 | MARKET CONDITIONS The short-term gyrations of the market are equally unpredictable. Two weeks ago, it looked like we might be bombing Syria. Now, it looks like that won't happen but it could be a different story next week. Aside from the whole Syria situation, there is a strong possibility of a Fed taper later this month, and of course there will be budget negotiations over the debt limit, which always seem to go badly. |
Pundits on TV try endlessly to predict exactly what will happen next. They’ll obsess over the markets potential to zig or possibly zag in the coming hours or days and they’ll often scare the wits out of some investors in the process.
Here’s another prediction, however, that you can count on. Not only will most of the prognostications prove wrong in their assertions, but investors who react in knee-jerk fashion to them will lose out in the long run.
The lesson is, don’t play the short-term gyrations. Instead, bet on the undeniable long-term trends. In other words, putting $5 on what the temperature will be tomorrow is a roll of the dice. But taking that same $5 and betting that it’ll be generally cooler in December than it is now in September is a winning proposition.
The best course of action for us as investors is to expect virtually anything in the near term. But more importantly, don't worry about it. Don't let these TV pundits get you in a tizzy, because there are good reasons to expect that stocks will trend higher over the next year or two and beyond. Forget next week and focus on growing wealth over the longer term.
Speaking of the next year, there are two picks among our High Income holdings that look very timely right now for those focused on that 12-month time-frame and beyond.
Brookfield Infrastructure Partners (BIP): This partnership currently pays a 4.8% yield. But the payout has a strong history of growth. In fact, it's up over 10% in the past year alone. And the best part is, there are strong reasons to expect the growth to continue.
BIP invests in infrastructure assets all over the world. Or as the company states, it “operates high quality, long-life assets that generate stable cash flows, require relatively minimal maintenance capital expenditures and, by virtue of barriers to entry and other characteristics, tend to appreciate in value over time.”
The company owns a wide array of defense-oriented reliable assets, including railroad in Australia, toll roads in South America, and utilities in seaports in Europe. The company has done a stellar job of managing these assets. Recently it sold its timberland stakes in North America, while the housing market seemed hot, and purchased an additional $490 million of toll roads in Brazil.
BIP now owns 31% of Brazilian company Ateris, which controls over 3,200 km of roads that account for approximately 65% of Brazil's GDP and nearly two-thirds of the 70 million vehicles that travel on Brazilian roads. These tolls have increased over 10% in the last year alone.
Basically, BIP offers just about everything a long term oriented income investor could want; a high yield, solid growth potential, international diversification and a defense business model that is not economically sensitive.
The stock is also relatively cheap right now selling at 8.8 times forward earnings, compared to about 15 times for the S&P 500, and significantly lower price/sales and price/cash flow than its 5-year average (a period over which the stock generated an average annual return of 19.6%).
Philip Morris International (PM): Philip Morris and its former parent Altria (MO) are among the most reliable dividend growers on the market. PM just recently raised its quarterly payout from $0.85 per share to $0.94, a 10% increase. The dividend is payable on Oct. 11 to shareholders of record on Sept. 26.
The higher dividend gives the stock a yield of 4.4%. The dividend is well supported, as the company has a very manageable payout ratio of 65%. In addition, management is projecting 2013 earnings to grow at about 7% year-over-year.
But PM has been having a hard time lately. Last quarter's earnings came in below expectations. Earnings are being hit with several headwinds: the weaker global economy, a strengthening U.S. dollar amidst the taper talk, and a slew of new excise taxes and regulations from foreign governments.
But the time to buy a company like this is when things are going badly. The company has shown an uncanny ability to tango on through anything and continue to grow earnings and the dividend. The five-year average annual return has been 12.34% compared to 8.85% for the S&P. PM is also currently selling at a lower price/earnings ratio than the overall market.
Those are just two stocks that are currently at, near or under my recommended “buy” prices as of yesterday’s close. The others are:
Here’s another prediction, however, that you can count on. Not only will most of the prognostications prove wrong in their assertions, but investors who react in knee-jerk fashion to them will lose out in the long run.
