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This Takeover Candidate Offers High Yield and High Growth

Investors looking for high yield and high growth stocks should consider NTELOS Holdings Corp (NTLS) as a possible portfolio addition.  For income, the stock boasts a healthy 8.95% dividend yield.   For growth, earnings per share are projected to grow 29%next year compared to the current year.  This is a combination that can create significant upside for the stock price.  In addition, there is considerable speculation that NTELOS may be acquired by a larger telecom provider.

First Call consensus has NTELOS earning $1.32 per share in 2014 which is an increase of 29% from its 2013 EPS.  The EPS growth will better support the current dividend payout ratio.  Investors can wait for a pullback to add new shares since NTLS shares are up 30% in the past three months due to talk of a takeover.

AT&T Inc.’s (T) deal to grab Leap Wireless for$1.2 billion in cash continues the U.S. wireless consolidation race and has Wall Street looking at other possible targets.  NTELOS is a name being mentioned as having attractive spectrum. The company is small, with just 451,000 total subscribers at the end of March and a market value of$360 million. By comparison, Verizon Wireless has more than 90 million contract customers.

Despite its size, NTELOS has connections to bigger players including a wholesale deal to provide Sprint (S) service in West Virginia and western Virginia.  It is also working with Dish Network Corp. (DISH) to co-develop a fixed-mobile broadband-service within its coverage territory.

Once completed, the service is expected to give NTELOS and Dish customers access to high-speed Internet, a service that is especially lacking in some of the rural areas NTELOS covers.  The agreement comes as Dish has been working to plug a significant hole in the services it provides, it can’t offer high-speed Internet competitive with cable providers.

NTELOS Holdings Corp., a leading regional provider of nationwide wireless voice and data communications and home to the “best value in wireless,” recently announced it will be added to the Russell Microcap® Index, effective at the close of the market on June 28, 2013.

NTELOS Holdings Corp., operating through its subsidiaries as “nTelos Wireless,” is headquartered in Waynesboro, VA, and provides high-speed, dependable nationwide voice and data coverage for approximately 451,000 retail subscribers based in Virginia, West Virginia and portions of Maryland, North Carolina, Pennsylvania, Ohio and Kentucky. The Company’s licensed territories have a total population of approximately 7.9 million residents, of which its wireless network covers approximately 6.0 million residents. The Company is also the exclusive wholesale provider of wireless digital PCS services to Sprint Nextel in the Company’s western Virginia and West Virginia service area for all Sprint CDMA wireless customers.

mREIT Update – High Yield and a Special Dividend

Investors have long been attracted to the high yields of mortgage REITs, which currently averages around 13 percent, nearly 7 times the average dividend yield of the S&P 500. The Fed’s announcement has caused drops in spreads, bond yields and homeowner’s borrowing costs, and as a result company’s earnings and dividends have been under pressure.

This will have a big impact on reinvestment for mREITs with low prepay protection.  November’s prepayment report showed a decline in overall prepayment speeds, but lower coupon speeds increased in the month. We continue to favor the mortgage REITs with prepay protected portfolios as they will have more stable cash flows from lower reinvestment needs. AGNC, AMTG, ARR, IVR, MTGE, and TWO have the lowest and most stable prepays in the sector.

Prepayment speeds on 30-year conventional speeds decreased 8% in November from the prior month, which was generally in line with expectations. Speeds on 3.5s rebounded potentially attributable to accelerated closing ahead of g-fee increases, rate relocks post September QE3 rally and closing delays due to Super Storm Sandy. The increase in 15-year speeds was in line with expectations.

The mortgage REITs are currently at a 7% discount to estimated fourth quarter book value and yielding 13.2%. Agency-only mortgage REITs are trading at a 7% discount to the hybrid peers.

While we continue to prefer the flexibility that hybrids have to invest across the entire mortgage universe, we see the Agency-only REITs offering better relative value today given the valuation discount. Trading at a discount to book value AGNC is our top pick; CYS and ARR also provide attractive relative value given current discounts to book.

