All posts by Tim Plaehn

Tim Plaehn is the lead investment research analyst for income and dividend investing at Investors Alley. He is the editor for The Dividend Hunter, an investment advisory delivering income investments with double digit growth in share price and dividend payments, and 30 Day Dividends, a specialty income service that takes advantage of opportunities for relatively fast, attractive profits around potential dividend payouts. Prior to his work with Investors Alley, Tim was a stock broker, a Certified Financial Planner, and F-16 Fighter pilot and instructor with the United States Air Force. During his time in the service he was stationed at various military locations in the U.S., Europe, and Asia. Tim graduated from the United States Air Force Academy with a degree in mathematics. Learn about Tim's new investment strategy for collecting income from the market each and every month without the use of options, futures, forex, covered calls, or risky trading strategies.

Pick Up These 3 High-Yield Stocks Raising Dividends in April

While the Fed has for now put interest rate increases on hold, I continue to receive questions on whether REIT values will be hurt by rising interest rates. It is a widely held –but inaccurate– belief that REIT values must fall if interest rates continue to increase. The fact that many REITs increase their dividends over time tells us that these are businesses with potential for growing dividends and share values even in a rising rate environment.

Recently, I looked at the history of REIT values and interest rates. Since 1995, there has been 16 periods of significantly rising interest rates. Out of those 16, REIT values increased 12, or 75% of the time. In the period from June 2004 through August 2006 the Fed increased rates 16 times. During that period REITs outperformed the S&P 500, 59% to 22%.

The fact is that REIT results are driving more by economic conditions, rising commercial real estate values, and the ability of REITs to increase the rental rates on their properties. We can monitor how well a REIT is performing from its history of dividend growth.

Related: 3 High-Yield REITs Raising Dividends in March

Most REITs announce any dividend increases once a year, in the same month each year. Across the sector there are increase announcements in almost every month in the calendar. You can often get a nice share price gain by buying shares before a dividend increase announcement hits the news wires.

I maintain a database that covers about 140 REITs. I use the database to track dividend rates, yields and increases. Of the 140, about 90 have histories of regular dividend increases.

There are four REITs that should announce a dividend increase in April.

American Campus Communities, Inc. (NYSE: ACC) owns, manages and develops primarily off-campus student housing properties in the United States. The company owns over 200 properties near 96 college campuses.

While some growth comes from acquisitions or development, ACC also realizes 2.5% per year of average rental rate growth. Since resuming dividend increases in 2013, the payout has been increased by 5% to 6% for six consecutive years.

In 2018 FFO per share was in line with previous years. The current dividend is 80% of 2018 FFO per share, so another 4% to 5% increase still likely for this year to keep the growth record going.

The new dividend rate is announced at the end of April/early May with an end of May payment date.

ACC currently yields 4.1%.

Hospitality Properties Trust (NYSE: HPT) owns 325 hotels and owns or leases 199 travel centers located throughout the United States, Canada and Puerto Rico. All the properties are leased to management operators. In 2018 FFO per share was up 2% compared to the 2017.

The current dividend rate is 57% of 2018’s FFO. For the last several years, HPT has been increasing the dividend by about 2% annually. I expect an increase this year of similar magnitude.

The new dividend rate has been announced in mid-April, with a late April record date and second half of May payment date.

HPT yields 7.9%.

Life Storage Inc. (NYSE: LSI) owns over 750 self-storage facilities located in 28 states and Ontario, Canada. Self-storage has been a cyclical REIT sector and growth has flattened over the last year. Life Storage was growing its dividend by over 10% per year before keep the rate flat for the last two years.

For last year FFO per share increased by 3.7% so investors should look for a low single-digit dividend increase. If a boost is coming in April it will be announced near the start of the month for the dividend to be paid at the end of April.

The stock yields 4.1%.

Bonus Recommendation:

Tanger Factory Outlet Centers Inc. (NYSE: SKT)was the pioneer in developing factory outlet malls. The company has increased its dividend every year since its 1993 IPO. Over the last five years, the payout has grown at a 9/63% annual compounded rate. However, the rate was increased by just 2.2% last year.

In 2018, AFFO per share was up slightly compared to 2017 results. With the turmoil in brick and mortar retail, Tanger has stayed conservative with its balance sheet and growth projects. The current dividend just 58% of AFFO. I expect a 2% to 3% increase to keep the company’s dividend growth track record intact.

The next dividend will be announced in early April with and end of April payment date.

SKT currently yields 6.8%.

Source: Investors Alley

Pick Up These 3 High-Yield Stocks for Long Term Profits

Earnings season for individual stocks has evolved into nothing more than a game. Analysts from the Wall Street firms put out their estimates for quarterly revenue and profits.

Those estimates are averaged into a consensus estimate. When earnings come out the stock trading world looks to see whether individual companies “beat” or “miss” the earnings estimate, which is no more than an average of computer model based guesses from analysts. It’s a silly game that unfortunately can result in sharp share price declines when a company misses analyst expectations.