The lesson is, don’t play the short-term gyrations. Instead, bet on the undeniable long-term trends. In other words, putting $5 on what the temperature will be tomorrow is a roll of the dice. But taking that same $5 and betting that it’ll be generally cooler in December than it is now in September is a winning proposition.
The best course of action for us as investors is to expect virtually anything in the near term. But more importantly, don't worry about it. Don't let these TV pundits get you in a tizzy, because there are good reasons to expect that stocks will trend higher over the next year or two and beyond. Forget next week and focus on growing wealth over the longer term.
Speaking of the next year, there are two picks among our High Income holdings that look very timely right now for those focused on that 12-month time-frame and beyond.
Brookfield Infrastructure Partners (BIP): This partnership currently pays a 4.8% yield. But the payout has a strong history of growth. In fact, it's up over 10% in the past year alone. And the best part is, there are strong reasons to expect the growth to continue.
BIP invests in infrastructure assets all over the world. Or as the company states, it “operates high quality, long-life assets that generate stable cash flows, require relatively minimal maintenance capital expenditures and, by virtue of barriers to entry and other characteristics, tend to appreciate in value over time.”
The company owns a wide array of defense-oriented reliable assets, including railroad in Australia, toll roads in South America, and utilities in seaports in Europe. The company has done a stellar job of managing these assets. Recently it sold its timberland stakes in North America, while the housing market seemed hot, and purchased an additional $490 million of toll roads in Brazil.
BIP now owns 31% of Brazilian company Ateris, which controls over 3,200 km of roads that account for approximately 65% of Brazil's GDP and nearly two-thirds of the 70 million vehicles that travel on Brazilian roads. These tolls have increased over 10% in the last year alone.
Basically, BIP offers just about everything a long term oriented income investor could want; a high yield, solid growth potential, international diversification and a defense business model that is not economically sensitive.
The stock is also relatively cheap right now selling at 8.8 times forward earnings, compared to about 15 times for the S&P 500, and significantly lower price/sales and price/cash flow than its 5-year average (a period over which the stock generated an average annual return of 19.6%).
Philip Morris International (PM): Philip Morris and its former parent Altria (MO) are among the most reliable dividend growers on the market. PM just recently raised its quarterly payout from $0.85 per share to $0.94, a 10% increase. The dividend is payable on Oct. 11 to shareholders of record on Sept. 26.
The higher dividend gives the stock a yield of 4.4%. The dividend is well supported, as the company has a very manageable payout ratio of 65%. In addition, management is projecting 2013 earnings to grow at about 7% year-over-year.
But PM has been having a hard time lately. Last quarter's earnings came in below expectations. Earnings are being hit with several headwinds: the weaker global economy, a strengthening U.S. dollar amidst the taper talk, and a slew of new excise taxes and regulations from foreign governments.
But the time to buy a company like this is when things are going badly. The company has shown an uncanny ability to tango on through anything and continue to grow earnings and the dividend. The five-year average annual return has been 12.34% compared to 8.85% for the S&P. PM is also currently selling at a lower price/earnings ratio than the overall market.
Those are just two stocks that are currently at, near or under my recommended “buy” prices as of yesterday’s close. The others are:
- In the High Income Portfolio: Navios Maritime Partners (NMM), Terra Nitrogen (TNH), Legacy Reserves LP (LGCY), Fly Leasing Limited (FLY), Prospect Capital (PSEC), and Main Street Capital (MAIN);
- In the Wealth Builder Portfolio: Eli Lilly (LLY), Williams Partners (WPZ), Intel (INTC), Riocan REIT (REI-UN.TO), General Mills (GIS), Kinder Morgan Energy Partners (KMP),and Health Care REIT (HCN);
- In the Income Strategies Portfolio, Blackrock Enhanced Capital Fund (CII).
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