The Board of Directors of CYS Investments, Inc. (CYS) declared a quarterly dividend of $0.40 per share of common stock for the fourth quarter of 2012, as well as a special dividend of $0.52 per share of common stock. The Company is making the special dividend to distribute the remaining REIT taxable income earned during 2012. These dividends will be paid on December 28, 2012 to common stock stockholders of record on December 21, 2012.  The company currently pays an annual dividend of$1.60 per share for a yield of around 12.3%.  CYS is trading at 87% of estimated book value.

American Capital Agency Corporation (AGNC) pays an annual dividend of five dollars per share for a yield of around 16.2%. The company invests in residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by government-sponsored entities or by the United States government agency.  AGNC is trading at 95% of estimated book value.  American Capital Agency Corp. announced that its Board of Directors has authorized the repurchase of up to $500 million of its outstanding shares of common stock through December 31, 2013.

ARMOUR Residential REIT (ARR) invests primarily in residential mortgage backed securities issued or guaranteed by a United States Government-chartered entity, such as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, or guaranteed by the Government National Mortgage Administration, a United States Government corporation (Ginnie Mae). The company currently pays an annual dividend of$1.08 per share for a yield of around 15.5%.  ARR is trading at 91% of estimated book value.

High Yield Dividend Stocks Gaining in a Down Market

U.S. stocks fell on Thursday and could be in line for more weakness as worries about Washington’s ability to find a timely solution to the “fiscal cliff” dominate investor thinking in coming weeks.

The S&P 500 dropped for a second day and closed below its 200-day moving average for the first time in five months.  The moving average is a measure of the market’s long-term trend, and a significant breakthrough that level would be seen as a sign of weakness. Just minutes before the closing bell, stocks accelerated their declines and the S&P 500 fell more than 1 percent.

Since reaching a 52-week closing high of 1,465.77 on Sept. 14, the S&P 500 has dropped 6 percent. On Wednesday, a day after Democratic President Barack Obama defeated Republican Mitt Romney in the U.S. election, the benchmark S&P 500 dropped more than 2 percent for its biggest one-day percentage decline since June 1.

The post election market selloff is based on perceived changes in fiscal policy.  While many investors are concerned about changes to dividend and capital gains, the best bet is to continue to look for long-term investments.

The list below shows the best performing dividend stocks over the past 5 trading days that are considered buys or better by First Call analyst consensus.  All of these stocks have a dividend yield of 3% or higher with a 5-day price performance of 4.85% or better.  Highlights include:

Telular Corporation (WRLS), a global leader in helping businesses use wireless networks for remote monitoring and tracking, announced revenue was up 24% year-over-year to $13.1 million in the fourth quarter and up 18% to$48.4 million for the full year.

Ryanair Holdings Plc (RYAOF) increased fiscal Q2 profit 23% and raised its forecast for full-year earnings, Bloomberg reports.

Questcor Pharmaceuticals (QCOR) reported Q3 earnings of $0.97 per share, versus the Capital IQ consensus of $0.76. Revenues were $140.3 million, versus the analyst estimate of $128.99 million.  In the same period last year, the company reported EPS of $0.37 on revenues of $59.8 million.

Mission West Properties, Inc. (MSW) announced that it has entered into two agreements to dispose of all of its real estate assets for an enterprise value of approximately $1.3 billion, which was unanimously approved by its Board of Directors.  Following completion of these transactions, Mission West intends to liquidate after satisfying outstanding debts, applicable taxes and related transaction costs. Mission West currently estimates these transactions will result in a distribution to stockholders (and the O.P. unit holders that elect to redeem their O.P. units) in the range of $9.20 to $9.28 per share in cash, although the amount ultimately distributed to stockholders may be below this range.