For investors looking for long term wealth building and attractive dividend income, these stock price drops can, if you understand the affected companies, provide great buying opportunities. Just after earnings share price gains or drops are mostly related on where the reported results stacked up against the Wall Street estimates.

Traders currently don’t seem to be looking at comparison to past results or the prospects of the companies. This is where you, with a longer term outlook, can take advantage of the short-term, earnings “miss” price drop. If a company’s prospects are solid, a quarterly earnings miss should be viewed as an opportunity to pick up shares on sale.

Here are three stocks with earnings related price drops that have excellent long term prospects.

CyrusOne (Nasdaq: CONE) reported 2018 Q4 and full year earnings on February 20. Over the next week the CONE share price dropped from just over $57 to now right under $50. That’s a 12% drop in a week.

There are several reasons for the drop. The company did not follow its pattern of increasing the dividend with this earnings report. The quarterly rate declared stayed at $0.46 per share. In addition, 2019 FFO/share guidance was flat to very slightly down from the cash flow produced in 2018.

The counterpoint to the short term cash flow growth slowdown is that in 2018 the company made investments to ensure years of future growth. Land acquisitions in prime data center areas give the company capacity to construct new data centers that will triple the current footprint.

2018 revenue, EBITDA and FFO growth were 23%, 16% and 16%, respectively. The company is producing strong revenue and cash flow growth. The investment positive is that CyrusOne will have big committed investment years such as 2018 and 2019, and those investments will show up several years down the road as great returns on investment, higher FFO per share and dividend increases.

CyrusOne is in a real estate sector –data centers –that will have high demand growth for at least a decade.

A different factor recently pushed the value of EQT Midstream Partners LP (NYSE: EQM) down by almost 10%.

The trigger event for the sell-off was a federal court refusing to hear an appeal on a ruling tossing out the construction permit of the Atlantic Coast Pipeline under construction by Dominion Energy. EQM dropped because they are the major partners on the competing Mountain Valley Pipeline –MVP. The map below shows the routes of the two pipelines.

While the two pipelines have similar routes, it’s tough to make a comparison. The biggest difference is that MVP is 70% complete, including 175 miles of the 303 miles already welded in position. In comparison, the Atlantic Coast Pipeline received construction approval in October 2018 and construction was stopped in December. MVP does need to obtain a Nationwide 12 Permit from the U.S. Army Corps of Engineers for stream and waterbody crossings.

Currently work is scaled back for the winter. Full construction work on MVP will restart in the Spring, and full in service date is forecast for Q4 2019. The EQM situation is comparable to the Atlantic Coast Pipeline legal setback.

EQM is an MLP with a current 11% yield and will grow distributions by 5% per year.

Altus Midstream Company (Nasdaq: ALTM) is a new energy midstream corporation that was formed in August 2018.

This is a “blank check” type of new company that will use the IPO proceeds to acquire energy gathering and pipeline assets.

ALTM is sponsored by Apache Corp. (NYSE: APA) and Kayne Anderson Acquisition Corp. The company has rights of first offer on five pipeline investments. The prospective acquisitions are worth over $3 billion. With its first quarterly earnings for the 2018 fourth quarter, the company had very little revenue and profits to report. Since the earnings, ALTM has dropped by 24%. Current market cap is $650 million.

This is a more speculative energy infrastructure play that just became a lot cheaper.Boring Photo Reveals Trump’s Fate in 2020 Election

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It’s Time to Buy These 3 High-Yield 5G Dividend Stocks

The multitudes faster 5G wireless technology will start rolling out around the globe over the next few years. Under the 4G system, mobile data has grown 17-fold over the past five years. Verizon predicts that 5G will allow data speeds up to 20 times faster than 4G. This means 20x as much data will be shared and much of it stored. The higher 5G speed will result in many more connections to the wireless network, including current wireline connected equipment and currently unconnected devices that will join the Internet of Things.

Exponential growth of data sharing means similar growth levels required for data storage. The tech industry, really all industries, rely on data centers for data storage. These are dedicated facilities with specific design feature to house servers, routers, switches, backup servers and the connections required to so data can be transmitted, accessed and stored. In the current world these are very large, high-tech facilities with advanced cooling and power generation capabilities. Data center storage is a growth business, as show by this chart showing data center storage data amounts for 2016 through 2021 from statista.com.

Data centers are a great, longer term way to participate in both 5G and data storage requirements growth. There are a handful of real estate investment trusts (REITs) that operate exclusively in providing data center services to the tech sector and other industries. Here are three to consider.

Equinix, Inc. (Nasdaq: EQIX) is the $35 billion market cap, the large-cap standard of the data center industry. The company converted from corporate tax payer to REIT status at the start of 2015. The company is a colocation and interconnection service provider. Colocation is a data center facility in which a business can rent space for servers and other computing hardware. Typically, a colocation facility provides the building, cooling, power, bandwidth and physical security while the customer provides servers and storage.

