[Editor’s note: This article was previously published on Sept. 13, 2019. Due to changes in the market since then, parts of this article have been rewritten with new information.]
The holidays represent great opportunities to take a good look at your portfolio and make sure that you are good to get through the holiday buzz and into the new year. And this season starts with Halloween — also known as All Hallows Eve. Halloween is celebrated with all sorts of scary stuff that’s just for fun. But the markets can bring a whole lot of genuinely scary troubles that you should avoid with the right stocks.
After Halloween we come quickly up to Thanksgiving and hopefully to a great feast with family and friends. And again, it should be another good time to make sure that you have stocks that you will be thankful for now and in the months to follow.
Christmas brings the annual cornucopia of gifts complete with all of the cash needed to make everyone on your list a happy recipient. And having the right stocks inside your portfolio can be a great aid to your budget.
For all three of these holidays, safer, dividend-paying stocks can tick many of the right boxes for your portfolio. Dividend stocks tend to be more defensive during the scary times of the markets. And dividend stocks provide lots of cash flows to be thankful for at Thanksgiving.
I have always had a core focus on dividend stocks and bonds for both income and safer growth over time. And in my Profitable Investing I have my all-weather model portfolios chock-full of recommendations.
Here are some prime examples that you can put to work for the holidays and into 2020 right now.
Dividend Stocks to Buy: W. P. Carey (WPC)
I start with W. P. Carey (NYSE:WPC) which is a highly successful real estate investment trust with a diverse collection of properties across segments. But what they all have in common is the company’s signature structure of sale and leaseback triple-net leases. This is where W. P. Carey typically acquires a property from a significant company — or even government entity — and in turn leases it back to the seller for long-term lease. In addition, the tenant pays for the taxes, insurance and general upkeep, hence the term triple-net.
This structure has major benefits. To start, W. P. Carey gets established tenants for its leased properties. And longer-term leases set the company up with more dependable income. Because the tenants cover taxes, insurance and maintenance, W. P. Carey escapes a whole lot of uncertainty.
Revenues are up for the trailing year by 4.4%. The return on funds from operations — which measures the profitability of just running the properties — is at a very healthy 12.8%.
And the dividend is running at 4.5%. The actual distributions have been rising each and every quarter for years and years making the company one of the true dividend aristocrats.
The stock has generated a return over the trailing five years of 86.3% for an average annual equivalent of 13.2%
And despite the quality of the company’s assets and performance along with that rising dividend distribution, the stock is cheap compared to the general REIT market. The stock’s price is valued at a mere 2.2 times book value which is significantly cheaper than the general market average of 2.7 times. This make WPC a cheap stock with great assets and a rising dividend.
Next is a very old and proven company, AT&T (NYSE:T). It offers a variety of services including streaming. And oh yes, it comes with a huge content warehouse and generator in Warner Brothers.
The direct comparison stock is Verizon (NYSE:VZ) which is a good dividend stock. But AT&T is way, way cheaper. AT&T stock is at a mere 1.5 times book compared to Verizon’s value of 4.3 times book.
Revenue is rising with the trailing year up by 6.4% and while the company has a lot of components, overall operating margins are running at a fat 15.3%. That in in turn drives a nice return on equity running at 8.9%.
It has built up debt in its acquisition of Time Warner — but it is manageable at only 33.2% of assets.
The stock has trailed Verizon until recently. Activist investor Paul Singer announced that he has amassed $3.2 billion of the company’s stock. He wants AT&T to hone its focus and sell some of its superfluous operations. And the market likes what he’s presenting. AT&T also likes the ideas and is now moving to divest some of its non-essential businesses, pay down some debt, buy back some shares, split the CEO and Board chair positions and add two board seats.
Over the past five years, the stock has returned 46.3% for an average annual equivalent return of 7.9%. But year-to-date, the stock has returned 43%.
The dividend is running with a yield of 5.3% and the distributions have been rising over the trailing five years by an average of 2.1% per year. These are all reasons why AT&T is a good dividend stock to buy now.
Now I’ll move to another industry and a stock that you might not recognize — even if you invest in some of its well-run funds. AllianceBernstein (NYSE:AB) is a pass-through company in the asset management business. The key thing about asset managers is that it is all about the assets under management. They don’t have to be exceptional in their investing — just good enough to attract and keep assets on which they earn fees year in and year out.
The company’s assets under management figure has climbed by 25.8% over the trailing four years to a current $581 billion. That has resulted in revenue gains for the same period of 30.1%.
This in turn is driving higher returns for shareholders with the return on equity running at 14.9%. But the real deal is that the shares trade at a discount to revenue by nearly 20% — making the shares cheap.
The stock has been a good performer with the trailing five years generating a total return of 69% for average annual equivalent of 11.1%.
Compass Diversified (CODI)
Here is a stock from another company that perhaps you haven’t had the fortune to know: Compass Diversified (NYSE:CODI). It’s an investment holding company set up under the Investment Company Act of 1940. As such it operates without federal corporate income taxes, providing further cash for dividend payments to investors.
CODI buys and owns a collection of well-branded industrial and consumer goods companies. You can think of it as a smaller and more nimble Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B). And Compass Diversified in turn works with management teams to further develop business values. When appropriate, it will also sell off companies.
Along the way, CODI collects ample cash flows from the operating companies and in turn pays a dividend currently yielding 7.1%.
Revenues are firmly on the rise with the trailing year’s sales gain of 33.2%. Margins are positive, helping to drive a return on shareholder equity of 39.3%. And the stock is very cheap as it is valued at a 30% discount to trailing sales — which as noted are firmly on the rise.
Compass Diversified continues to deliver. Over the past five years shares have generated a total return of 70.3% for an average annual equivalent return of 11.2%.
TPG Specialty Lending (TSLX)
Last up in my list of divided stocks for the holidays is TPG Specialty Lending (NYSE:TSLX). This company is one of the alternative financial companies capitalizing on the combination of less regulation and higher capital requirements imposed on U.S. banks.
Revenues are up on a tear with the trailing year climbing by 24.2%. Its net interest margin is running at 10% and it keeps its efficiency ratio humming at a profitable 31.5% — which means it costs 31.5 cents to earn each dollar of revenue.
The company has generated a return of 100.2% over the trailing five years for an average annual equivalent of 14.9%. TSLX pays regular dividends quarterly, providing a yield of 7.4%. But it also regularly pays additional dividends from ongoing profits for a current annual yield of 8.3%.
In addition, since it is set up under the Investment Company Act of 1940 and the Small Business Investment Incentives Act of 1980, it avoids federal income taxes. This leaves more cash to feed that dividend. So, the company is cheaply run with great margins and a great dividend stream. TSLX is a great value right now.
For more of my dividend paying stocks, please take a look at my Profitable Investing which is celebrating 30 years of publication. Click here to learn more. In addition, I have recently had a book published titled Income for Life. For more information on it click here. It is nearly 400 pages of income-producing investment strategies for all-weather economic conditions as well as additional income-producing ideas that anyone can use successfully.
Neil George was once an all-star bond trader, but now he works morning and night to steer readers away from traps — and into safe, top-performing income investments. Neil’s new income program is a cash-generating machine … one that can help you collect $208 every day the market’s open. Neil does not have any holdings in the securities mentioned above.