High Yield Dividend Stocks Gaining in a Down Market

Company Name Symbol Security Price Dividend Yield Price Performance (5   Days) First Call Consensus Recommendation
TELULAR CORP
$10.67 4.57% 9.60% Buy (1.7)
RYANAIR HOLDINGS PLC
$35.49 6.19% 9.12% Buy (2.0)
QUESTCOR PHARMACEUTICALS INC.
$25.20 3.09% 8.70% Buy (2.1)
ADVOCAT INC
$5.50 4.00% 8.70% Buy (2.0)
MISSION WEST PROPERTIES INC.
$8.90 5.85% 7.63% Buy (2.3)
LAWSON PRODUCTS INC
$8.90 5.60% 7.13% Buy (2.0)
ERIE INDEMNITY COMPANY
$66.58 3.33% 5.22% Buy (2.0)
CINEMARK HOLDINGS INC
$26.09 3.20% 5.21% Buy (2.1)
OILTANKING PARTNERS LP
$36.73 4.11% 5.03% Buy (2.4)
MAIDEN HOLDINGS LTD
$8.73 4.14% 4.85% Buy (1.8)

 

American Capital Agency is Still a Safe High Yield Stock

High Yielding REITs have benefited from the steady recovery of the U.S. housing market in 2012.  A recent AP article stated that through June of this year real estate funds have gained $2.9 billion in new cash from investors, while a majority of other stock fund groups have seen investors pull out. The recent strength of REITs combined with their high yields have made them attractive targets for investors as interests rates and bond yields are near record lows.

Positive data supporting the U.S. housing market’s recovery continues to roll in. Data from FHFA showed that U.S. home prices rose for the fourth consecutive month with a 0.8 percent increase in May. Real-estate firm Zillow also recently put out a report showing home prices in the second quarter increased from the year-ago period for the first time in five years.  American Capital Agency (NASDAQ:AGNC) is one of the REITs performing near its highs for 2012.

American Capital, both directly and through its asset management business, originates, underwrites and manages investments in middle market private equity, leveraged finance, real estate and structured products. American Capital reported comprehensive income and net loss for the second quarter of 2012 of$480 million and $(261) million, respectively, or $1.58 and $(0.88) per common share, respectively, and net book value of $29.41 per common share.  Economic return, defined as dividends on common shares, plus the change in net book value per common share, for the period was $1.60 per common share, or 22% on an annualized basis.

Book Value: AGNC’s book value increased by 1% in the quarter to $29.41; this was at the upper end of the previous guidance. We expect book value to have benefited from quarter-to-date outperformance of specified pools in the third quarter.

Investment Portfolio: The investment portfolio totaled $77.9 billion at quarter-end; $5.1 billion (6%) lower than our estimate and average earning assets less than expected by a similar magnitude. Management indicated that they rotated the portfolio into prepayment protected securities (lower loan balances and HARP bonds) given the move lower in rates. We believe this rebalancing will position the portfolio to perform in the current rate environment. Leverage was 7.5x at quarter-end, down 0.8x from last quarter, below expected by a similar magnitude.

Prepayments: AGNC’s prepayments remained benign in the second quarter with the CPRs on the portfolio unchanged at 10%; the July speeds decreased to 8%. Due to the continued move lower in interest rates AGNC increased its lifetime prepayment assumptions to 12% from 9%. Management indicated that this resulted in a ‘catch-up’ premium amortization cost of $0.11/share that negatively impacted net income compared to a $0.12/share benefit last quarter.

Net Interest Spread: The net interest spread was 1.65% (1.83% excluding the CPR change) for the quarter, 37 bps lower than expected as a result of lower asset yields as the company moved down in coupon and higher cost of funds from a higher hedge ratio. At quarter end the net spread was 1.62%, 45 bps lower than March 31 from the decline in average coupon as the company shifted portfolio composition.

Hedging: During the second quarter AGNC increased the percentage of repos swapped to 71% from 52% last quarter. AGNC extended (up by 0.4 years) the duration of the swaps to 4.3 years. The company has an additional 13% of its repos hedged through swaptions to help protect book value in an up interest rate environment. The combination of swaps and swaptions covered 83% of repos, 13% higher than last quarter.