The company’s services currently give 9,500 customers 300,000 interconnects between data centers and world’s digital exchanges. According to the current Investor Overview presentation, Equinix owns over 200 data centers in 24 countries, on five continents. This is truly an international company. Over the last decade the company has produced in excess of 20% compounding annual revenue and EBITDA growth. This results in mid-teen per share cash flow growth.

For 2019 the company forecasts 11% FFO per share and dividend increases.

The shares currently yield 2.3%.

Digital Realty Trust, Inc. (NYSE: DLR) is a $24 billion market cap REIT that owns 198 data centers in 32 metropolitan areas. Digital Realty has over 2,300 customers.

Like Equinix, Digital Realty is also a colocation and interconnection services provider.

This REIT’s customer list includes some of the largest technology and telecommunications companies.

In the top 10 are IBM, Oracle, Verizon, Linked In, and even Equinix.

According to the current investor presentation, Digital Realty has grown FFO per share for 13 straight years. Over that period cash flow to pay dividends has grown by a compounding 12% per year.

This chart shows the FFO growth compared to large REITs in other sectors:

The DLR dividend has grown by 10% plus per year for the last decade. The shares currently yield 3.6%.

CoreSite Realty Corp (NYSE: COR) is a $3.9 billion market cap REIT that owns 22 data centers in eight strategic U.S. cities.

The company’s focus is to provide colocation services to enterprise, network, and cloud services companies. The company has over 1,300 current customers. CoreSite is the high growth, higher risk company out of the three covered here.

Since 2011, FFO per share has grown by 23% compounded and the dividend by more than 30% per year. Future results will cycle from relatively flat to high growth years. An investment in COR will not be as stable as with the large cap data center REITs. The flip side is the potential for large dividend increases and corresponding share price gains.

The shares currently yield 4.2%.

Source: Investors Alley

Sell These 3 High-Yield Dividend Stocks About to Cut Their Dividends

There is a tremendous appeal to owning shares of high-yield stocks. In a world where you are lucky if a bank account pays 2%, income stocks that pay 8%, 9% or even 11% can be very attractive. However, high yield stocks are not a bank account or government bond. Dividend cuts happen and when they do, investors get the double pain of a reduced income stream and a steep drop in share prices. If you want to build a high yield income stream, the primary skill to acquire is how to separate the dangerous high-yield stocks from the more secure ones.

Dividend stocks trade to provide high dividend yields for a reason. The market (as in the whole investing public that is buying or selling an individual stock) believes there is chance the current dividend rate will be cut. The higher the yield, the more the market is pricing in the probability of a dividend reduction. Now here’s the fun part. Whether the dividend is actually reduced is a binary outcome. Either it will be cut, or the company will continue to pay the current dividend rate. Many high-yield stocks continue to pay the dividends for years. The number of dividend cuts each year tend to be a small percentage of the high-yield universe.

Thus, the goal of the income stock investor is to own high-yield stocks with low probabilities of dividend cuts and avoid the ones where the potential of a dividend reduction is high. To do so you need to understand how each individual company generates cash flow to pay dividends. Avoid those where the cash flow per share is at risk due to iffy business operations or a fundamental flaw in the business model. Here are three high yield stocks to sell or avoid.

AGNC Investment Corp (Nasdaq: AGNC) is the largest of a group of companies that own portfolios of government agency backed mortgage backed securities (MBS). You will see these referred to as Freddie Mac, Fannie Mae and Ginnie May mortgage-backed bonds.

The challenge for AGNC and all the agency MBS owning finance REITs is taking the 3.5% yield of the bonds up to a double digit stock yield. The step is done with large amounts of leverage. An agency MBS owning REIT will leverage its equity 5 to 10 times with borrowed money.

For the 2018 fourth quarter AGNC reported leverage of 9.0 times book value. The problem with this amount of leverage is that a flattening of the yield curve can wipe out the net interest margin and the ability to continue paying dividends. A steepening of the yield curve will result in falling prices in the MBS portfolio. The lenders providing the leverage can force the REIT to sell bonds at a loss to bring down the leverage.

REITs like AGNC are better for management compensation than they are for investors looking for stable dividend payments. The AGNC dividend has shrunk by 14% per year on average over the last five years.

Ignore the 12% yield and sell.

CBL & Associates Properties, Inc. (NYSE: CBL) is a shopping mall REIT on the wrong side of the shopping center great divide. At one end are the REITs that own Class A malls which are 95% plus occupied with successful retailers. At the other end are the REITs that own malls with fading demographics anchored by declining retailers like Sears and JC Penny.

These second tier malls will require millions in capital spending to make them again attractive to shoppers, and that spending may not do the trick. Shoppers are fickle, and it may be impossible to draw them back to a near failed mall.

It’s easy to tell the difference between the successful mall REITs and the trouble ones. The good REITs in this category have yields under 5%. The challenged ones have double digit yields. In the case of mall REITs, the high yield is a true danger signal to sell and stay away.

CBL yields 13.3%.

