Yield Whores Unite
Just because a stock has an high dividend yield, that does not make it a good value stock.
Sometimes a high yield is a sign of Wall Street disinterest, and that can be a sign of a lower risk value idea. Right now I think yields even as low as 3.5% can be interesting. Yields over 7% are a special case, and are often a sign of distress,
It is very confusing because there are so few utilities with yields over 4%. For the first time in my investment career I am finding value in some of the REIT’s. When interest rates were zero, these REITs were ridiculously priced for a long time.
I own 3 lower risk higher yielding ideas that I am quite comfortable with:
Kinder Morgan - KMI - $27 - 4.4% - This idea has worked well, but has further to run. The FERC is getting out of the way, and there are plenty of pipelines to build. Rate base growth should be stronger than any utility. These are smart guys. This is a back door data center play.
Alexandria Real Estate ARE - $72 - 7.4% - This was a stock I lusted for in my heart (thank you Jimmy Carter) for ten years. I was a little early. ARE dominates the renting of lab space. Half of important drugs of the last ten years came from a lab rented by ARE. Every once in a while it feels good to help society through our investments. They are making plenty of divestitures. The balance sheet is a fortress.
Rayonier - RYN - $26 - 6.0% - Lots of trees, with a 25% residential real estate kicker. Growing trees is a steady cash flow business. Selling the New Zealand assets was a big plus. I have visited the Wildwood and Heartwood properties, and both are impressive residential developments. Lot’s of timber companies have tried, but RYN seems to be succeeding in land development. The Trump win might slow things like carbon capture. Smart new CEO is shareholder oriented.
These are the 3 high yielders I like the best.
REITs and utilities are about 10% of the average mid-cap value portfolio, so I might be a little over-weighted. That is fine.
Sinclair, Nutrien, Halliburton, and Nexstar have yields over 3%, but I do not think of them as yield stocks.
Below are my favorite yield oriented ideas in order:
Scott’s Miracle-Gro - $58 - 4.5% - complete control over small regional gardening stores
Prologis - PLD - $105 - 3.7% - with tariffs, new capacity will be hard to build
Vail Resorts - MTN - $149 - 6.0% - La Nina could mean a snowy winter
Merck - MRK - $81 - 4.0% - great pipeline, but what will Big Donnie and RFK do next?
LyondellBasell - LYB - 11.0% - balance sheet right at the edge, can they sell some assets?
Cubesmart - CUBE - $39 - 5.3% - great operators, getting harder to make acquisitions
Starwood Property - STWD - $20 - 9.7% - will I ever be brave enough, Sternlicht always weaves a great story, Mamdani effect on NY real estate?
LKQ - LKQ - $29 - 4.0% - neat company with significant tariff issues
AES - AES - $13 - 5.3% - the only utility with a yield, but some regulatory issues in solar
Ford - F - $11 - 6.6% - OK I thought about it, now I am moving on
Host Hotels - HST - $15 - 5.9% - high end resorts, maybe some asset value?
United Parcel - UPS - $86 - 7.6% - never that thrilled by management
Verizon - VZ- $43 - 6.3% - I wish the commercial business would be better
Whirlpool - WHR - $84 - I missed the dividend cut, still not inspired, maybe the big tariff winner?
Dow Chemical - DOW - $21 - I missed the dividend cut, still too much housing and auto related sales
There are several others in consumer staples that I covered a few days ago like General Mills or Smuckers.
Not many utilities that even make my list.