Undistributed Earnings: Undistributed taxable income totaled $492 million ($1.61/share) at quarter-end, a $0.33 per share increase from the last quarter given a $108 million increase in undistributed income.

Bottom line:  American Capital is still a great high yield stock with a current dividend yield of 14.27%.  It has an equity summary score of 8.9 out of 10 for a BULLISH outlook.  American Capital has a target price of $36 which is a 15% premium to book value.

This 12% Dividend Yield is Still a Buy

Crexus Investment Corp. (CXS) operates as a specialty finance company in the United States. It acquires, manages, and finances commercial mortgage loans and commercial real estate debts, commercial mortgage-backed securities, and other commercial real estate-related assets.  The principal business objective is to provide attractive risk-adjusted returns to investors over the long-term, primarily through dividends and secondarily through capital appreciation.

CXS is trading at $11.21 and has a market cap of $865 million.  CXS raised their quarterly dividend from $0.30 to $0.35 in the 4th quarter, an increase of
16.7%.  CXS has a dividend yield of 12.49% that should remain solid in the near future.  CXS has increased its dividend for 8 straight quarters – from $0.07 in Q1 2010 to the current $0.35 in Q4 2011, a 400% increase within 2 years.

CXS reported fourth quarter core EPS of $0.49, $0.05 higher than the estimate. A larger than expected discount accretion accounted for the difference versus the estimate. GAAP EPS were $0.55 including $0.06 of gains from selling the Agency MBS portfolio.

Estimates: We are maintaining our 2012 and 2013 core EPS estimates and establishing a 2014 estimate at $1.35. Near-term visibility into earnings remains low given the volatility around discount accretion, but visibility should increase as the portfolio transition continues.

Investment activity: Crexus completed $143 million of investments during the fourth quarter including its first 2 triple net lease investments for a total
of $33 million. The company continues to make progress in transitioning the portfolio into longer duration higher yielding assets. We will look for management commentary on the call about the 2012 outlook for capital deployment given the sale of Agency portfolio and the current $200 million cash balance.

Revenues: Core net revenues totaled $41.4 million, 10% higher than the estimate.  For the fourth quarter discount accretion on the loan portfolio was $28.8 million versus $21.0 million expected and $30.9 million in the third quarter which accounted for most of the beat relative to estimates.

Valuation: Crexus is trading at a 6% discount to current book value and yielding 12.49%.

Reiterate Outperform: The transformation of the portfolio into higher yielding assets combined with the start of the triple net leasing investments increases our conviction that Crexus should trade at a premium to book value.  The current price to book is 0.94, buy CXS when it is below 1.0 and sell when it moves above 1.5.

7 Energy Stocks with Buy Ratings

The Energy Sector comprises companies whose businesses are dominated by either of the following activities: The construction or provision of oil rigs, drilling equipment and other energy related service and equipment, including seismic data collection. Companies engaged in the exploration, production, marketing, refining and/or transportation of oil and gas products, coal and other consumable fuels.  This screen looks at the highest yielding unit trust securities in the energy sector.  These stocks are rated 4 or 5 stars by Standard & Poor’s meaning they are classified as buys or strong buys. The latest S&P research notes are shown below.

Energy Transfer Partners LP (EPT) – After reviewing our earnings model, we lower our ’12 earnings per unit estimate to $2.64 from $3.20, reflecting the sale of its propane operations. On January 12, ETP announced that it had closed on the sale of propane operations to AmeriGas Partners, L.P. (APU 44, Hold) for approximately $2.85 billion. We view the transaction positively as it should enable ETP to focus on its natural gas liquids services. We keep our target price of $53, based on an expected yield of 6.9% on our forward distributions projection, higher than the peer average.