Ellington Residential Mortgage REIT (NYSE: EARN) is another residential agency MBS owning finance REIT. This company has many strikes against it.

First, it is a very small cap with only $141 million market value. This size makes Ellington very susceptible to be “taken down” by the large banks when interest rates get volatile. This happened to many residential REITs during the 2007-2008 financial crisis.

Second, the company currently has an 8.7 to 1 leverage of its equity to support the high yield.

Third, the net interest margin on the portfolio is just 1.1%. A one-quarter percent increase in short term rates could wipe out almost 25% of the spread, resulting in a big dividend cut. Three strikes and you are out for EARN.

Not worth the 12% yield.

Own These 3 High-Yield Stocks While Experts Flip Flop On Interest Rates

Just a few months ago, bond “experts” were all over the financial news networks predicting the yield curve would soon invert. An inverted curve, where short-term rates are higher than long-term rates, is a reliable indicator that the economy will go to negative growth – a recession. At that time the stock market was setting new records higher, even as the fears of a recession grew. Currently the rate curve is very flat, meaning short-term rates and long-term bond rates are not very different.

The interest rate news in late 2018 helped push the stock market into a steep decline. So, what is it to be? An economic recession with higher stock prices or a strong economy with lower stock prices? Or market and economic activity no one predicted? Will the yield curve flatten or steepen? What will they say next week?

The point is that an investor who invests based on the latest “expert” opinions is likely to get whipsawed into losing money in the stock market. In December, the stock market went into a deep correction. Many financial pundits took this as a prediction of an economic recession and continued stock price decline into a bear market. Stocks did just the opposite and so far, have gone up every week in 2019.

If you are an investor, and not a trader, and want to grow your portfolio value, you need an investment strategy that accounts for market corrections. Over the course of 2018, there were lots of predictions that a correction was coming. Now we have experienced the mental stress that comes with a steep market drop.

My plan, which I regularly share with my Dividend Hunter readers, is to focus on owning higher yield dividend stocks with potential for dividend growth. A dividend focused investment strategy provides three advantages when the stock market corrects.

  • Quality companies will continue to pay dividends. You will earn dividend income right through the correction and recovery.
  • Dividends are additional cash to put to work when share prices are down. Investors say they are waiting for a correction to invest. Reinvesting your dividends allows you to do that.
  • Buying income stock shares when prices are down boost your portfolio yield, which you will continue to earn for as long as you own the shares.

Now that the major market indexes have lost almost 20%, there are lots of dividend stocks at very attractive valuations. However, my editor likes for me to highlight some attractive stocks with each article. Here are three that have monthly dividends and will pay well through a correction and provide you with nice gains when the market recovers.

EPR Properties (NYSE: EPR) is a very well-run net lease REIT that has done a great job of growing the business and generating above average dividend growth for investors.

With the triple net-lease (NNN) model, the tenants that lease the properties owned by EPR are responsible for all the operating costs like taxes, utilities and maintenance. EPR’s job is to collect the rent checks.

Typically, NNN leases are long term, for 10 years or more, with built-in rent escalations. EPR Properties separates itself from the rest of the triple net REIT pack by the highly focused types of properties the company owns. The EPR assets can be divided into the three categories of Entertainment –movie megaplex theaters, Recreation – golf and ski facilities, and Education – including private and charter schools, and early childhood centers. EPR just increased its dividend for the ninth consecutive year, boosting the payout by 4%.

The shares yield 6.1%.

Main Street Capital Corporation (NYSE: MAIN) is a business development company has been a tremendous stock for income focused investors.

A BDC is a closed-end investment company, like closed-end mutual funds (CEF). The difference is that a CEF owns stock shares and bonds, while a BDC makes direct investments into its client companies. A BDC will have hundreds of outstanding investments to spread the risk across many small companies. MAIN uses a two-tier approach to its portfolio. This unique strategy allows Main Street to generate a high level of interest income and capital gains from equity investments.

This company is one of just a small number of BDCs that has grown its dividends and net asset value per share. The monthly dividend has been increased five times in the last three years. MAIN has also been paying semi-annual special dividends that boost the realized yield above the current yield.

The stock currently yields 6.3%.

The Reaves Utility Income Fund (NYSE: UTG) is a closed end fund manage by Reaves Asset Management, an investment manager firm that solely focuses on the utility, telecom and infrastructure sectors.

I recommend UTG over individual utility stocks because it pays monthly dividends and has a higher yield than the typical utility stock. The UTG dividend has never been reduced. It has increased steadily and is now 75% higher than at the time of the fund’s IPO in 2004. No portion of the dividends paid have every been classified as return-of-capital.

Utilities are viewed as a safe haven stock sector, and UTG is a great way to invest in that sector.

Current yield is 6.5%.

Buy These 3 Stocks in the Safest High-Yield Sector

Over the last four months, the U.S. stock market has turned ugly and the fear of an economic recession is in the air. There are a lot of recession predictions coming out in the financial media.

