July 6th, 2009

Aiming for Dividends + Appreciation with REITs and Pipelines

Hope everyone had a wonderful 4th of July weekend holiday. I know we did because it was probably the first weekend without rain in about 3 months and, this morning, the sun’s shinning, the sky’s blue …. how bad could life be?

And then, of course, there’s the stock market. The correction everyone expected back in May and early June (see “Is it déjà vu or something new“) seems to have finally arrived:

“We’re now stuck with the toughest question in stock market investing/trading – when should you sell? Accepting the proposition of a 10% market correction to around 800-810, what should we do with stocks we now own?…..More importantly, the question you should ask yourself is whether there are strong, compelling reasons to not sell a stock……

As a general rule, I would say that market direction and momentum rules; if the market is starting to trend down, you should sell nearly everything…. Because you think it’s a good company, pays a good dividend, you already own it and believe it will come back or because Cramer just mentioned it on his show are not good enough reasons to continue holding a stock……

I know this sounds extremely conservative, some might even call it pessimistic. But I’m actually quite optimistic. I, like many others, have been waiting on the sidelines and are anxious to jump in with both feet. There are reports of huge amounts in money market accounts waiting for just that opportunity.”

Those who claim to see an emerging right shoulder to a h-and-s top and those who see it in an inverted h-and-s bottom (see “Half-Full or Half-Empty Views: A Head and Shoulder Market Top?“) are both going to be right. It’ll be a long, trying summer fending off the shouts of the bears claiming vindication in their warnings back in April of a “suckers’ rally. Also, the naysayers will harkening back to the notion that the economy is following the 1930’s Depression-style market pattern.

What most gives me agita are claims that the end to the era of living off of asset price appreciation has arrived. No more counting on your house appreciation for retirement, no more for selling hand-me-downs and junk on eBay for exorbitant prices and …. here comes the bad news ….. no more 15-20% per year appreciation in your portfolio. Just look at the volatility in prices for individual stocks in the July-March period vs. the volatility for those same stocks since March. The left shoulder of the inverted head-and-shoulders last November might have been 25% (from 980 to 750) but I’ll bet that the right shoulder will be between 10-15% due merely because of less volatility.

So what’s the strategy? Adding dividends to the total return calculation. While I, for one, would rather catch a stock’s 10-20% move up than collect $.25 in quarterly dividends off a $40 stock, having both dividend and price appreciation is like having your cake and eating it too (beating the birthday theme to death). So begins the quest for high dividends with price appreciation potential.

And what better place to begin the search than with REITs, natural gas pipelines and utilities. Many of these stocks have been beaten down in this Crash so their dividend yields are quite good; if the economy does show any signs of bottoming out, then the risk of dividend cuts at this late stage in the recession should also be reduced. Up the upside, many of the stocks are in the late stages forming excellent reversal patterns similar to the patterns of stocks included on the spreadsheet lists posted here earlier (like the stocks with bullish perfect moving average alignments). A spreadsheet list of 37 candidates (including dividend yield and volatility as indicated by Telechart) is available by clicking here. Examples include:

  • REITs
    • SUI (Sun Communities)
    • NLY (Annaly Cap Mortgage)
    • MFA (MFA Financial)
  • Pipelines
    • BWP (Broadwalk Pipeline)
    • MMLP (Martin Midstream Partners)
    • TPP (Teppco Partners)

Life might get less exciting but, just perhaps, we’ll wind up at the same bottom line.

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  • Anonymous

    eem still has a good chart..so I am stick with it until it broken