Regency Energy Partners LP (RGP) – After reviewing our earnings model, we keep our Q4 ’11 and full-year ’11 earnings per unit estimates of $0.24 and $0.63, respectively. We view positive RGP’s efforts to expand its natural gas liquids footprint. RGP plans to invest $630 million-$680 million in capex in ’12, vs. $373 million in ’11. We keep our ’12 earnings per unit estimate of $0.99 and initiate ’13’s at $1.01. Due to a recent rise in peer valuation multiples, we lift our target price by $2, to $29, based on our target yield of 6.6% on estimated 12-month forward distributions, higher than its peers.

Crestwood Midstream Partners LP (CMLP) – Ahead of Q4 earnings expected on February 25, we lower our Q4 earnings per unit estimate to $0.34
from $0.39 and our ’11 earnings per unit estimate to $1.10 from $1.15, based on lower gathering volumes. We maintain our ’12 earnings per unit forecast of
$1.68. CMLP declared a Q4 cash distribution of $0.49, 14% higher than a year earlier. We believe that CMLP will increase its cash distributions 8% to $2.02
in ’12. We keep our 12-month target price of $32, based on expected yield of 6.3% on our forward annualized distribution estimate, higher than the peer average.

Buckeye Partners LP (BPL) – Ahead of Q4 results scheduled for Feb 10, we maintain our Q4 earnings per unit estimate of $0.94, vs. adjusted $0.66. We keep our ’11 and ’12 earnings per unit forecasts of $3.37 and $3.75. In ’12, we expect BPL to raise its cash distribution by 4.1% to $4.24 per unit. We are encouraged by BPL’s efforts to increase waterborne refined products going into New York Harbor in order to replace volumes lost from expected refinery closures in the Northeast. We keep our target price of $75, based on a target yield of 5.6% on our forward cash distribution, below the peer average.

Kinder Morgan Energy Partners LP (KMP) – KMP posts an adjusted Q4 earnings per unit of $0.55, vs. $0.46, above our $0.51 estimate, reflecting better than expected earnings at its natural gas pipelines and CO2 pipelines segments. In ’12, we see KMP benefiting from strong growth at its products pipelines and natural gas pipelines segments. We keep our ’12 earnings per unit estimate of $2.34 and introduce our ’13 estimate of $2.51. We increase our target price to $99 from $96, based on a revised target yield of 5.0% on our estimated forward distributions, below its peer average.

Plains All American Pipeline LP (PAA) – The proposed acquisition of Canadian NGL and LPG assets from BP plc (BP 43, Hold) for $1.67B is expected
to boost PAA’s ’12 distribution payout 8%-9% ($3.98 currently). Also, PAA has entered or completed 4 other deals for a total of $620M, focused on South Texas oil. Separately, and before acquisitions, PAA sees Q4 EBITDA exceeding guidance of $410M by 10%-15%, and we lift our ’11 earnings per unit forecast $0.22 to $4.90. Based on a target yield of 5.4%, in line with peers, and a ’12 distribution growth target of 4%-5% before acquisitions, we up our target price
by $3 to $76.

Enterprise Products Partners LP (EPD) – EPD posts Q4 earnings of $0.82, vs. $0.33, above our $0.56 estimate, reflecting better than expected
results at its natural gas liquids pipeline and services segment. Q4 cash distributions rose 5.1% to $0.62 per unit. We forecast cash distributions
increasing 6.0% to $2.58 per unit this year. In ’12, we see EPD gaining from strong NGL demand. We keep our ’12 earnings per unit estimate at $2.24, and
increase our 12-month target price to $59 from $54, based on an expected yield of 4.4% on our forward distribution forecast, lower than its peer average, on
strong NGL fundamentals.

Click to enlarge

 

 

Monthly Dividend Stocks Beating the S&P 500

Comparison of monthly dividend stocks and ETFs to the S&P 500

Click to enlarge

While dividend income is the hot item these days as the yield on fixed income investments is lower than income investors are seeking.  However, you do not want to give up some total return just to lock in a dividend.  The yield on the S&P 500 is only 2% and the price return has been 1% over the last year.  This creates a total return of 3% on the S&P 500. You should use this as the baseline for your income investments.  You can easily find monthly dividend stocks and ETFs that can beat the S&P 500 to make you even more money than just the monthly dividend.

