As the market has worked higher and the economy has struggled to gain traction, the search for income has become more difficult.
We all know by now what the Fed’s zero-interest-rate policies have done to income-oriented investors, and the recent pick-up in the 10-year bond has not really been much of a help. The yield on most bank and government bind offerings is still too low to justify investing.
The enormous amounts of money flowing into equities and other alternatives has also made it more difficult to find quality income investment ideas. Traditional blue-chip stocks have been bid up to levels far in excess of what would be justified by the fundamentals. Real estate investment trusts have become a split market, with the fundamentals of the larger trusts in decline while some smaller specialty REITs — such as medical buildings — still are doing very well. Many oil and gas partnerships have seen their fundamentals stagnate as demand weakens and supplies build, especially in natural gas.
Against this backdrop, it has become more important than ever to be judicious in searching for income investments and only select those with solid and improving fundamentals. Searching outside the areas traditionally considered for income can sometimes allow us to find stocks that have great fundamentals and can provide the yield.
One such company is Capital Product Partners LP (CPLP). This limited partnership is in the shipping business, and owns a fleet of vessels to carry crude oil, refined products, chemicals and dry goods. Shipping has not been the best of businesses the past few years, but there are signs it is turning around. Capital Products saw earnings explode higher by more than 400% year-over-year in its most recent quarter as conditions improved. CPLP has been buying new vessels to increase capacity in anticipation of a firming global economic recovery. The positive trend in fundamentals was noticed by Portfolio Grader, as the stock was upgraded in May to a “B.” Thus, Capital Product Partners LP — which currently yields more than 10% — is a “buy” for income investors.
Och-Ziff Capital Management Group (OZM) is one of the largest alternative-asset managers in the world and operates one of the 10 largest global hedge funds. The company has seen assets under management explode higher to its current $33 billion. This has driven very strong growth: Revenues grew by 90% and earnings more than doubled in the most recent quarter. OZM was just upgraded to a “B” by Portfolio Grader, suggesting it’s also a “buy” for yield hunters. Because of Och-Ziff’s generous distribution policy, shares currently yield 11.7%. This stock would be an excellent addition to an income portfolio.
Louis Navellier is the editor of Blue Chip Growth.