I have seen forecasts for an economic slowdown this year, next year, or further out on the future. Timing of the next recession is for entertainment value only.

However, since the economy does go through growth and recession cycles, you can be fairly positive that the economy will go through a period of negative growth at some time in the future.

To get through an economic downturn, income stock investors want to own stocks that won’t cut their dividend rates when business conditions turn rough. The easy path is to go with Dividend Aristocrat types of stocks, but the trade-of for that level of safety is low yields, with this group currently averaging around 3%.

Today I want to discuss a group of stocks that currently pay yields of 7% to 9% and have business models built to be successful through the full range of economic growth and contraction.

Finance real estate investment trusts (REITs) are companies focused on the finance side of the real estate sector. They originate or own mortgages, mortgage backed securities, or related investment securities. The finance REIT group can be further divided into those that focus on residential mortgages and those which are in the commercial property mortgage business. Interestingly, the former group are risky and a danger to your portfolio, while the commercial finance REITs provide a high level of dividend income safety.

Here are the reasons why a commercial mortgage REIT stock tends to be a solid dividend income investment.

  • Most commercial REITs are mortgage originators and keep the loans in their portfolio. This allows these companies to use less leverage to get attractive returns on capital.
  • Most commercial mortgage loans have adjustable interest rates. A commercial REIT can match its borrowings to its loan portfolio and generate steady returns through both ups and downs in market interest rates.
  • Commercial REITs lend at very conservative loan-to-value ratios. This means property owners will be highly motivated to keep making their mortgage payments if they want to protect their equity. If the REIT forecloses on a property, its likely the real estate can be flipped for an amount greater than the outstanding loan balance.

Here are three commercial mortgage REITs that are well run, and the stocks carry attractive yields.

Blackstone Mortgage Trust (NYSE: BXMT) is a REIT that makes mortgage loans on commercial properties. They make loans up to $500 million on a single property, which puts them in a very small group of financial companies that will write very large loans on commercial properties.

The commercial mortgages issued by Blackstone Mortgage are retained in the company’s $13.8 billion investment portfolio. This is a conservatively managed business, with an average loan-to-property value of 62% and 2.3 times debt to equity leverage. Income is the interest earned from the mortgage portfolio minus the cost of the debt.

The portfolio is 95% floating rate loans, with debt rate matched to each loan. The result is that as interest rates increase, so will Blackstone’s profits.

BXMT currently yields 7.4%.

Ladder Capital Corp (NYSE: LADR) is the only commercial finance REIT listed here that is internally managed. Management also owns 12% of the stock.

Ladder has a three prong investment strategy where it owns a portfolio of commercial loans, a portfolio of commercial mortgage backed securities, and it owns commercial real estate. The balance sheet loan portfolio accounts for 76% of the total assets.

In contrast to BXMT, the average loan size for Ladder Capital is $20 million. Total company assets are $6.4 billion, which includes a $1.2 billion real estate equity portfolio. The $4.2 billion loan portfolio has a 68% loan-to-value.

The current dividend is well covered, at just 66% of core EPS.

LADR currently yields 8.3%.

Starwood Property Trust (NYSE: STWD) is another commercial finance REIT. It originates mortgage loans for commercial properties, such as office buildings, hotels, and industrial buildings.

Starwood has two commercial lending businesses. One is to make large dollar loans to retain in its portfolio. The company also operates a fee-based CMBS origination business. The $8.0 billion commercial loan portfolio has a 62% LTV.

To further diversify the company has acquired a portfolio of stable returns real estate assets and has added an infrastructure lending arm. The final piece of the pie is a special servicing division, which will turn very profitable if the commercial real estate sector experiences a downturn. Large commercial loans account for 55% of net earnings. The diversified businesses bring in the balance.

Investors can expect to earn the dividend, which currently gives the shares a 9.5% yield.

Source: Investors Alley

3 High-Yield Restructured Energy Stocks

Energy infrastructure (commonly called midstream) companies have weathered a string of tough years since the energy commodity price crash of 2015. These were high flying stocks in the decade through 2014, with the master limited partnership (MLP) sector returning an average 18% per year from 2000 through 2014.

MLPs were the energy infrastructure/midstream business structure of choice. These companies owned pipelines, storage facilities, loading and unloading terminals. Customers accessed these assets through long-term fee based contracts. MLPs used the fee-based revenues to pay steady, attractive distributions to investors. Growth came from developing new projects, funded with a combination of debt and equity. The energy sector crash blew up the MLP growth model and revealed some ugly features of the typical publicly traded partnership agreement.

The last four years have seen a massive restructuring of the companies operating in the energy midstream space. There are now a number of corporations instead of the partnership structure. Balance sheets have been strengthened with companies focusing on using internally generated cash flow to fund growth projects. Onerous features of MLP partnership agreements have been abandoned. While share values have not recovered from the problems of recent years, the financial restructuring is basically completed, and these companies are on the verge of again generating attractive dividend growth and total returns for investors. Here are three stocks from the group that should do very well in 2019.