Here are three monthly dividend stocks that have beaten the S&P 500 over the past year: (1) CRT, (2) MAIN and (3) UTG. The chart above shows the stock price returns compared to the S&P 500 over the past year.

Cross Timber Royalty Trust (CRT) is currently trading at $46.50. It has a 1-year price return of 24.05% compared to 1% for the S&P 500. CRT has a current dividend yield of 6.43% paid as a monthly dividend. CRT has a total return (1-year price return and dividend yield) of 30.48%. This is 8 times more profitable than the S&P 500. This is clear evidence that monthly dividend stocks can provide significant income investment returns beating the S&P 500.

CRT Company Profile: Cross Timbers Royalty Trust (Trust) is an express trust. The Trust is a widely held fixed investment trust (WHFIT). The Company entered into Cross Timbers Royalty Trust Indenture between predecessors of XTO Energy Inc. (XTO Energy), as grantors, and NCNB Texas National Bank, as trustee. As of December 31, 2010, Bank of America, N.A. is the trustee of the trust. Approximately 20 of the underlying royalty interests in the San Juan Basin burden working interests in properties operated by XTO Energy. XTO Energy also operates the Penwell Unit, which is the properties underlying the Texas 75% net profits interests and ExxonMobil operates the Hewitt Unit, which is the properties underlying the Oklahoma 75% net profits interests. Other than these properties, XTO Energy and ExxonMobil do not operate or control any of the underlying properties or related working interests.

Main Street Capital (MAIN) is currently trading at $17.50. MAIN has a 1-year price return of 13.77% compared to 1% for the S&P 500. MAIN has a current dividend yield of 8.64% paid as a monthly dividend. MAIN has a total return (1-year price return and dividend yield) of 22.41%. This is 7.5 times more profitable than the S&P 500. Again, this is another monthly dividend stock significantly beating the S&P 500.

MAIN Company Profile: Main Street Capital Corporation (MSCC) is a principal investment firm focused on providing customized financing solutions to lower middle-market companies with annual revenues between $10 million and $100 million. The Company was formed for the purpose of acquiring 100% of the equity interests of Main Street Mezzanine Fund, LP (MSMF) and its general partner, Main Street Mezzanine Management, LLC (MSMF GP); acquiring 100% of the equity interests of Main Street Capital Partners, LLC (the Investment Manager); raising capital in an initial public offering (IPO), which was completed in October 2007, and thereafter operating as an internally managed business development company (BDC). MSMF is licensed as a Small Business Investment Company (SBIC) by the United States Small Business Administration (SBA) and the Investment Manager acts as MSMF’s manager and investment adviser. The Company invests primarily in secured debt instruments, equity investments, warrants and other securities.

Reaves Utility Income Fund (UTG) is currently trading at $25.08. UTG has a 1-year price return of 14.09% compared to 1% for the S&P 500. UTG has a current dividend yield of 6.0% paid as a monthly dividend. UTG has a total return (1-year price return and dividend yield) of 20.09%. This is 6.7 times more profitable than the S&P 500. Again, this is another monthly dividend stock significantly beating the S&P 500.

UTG Company Profile: Reaves Utility Income Fund (the Fund) is a non-diversified closed-end investment Company. The Find’s investment objective is to provide a high level of after-tax income and total return consisting primarily of tax-advantaged dividend income and capital appreciation. The Fund may invest a portion of its assets in foreign securities. In the event that the Fund executes a foreign security transaction, the Fund will enter into a forward foreign currency contract to settle the foreign security transaction. It focuses to invest at least 80% of its total assets in dividend-paying common and preferred stocks and debt instruments of companies within the utility industry. The remaining 20% of its assets may be invested in other securities, including stocks, money market instruments and debt instruments, as well as certain derivative instruments in the utility industry or other industries.

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