Top High Dividend Stocks In 2016

by Robert Hauver
Trying to make sense of this market? Join the club – it’s been a topsy-turvy ride so far in 2016, with the market getting off to its worst start in history, thanks to the December Fed rate hike, and plunging oil prices.
Then, in early February, oil prices bottomed, and the market started coming back. This chart uses the USO oil ETF as a proxy for oil. It’s a pretty good directional correlation between oil and the S&P 500:
TOPDIV-SPCHART
(Chart Source: YahooFinance)

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5 Defensive Utility Dividend Stocks With Institutional Buying

By Robert Hauver

We’re following the big money trail again this week, with an eye toward defensive dividend stocks, which leads us to Utilities. The Utility sector is up over 4% for the past 3 months, second only to the Healthcare sector, which is up nearly 7%. We found 5 dividend paying stocks in the Utilities sector, with increasing institutional buying,  ROE over 5%, and positive EPS growth this year and projected for next year, among other metrics.

HE-ARTNA-INST'LBUY'G

HE: Is in the electric utility and banking businesses, mainly in Hawaii. Strange mix, eh?

ARTNA: Provides water, wastewater, and engineering services in Delaware, Maryland, and PA.

OGE: Offers delivery of and services for electricity and natural gas, including company-owned gas pipelines, in the southwestern US.

VVC: Does natural gas transport and distribution, electric generation and distribution, in addition to coal mining and sales.

BIP: It’s a bit of a misnomer to call BIP a utility, since this is just one part of their many businesses – they also own oil & gas pipelines, port facilities, timberlands, and healthcare facilities. These other parts have helped them achieve higher ROE and EPS growth numbers, which you’ll see in the following tables.

Selected Financials:

We’ve added 3 of these utility stocks to the Utilities section of our High Dividend Stocks By Sector Tables: HE, VVC, and BIP.

BIP is the only stock in this group that exceeds all of the broad sector avgs., due to its diversification into other higher margin businesses. ARTNA’s share count increased nearly 10% from 2007 to 2010 – which accounts somewhat for its lower ROE figures. ARTNA also had heavy capex figures over the past 4 years, which depressed their ROI ratio. (In the heavily regulated water and power utility industries, companies often aren’t able to increase prices and profits quickly enough during major capex programs, hence the firms’ ROI figures lag other sectors, such as Basic Materials.)

All of these firms have reasonable debt loads, vs. sector avgs., and HE, VVS, and BIP have an above-average dividend yield for their sector.

HE-ARTNA-ROE

Valuations: Although utilities aren’t considered a growth sector, by any means, 2 of these stocks actually look undervalued on a next year PEG basis: BIP and HE. Additionally, BIP’s 5-year PEG is only .92. The Price/Book figures for these 2 stocks are also much lower than sector standards, and BIP has a very low Graham P/E x P/Book figure of 4.63.

HE-ARTNA-PEG

Technical Data: OGE, ARTNA, and VVC have very low beta’s, which, in addition to their dividends, attract conservative investors. Performance-wise, only BIP is currently above its 50-day avg., and, with a 61.53 RSI figure, is in the bottom of the very lowest overbought echelon.

HE-ARTNA-PERF

There are covered call and cash secured put options trades available on all of these dividend stocks, except ARTNA.  However, only BIP has relatively attractive options yields, which we’ve listed in our Covered Calls Table and in our Cash Secured Puts Table.

Disclosure: Author is long BIP.

Disclaimer: This article is written for informational purposes only.

A Utility Making The Right Moves – Brookfield Infrastructure Partners

By Robert Hauver

If you’re looking for dividend paying stocks with exposure to overseas infrastructure, AND a high dividend yield, Bermuda-based Brookfield Infrastructure Partners, BIP, may be one of the best stocks to check out.

BIP has the highest dividend in the Utilities section of our High Dividend Stocks by Sector tables.  BIP owns electricity transmission systems, timberlands and social infrastructure in North and South America, the United Kingdom and Australia.

By closing a deal with Australian company, Babcock & Brown Infrastructure, BIP is about to make itself even more attractive by acquiring interests in a broad range of infrastructure projects in more key areas.  These new acquisitions include:  Natural gas pipelines in western Australia, a midwestern U.S. gas pipeline, port concessions in China, a coal terminal in Australia, and other gas and electricity distribution assets in the U.K., New Zealand and elsewhere.

BIP compares quite favorably to its peers in the Electric Utilities industry:

Brookfield Infrastructure Partners Electric Utility Industry Avgs.
Debt/Equity Zero Debt 54.00%
Gross Margin 91.67% 33.48%
P/E 7.63 14.89
Price/Free cash/Share 3.08 18.46
ROA 8.50 2.96
ROI 81.46 3.40

BIP pays a $.265/share dividend quarterly, which is currently a 6.78% dividend yield.

There are also options available for BIP, for those interested in covered calls and covered puts, or cash-secured puts. A possible covered call trade would be to sell the June $17.50 strike, (BIPFW), which has a big bid/ask spread of $.60/$1.60.

Conversely, more skeptical investors might sell the June $15.00 put option, BIPRC, for a 10% yield, ($1.50 bid) , or possibly more, since the ask is at $2.50.

Disclosure: No positions yet.

Disclaimer: This article is written for informational purposes only.