One of the first MLPs, Kinder Morgan Energy Partners launched with a 1997 IPO. For the next 16 year the company provided tremendous returns to investors in the MLP. As the MLP business model stopped generating the expected growth, in 2014, Kinder Morgan Energy Partners was acquired by the corporate sponsor, Kinder Morgan Energy Inc. (NYSE: KMI).

The consolidation was not enough to prevent the carnage of the energy sector crash. In early 2016, the KMI dividend was slashed to $0.125 per quarter from $0.51. The KMI share price fell from $43 in mid-2015 to $12 in January 2016. The stock now trades at $17.40.

Over the last three years, the company reduced debt and built cash flow to internally fund growth projects. In April 2018 the dividend was increased by 60% to $0.20 per share. The share price hardly budged. Management has stated the dividend will increase by 25% each year in 2019 and 2020.

Free cash flow is currently $2.00 per share and growing, so the $1.25 annual dividend for 2020 is in the bag.

KMI currently yields 4.6%.

In mid-2015 Magellan Midstream Partners LP (NYSE: MMP)was an $83.50 per unit MLP. The units now trade for $62 and change. Since its 2003 Magellan Midstream did not follow the MLP practice of raising growth capital in the public equity and debt markets.

All of Magellan’s growth has been funded through internal cash generation, without the need to tap the equity markets. Despite what the market price shows, the MMP distribution has been increased every quarter, and the current rate is up 42% compared to when it traded for $83.

With a 6.25% yield and continued 8% annual distribution growth, MMP could return 20% or more in 2019.

Tallgrass Energy LP (NYSE: TGE) is the result of the 2018 merger of traditional MLP Tallgrass Energy Partners and the publicly traded general partner, Tallgrass Energy GP LP.

Through its life as a traditional MLP, Tallgrass Energy Partners was one of the top distribution growth companies in the sector. The merger with the general partner eliminates the payments the MLP was paying to the GP. This means lower expenses and more cash to continue the distribution growth record. Tallgrass owns and operates one of the largest crude oil and natural gas pipeline networks in the country.

Dividends could grow at a mid-teens per year rate.

With a current 8.6% yield, TGE is grossly undervalued and could double in 2019.

Source: Investors Alley

Market Preview: Volatility Remains, But Stocks Finish Higher on Trade Hopes

Stocks remained in positive territory Monday, though it was another volatile session, as investors remain hopeful that a trade deal can be worked out between the U.S. and China. The Chinese Trade Ministry released positive statements indicating the Chinese may be moving closer to negotiating a deal. Energy stocks helped market gains, as oil looks to have put in a near-term bottom and has finished higher the past 5 trading days. But, there was still no word on resolution of a partial U.S. government shutdown, as President Trump and House Democrats have not reached an agreement on funding a border wall with Mexico. Several government agencies, such as the TSA, have been able to find funding to pay workers through mid-January, but the extended shutdown will begin to be felt more severely if it continues through this week.

Helen of Troy (HELE) and AZZ Inc. (AZZ) report earnings on Tuesday. The consumer housewares company rewarded investors with an excellent year in 2018, and analysts are keen to delve into sales in the health and beauty line when Helen of Troy reports before the open. AZZ, a provider of specialized welding, galvanizing services and electrical equipment, may provide insight into recent weakness in Federal Reserve manufacturing numbers. The company is expected to earn $.61 per share on revenue of $241 million.  

The NFIB Small Business Optimism Index, Redbook retail numbers, and job openings, or JOLTS data, will all be released Tuesday. The business optimism number is expected to drop to 104 from November’s 104.8. While the number is still high, November saw a decline from October and analysts believe the index may have topped and be heading into a downtrend. It is very likely the Redbook retail numbers will see a decline from the 9.3% year-over-year levels of last week, but that should be expected after the holiday buying season. Also on tap Wednesday is the kickoff of the Consumer Electronics Show (CES) in Las Vegas. The annual event has a slew of technology company CEOs delivering speeches. 5G smartphones, and highly anticipated 5G network content, are expected to be a major focus of the show this year.

Wednesday, investors will parse through the MBA mortgage application numbers as well as the EIA petroleum status report. Mortgage applications were off a horrendous 9.8% last week but may show signs of life after a drop in rates, which began after the first of November. Petroleum numbers are of particular interest to traders right now as they try to decipher whether oil truly found a bottom in late December, and where the market is headed from here. FOMC minutes will also be released Wednesday afternoon. It is unlikely the minutes will have much impact on the market, unless there are statements which contradict the softer stance Chairman Powell seemed to take in his panel discussion last week with former Fed Chairs Bernanke and Yellen.

In addition to mortgage application numbers on Wednesday, KB Homes (KBH) and Lennar Corporation (LEN) both report earnings. With homebuilder stocks beginning to show signs of a bottom, the earnings reports from the two companies are being closely watched. With a potential near term top in mortgage rates, both stocks have started off 2019 in positive territory. Analysts are hoping for an improvement in outlook from the two companies as possibly setting the stage for a turn, or at least stabilization, in the housing market.

