Transocean (RIG), yield 7.98%, Ensco PLC (ESV), yield 6.32%, and Seadrill (SDRL), yield a whopping 11.51%. Most Business Development Companies (BDCs) are also quite cheap, and mostly for cause. These firms could be hit hard by an economic slowdown and/or rising interest rates. Now is a time to sit tight and wait for better entry points on quality names.

JT

Stocks gained four out of five days last week, but the gains were modest. Still, the Dow Industrials index managed to stay above 17000, and the S & P 500 index broke above 2000 for the first time ever, and managed to close above that level on Friday. Volume was minimal, as it seemed only the machines were trading with each other, all the humans being away on vacation. Things will pick up this week, with several notable economic reports due, culminating with the monthly Department of Labor Payrolls report on Friday.

Stocks on my lists going ex-dividend the first week of September, by date, are as follows:

9/03/2014

Kimberly Clark (KMB), yield 3.11%.

Public Service Enterprise Group (PEG), yield 3.96%.

Pepsico (PEP), yield 2.83%.

9/04/2014

Breitburn Energy Partners LP (BBEP), yield 8.78%.

Ensco PLC (ESV), yield 5.94%.

Seadrill LTD (SDRL), yield 10.74%.

9/05/2014

Westar Energy (WR), yield 3.79%.

Upgrades / downgrades were sparse last week, with most analysts apparently on vacation, but here are a few that I came across on my stocks:

Coca Cola (KO) was initiated at OverWeight at Brasil Plural.

Pfizer (PFE) was initiated at Buy at Deutsche Bank.

Waste Management (WM) was upgraded from Hold to Buy at Stifel.

Safety Insurance Group (SAFT) was initiated at Buy at Compass Point.

None of the stocks on my lists are scheduled to report this week. Three of my stocks reported last week:

Prospect Capital (PSEC) reported on 8/25/2014 that FQ4 EPS was $0.25, missing by seven cents. Revenue of $182.84M, up 9.8% Y/Y, missed by $30.9M.

Greif (GEF, GEF.B) reported on 8/27/2014 that FQ3 EPS was $0.21, missing by sixty-three cents. Revenue of $1.16B, up 2.7% Y/Y, missed by $10M. Greif has dropped nearly eight dollars since early July on concerns about leverage and growth limitations, and those concerns were amplified as the firm issued reduced guidance earlier in the week.

Seadrill (SDRL) reported on 8/27/2014 that Q2 EPS was $1.24, beating by fifty cents. Revenue of $1.22B, down -3.9% Y/Y, missed by $60M. The deep-water drilling contractor has been hit in recent months by spending cutbacks by major oil companies. The stock is down over ten dollars from the levels reached in November 2013, as investors conclude the +10% yielding dividend is at risk.

The “Dog Days of August” are finally over. The market should be a little more active this week.

Both Greif (GEF, GEF.B) and Seadrill (SDRL) are approaching attractive valuation levels, and both have declined for understandable reasons, as noted. I added to my position in SDRL last week, and if the Greif ‘B’ shares drop below $50, I will initiate a new position in Greif, selecting the higher-yielding ‘B’ shares. Note that the GEF.B shares are very thinly traded, so limit orders should be used if trading them. I’m willing to include higher-yielding, higher risk stocks in my portfolio in my quest for better returns. If an investor wants to limit risk to the minimum, go with stocks like Colgate Palmolive (CL) or 3M Co (MMM), the bluest of blue chips, with yields barely holding above 2%, and prices in the stratosphere, reflecting their popularity.     

JT

Since I am now posting only once a week, it is much more convenient for me to post on Sunday night instead of Monday morning, so I will be following that script most weeks from now on. As for next week, I will either skip posting entirely, or delay by an extra day, since I will be traveling and not able to post per my normal schedule.

Stocks gained four out of five days last week, and even with a dip on Friday, the venerable Dow Industrials index managed to close above 17000 on the week, reaching that level for the first time this week since July 24^th. We have not seen the S & P 500 close above 2000 yet, but it is getting close. Several stocks on my lists that were not too extended as the mini-correction was under way have long since moved back out of range, so for the first time in a while I made no buys or sells all week.

Stocks on my lists going ex-dividend the last week of August, by date, are as follows:

8/27/2014

NextEra Energy (NEE), yield 2.97%.

Molson Coors (TAP), yield 2.00%.

Prospect Capital (PSEC), yield 12.15%. The BDC pays a monthly dividend.

CenturyLink (CTL), yield 5.29%. I own CTL, and I sold a $35 October call against the shares some time ago. With CTL well above $40, it was obviously not a good move. This illustrates the major downside of the strategy. I suspect I’ll never see this dividend. It will likely be called away before the ex-dividend date.

8/28/2014

McDonald’s (MCD), yield 3.43%.

Kellogg (K), yield 3.05%.

Northrop Grumman (NOC), yield 2.19%.

Realty Income (O), yield 4.86%. The “monthly dividend company” pays accordingly.

Safety Insurance Group (SAFT), yield 5.11%.

A couple of my stocks reported last week:

Medtronic (MDT) reported on Tuesday 8/19/2014 that FQ1 EPS was $0.93, beating by a penny. Revenue of $4.27B, up 4.7% Y/Y, beat by $20M.

J. M. Smucker (SJM) reported on Wednesday 8/20/2014 that FQ1 EPS was $1.34, missing by three cents. Revenue of $1.32B, down 2.2% Y/Y, missed by $50M.

With SJM and MDT sporting yields of 2.53% and 1.92%, respectively, I ask myself, as a dividend-focused investor, why are they on my lists? They, along with several others, will likely be dropped when I do my next purge. At this time, I’m not sure when that will be, but no stock is going to reach my recommended buy-under price with a yield under 3%.

Stocks on my list scheduled to report this week are:

Prospect Capital (PSEC), 8/25/2014, after the close. PSEC is a week delayed from the date given a week earlier by E*Trade’s web site.

Roche Holdings LTD (RHHBY), 8/25/2014, per E*Trade’s web site. But the RHHBY web site says the “half-year” report was issued by the Swiss Pharmaceutical firm on 7/24/2014. One drawback of investing in foreign firms is they generally provide less information, as well as less-regularly, than U.S. firms. The “half-year” report, per the firm’s web site, stated that RHHBY posted a “solid sales performance”, with the HER2 franchise up +20%, Avastin up +6%, and Professional Diagnostics up +9%. Core EPS growth was up 7%, and operating free cash flow was up 11%. With an annual dividend providing a yield of barely 3%, I’m wondering if RHHBY is worth the effort to keep up with it.

Moving on, Seadrill (SDRL) will report on 8/27/2014, before the open, while Grief (GEF, GEF.B) will report on that date also, after the close.

The “dog days of August” are certainly upon us here in Austin, with temperatures routinely up to triple digits (degrees Fahrenheit). The market seems over-heated as well, as stocks continue to climb the proverbial “wall of worry”, with national and international events providing plenty for market participants to worry about. There will be an extended sell off somewhere along the way, but who can say when? Until then, I will watch and wait. If a Warren Buffet “fat pitch” (defined as an outstanding investment opportunity) should come along, I will take a swing. Until then, I’ll just be an observer.  

JT