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Buy These 3 High-Yield Contrarian Stocks for Income and Gains

Investing in stocks with strong dividend growth has historically proven to be a powerful total return strategy. Mathematically, for a stock to stay at a certain yield, the share price must increase at a rate that equals the annual dividend growth rate. Long term results show that dividend growth stocks produce average annual returns that end up very close to the average dividend growth rate plus the average dividend yield.

Energy infrastructure stocks have a long-term record of attractive current yields and steady dividend growth. These are the companies that own pipelines, storage facilities, and loading/unloading terminals.

The energy commodity crash of 2015-2016 forced a lot of companies providing infrastructure services to restructure their growth plans and strengthen the balance sheets. A further drag on the energy infrastructure sector was that many of the companies in the group were organized as master limited partnerships (MLPs).

Over the last three years, MLPs have gotten a bad rap from investors. Few investors want to jump into a sector where values are falling and there are additional tax reporting requirements.

While many energy midstream (another term for the infrastructure sector) companies chose to cut or stop growing dividend rates, a handful of quality businesses have continued or restarted dividend growth. However, the market has not rewarded stocks with growing dividends with higher share prices to match the dividend increases.

In the midstream group, dividend cuts have resulted in lower share prices, but dividend increases have not. Currently dividend growth by midstream companies has not resulted in matching share price gains. The result is attractively high yields and the likelihood that share prices could move significantly higher to match both recent and future dividend increases.

Let’s take a look at three high-yield stocks from the energy sector to consider for attractive total return potential going forward.

Kinder Morgan Inc. (NYSE: KMI) is one of the largest energy infrastructure companies in North America. The company owns an interest in or operate approximately 84,000 miles of pipelines and 152 terminals. The pipelines transport natural gas, gasoline, crude oil, carbon dioxide (CO2) and more. Terminals store and handle petroleum products, chemicals and other products.

At the beginning of 2016, the KMI dividend was slashed by 75% to a $0.50 per share annual rate. For the 2018 first quarter the dividend was increased by 60% to a current $0.80 annual rate.

Management has stated the dividend will increase by 25% for 2019 and 2020. Dividends are expected to continue to grow strongly after 2020. In contrast the KMI share price was above $22 at the end of 2016 and now trades around $16.

The market has not yet rewarded the strong resumption of dividend growth with a higher share price.

KMI yields 5.0%.

Magellan Midstream Partners LP (NYSE: MMP) is a publicly traded oil pipeline, storage and transportation company organized as an MLP. Currently, Magellan has 9,700-mile refined products pipeline system with 53 connected terminals as well as 26 independent terminals not connected to the pipeline system and an 1,100-mile ammonia pipeline system.

Also owned are 2,200 miles of crude oil pipelines and storage facilities with an aggregate storage capacity of about 28 million barrels, of which 17 million are used for leased storage.

The company operates five marine terminals located along coastal waterways with an aggregate storage capacity of approximately 26 million barrels.

For investors, Magellan has increased its dividend rate for 17 straight years. Unlike the typical MLP practice, the company has not issued additional equity to fund growth. Internal capital generation pays for growth projects.

The MMP distribution increases every quarter, currently at a high single digit growth rate yet the current unit price is down 28% over the last two years.

Current yield is 6.9%.

EQT Midstream Partners LP (NYSE: EQM) is an MLP that owns and operates a natural gas transmission and storage system serving the Marcellus and Utica basins.

The company owns a 950 mile FERC-regulated interstate gas pipeline that connects to seven interstate pipelines and is supported by 18 natural gas reservoirs. EQM has been a high distribution growth rate MLP, with the payout to investors growing at a 20% plus annual clip for the past five plus years.

Despite the distribution growth, the EQM value has dropped by 45% over the last two years.

Going forward, the company expects to continue distribution growth at a high single digit/low double digit rate.

Add that growth to the current 10% yield and you get very attractive total return potential.

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Get your hands on my most comprehensive, step-by-step dividend plan yet. In just a few minutes, you will have a 36-month road map that could generate $4,804 (or more!) per month for life. It's the perfect supplement to Social Security and works even if the stock market tanks. Over 6,500 retirement investors have already followed the recommendations I've laid out.

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My Top 2 High-Yield Picks for 2019

Each year I am asked to participate in the MoneyShow “Top Picks” report. The folks at MoneyShow “ask the nation’s leading advisors for their favorite investment ideas for the coming year.” The Top Picks are run in series in January on the MoneyShow.com website. Highlights of the picks will also be featured on Forbes, TheStreet and on Yahoo! Finance.

The request is for two stock recommendations. One as an aggressive stock bet and the other as a conservative stock selection. Today I am sharing the two stocks I sent in to the MoneyShow editors.

My aggressive stock pick for 2019

Antero Midstream GP LP (NYSE: AMGP) is an energy midstream services company in transition. The company came to market with a May 2017 IPO. The assets at that time were general partner incentive distribution rights (IDR) ownership interest in high growth, midstream MLP, Antero Midstream Partners (NYSE: AM). The MLP was sponsored and controlled by Marcellus natural gas producer Antero Resources (NYSE: AR).

Complicated, multi-publicly traded entity structures were the vogue in the energy sector until energy commodity prices and energy sector stock prices crashed in 2015-2016. Over the last two years (2017-2018) the MLP sector, related infrastructure stocks, and their sponsor companies have announced simplification events to hopefully make the resulting business structures and forecast results more appealing to investors. On October 10, 2018 the Antero companies announced a simplification transaction that will close in the first quarter or 2019.

The transaction involves AMGP acquiring all the AM units, and then changing its name to Antero Midstream and using the AM stock symbol. For now, call the resulting company new AM. The effect of the transaction will be to turn the current Antero Midstream Partners into a C-Corp and the elimination of the IDRs paid to the general manager. This means starting in 2019, the current AMGP, which derives its revenue from the IDR payments will change into a high dividend growth midstream services provider. This discussion is about the soon to be Antero Midstream Corporation — new AM.

Antero Midstream will be a roughly $10 billion market cap energy midstream company focused on natural gas gathering and compression for Antero Resources in the Marcellus and Utica Shale plays. The company also provides wellhead water services (fresh water delivery and waste water takeaway) and owns one take away natural gas pipeline. Currently about 65% of EBITDA is from gathering and compression, with the remaining 35% from water services.

The growth of AM revenues depends on production growth from Antero Resources. Antero is the largest natural gas liquids (NGLs) producer in the U.S., across all energy production areas. The exploration and production company hold the largest core, liquids rich inventory of production sites in Appalachia. Of the undrilled locations in the region, Antero has rights to 40% of the total. Production growth from Antero Resources is forecast to generate 50% compounding annual gathering and processing volume growth through 2021.

This growth in throughput will fuel cash flow and distribution growth for Antero Midstream. The company projects 27% annual distribution growth through 2021. The midpoint of dividend guidance for new AM in 2019 is $1.24 per share.  The AMGP Q3 dividend annualized is $0.576 per share. With a mid-teen share price at the end of 2018 the market isn’t close to factoring in the higher dividends for 2019 and the future dividend growth prospects. AMGP evolving into the new AM is one of my highest conviction total return prospects for the next three years. To keep the yield at the current 4%, AMGP at the end of 2018 must double in 2019.

My Conservative stock pick

Starwood Property Trust, Inc. (NYSE: STWD) is a finance REIT whose primary business is the origination of commercial property mortgages. As one of the largest players in the field, Starwood Property trust focuses on making large loans with specialized terms. This gives them a competitive advantage over banks and smaller commercial finance REITs.

Over the last several years, the company has diversified its business, branching into commercial mortgage servicing, acquiring real equity properties with long term revenue stability, and recently a portfolio of energy project finance debt. This diversification will allow Starwood Property Trust to thrive and continue to pay the big dividend in any financial environment.

In the commercial loan business, over 95% of the commercial mortgage portfolio has adjustable interest rates. This means that as the Fed increases interest rates, Starwood’s net income per share will grow. This REIT provides an excellent hedge against rising rates.

In recent years, the company has acquired what is now the largest commercial mortgage servicing firm. That arm of the business handles servicing, foreclosure workouts (for fees) and the packaging of smaller commercial mortgages into mortgage backed securities. This business segment would see the fees increase exponentially in the event of a recession where commercial property owners were forced to let go back to the lenders.

In addition to the finance side of the company, Starwood has acquired selected real properties, including apartments, regular office buildings, and medical office campuses.  According to STWD’s CEO, “All of the wholly-owned assets in this segment continues to perform well with blended cash-on-cash yields increasing to 11.4% and weighted average occupancy remain steady at 98%.”

The property segment provides assets with long-life revenue streams to offset the shorter term rollover schedule of the commercial mortgage portfolio. Real assets also add depreciation to the income statement, shielding cash flow.

In mid-2018 the company acquired a $2.5 billion energy finance business from General Electric. The loan book is non-recourse to Starwood Property Trust. Starwood Capital, the private equity manager of STWD, already had energy finance experts in house. This business segment has significant potential for growth.

This diversification of business segments by Starwood Property Trust is what separates this commercial finance REIT from its more narrowly focused peers. STWD has paid a $0.48 per share quarterly dividend since the 2014 first quarter. My investment expectation is that the dividend is secure, and I want to earn the 8.5% to 8.8% dividend year-after-year.Pay Your Bills for LIFE with These Dividend Stocks

Get your hands on my most comprehensive, step-by-step dividend plan yet. In just a few minutes, you will have a 36-month road map that could generate $4,804 (or more!) per month for life. It's the perfect supplement to Social Security and works even if the stock market tanks. Over 6,500 retirement investors have already followed the recommendations I've laid out.

Click here for complete details to start your plan today.