SOLID INCOME Picks for the Long Haul

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SOLID INCOME Picks for the Long Haul

Solid Income Picks for the Long HaulGrowth is a fact of life and a part of every living organism’s ongoing and ever-evolving development process so why should your investment portfolio be any different? Finding quality names to add—and to build on—for the long-term should be just as important a goal as trying to achieve gains in the short-term.

However, the journey to find top quality dividend picks for substantial and dependable long-range growth is not one that should be taken alone. So, we’ve asked the nation’s most respected and well-known newsletter advisors for their favorite dividend-paying picks for the year.

As always, we caution you to use these ideas only as a starting place for your own research and only buy stocks, funds, or ETFs that meet your own personal investing criteria, your risk parameters, and your time horizon.

More importantly, these picks represent each advisor’s current outlook. As fundamentals change during the year, a favorite “buy” can become a “sell.” As such, it is up to each investor to monitor future developments at the underlying companies to be sure that the reasons behind buying a stock, fund, or ETF remain in place.

We would also emphasize the importance of diversification. No one advisor is always right and there is no guarantee that any individual recommendation will succeed; you can minimize your risks by considering a diversified package of picks from among those featured in this report.

We also encourage you to visit MoneyShow.com on a regular basis. Everyday, we feature new investment ideas from the top advisors. There’s no better way to follow the ongoing advice and favorite stocks from the very best investment newsletter advisors.

We wish you the very best for your investing in 2016.

Steven Halpern Editor, Top Pros’ Top Picks

SOLID INCOME Picks for the Long Haul

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SOLID INCOME Picks for the Long Haul

Contents Click on page numbers to go directly to each article

8 Stocks from a Value Expert: MOS, CVX, SAFM, MU, MRC, JOY, ARII, and CPA 3By Charles Mizrahi

A Guggenheim BulletShares Bond ETF Income Ladder 4By Chloe Lutts Jensen

Acing the Buffett Test: MO, AMGN, BIIB, CNI, CBS, CELG, DFS, EV, FFIV, BEN, GNTX, GILD, INTC, JNJ, LVS, LLTC, MA, MON, QCOM, RMD, RAI, STJ, TROW, TSM, and UNP 5By Beth Piskora

Appealing REITs: Simon Property, Equity Residental, SL Green Realty, and American Tower 7By Todd Rosenbluth

Aqua America: Cash Flow from Water 8By Genia Turanova

AT&T Rings Up Growth 9By Ari Charney

Bank on PacWest for Income and Growth 10By Mark Skousen

Bank on These Preferred Picks: Cullen/Frost Bankers and Texas Capital Bancshares 11By Jack Adamo

Ben Graham and Dividend ETFs: DVY, SDOG, DHS, SPHD, VYM, DTD, and PRF 12By Michael Rawson

Crown Castle: Tower of Opportunity 14By Josh Peters

Dividend Champ with a Canadian Edge: CI Financial 15By Deon Vernooy

DoubleLine Duo 16By Bob Carlson

DRIP Expert Powers Up Utility Duo: NextEra Energy and Piedmont Natural Gas 17By Vita Nelson

Fabian’s Favorites: Go-to Income ETFs, iShares Select Dividend, US Preferred, and US Real Estate 18By Doug Fabian

Magellan: Bargain Buys in MLPs 19By Jason Simpkins

Not Your Grandfather’s Bond Fund 20By Bryan Perry

Nucor: A Steal in Steel? 21By Jimmy Mengel

Outsized Dividend Supports Exxon 22By Chuck Carlson

Plains: Premier Play in Pipelines 23By Tim Plaehn

Procter & Gamble: Reliable Income 24By Pat McKeough

Realty Income: 81 Dividend Increases 25By Benjamin Shepherd

Spin-Off Boosts Ventas 26By Todd Lukasik

Stonemor: High Yield from Grim Reaper 27By Robert Rapier

Summit Muni: Solid Choice for Income 28By Beth Foos

Take a Ride with Convertibles from SPDR Barclays, Vanguard, and iShares 29By Mark Salzinger

Tanger: Outlet Pioneer 30By Briton Ryle

Timely Ten: Blue Chips for Long-Term Income: CVS, SLB, ABT, UNP, UTX, UNH, IBM, ETN, FLR, WBA 31By Kelley Wright

Top Tenants Keep Kite Realty Flying 32By Cathy Seifert

Vanguard Tax-Exempt: Yield and Stability 33By Roger Conrad

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SOLID INCOME Picks for the Long Haul

By Charles MizrahiEditor, Hidden Values Alert

8 Stocks from a Value Expert: MOS, CVX, SAFM, MU, MRC, JOY, ARII, and CPA

World markets have been keeping a watchful eye on China. It seems that when China sneezes, global markets catch a cold.

Some of the worries over China are the devaluation of the yuan, the plunge in the Shanghai Composite index, the sluggish Chinese economy, and declining commodity prices.

When investing in the stock market, emotions are the enemy. If you get emotional every time the stock market rises or falls, then investing is really not for you. Better off sticking your money in a Treasury bill.

Keep this in mind...we’ve been here before. Stock markets, by their very nature, have periods of rising prices and periods of falling prices.

The trick is to use market fluctuations to your advantage, such as buying when prices are low and selling when prices are high. Over the long-term, it’s the fundamentals of the business that dictate the stock price...not the other way around.

During a market decline, you should be looking to add to your positions or initiate new ones...not sell.

If you feel like selling during a market panic, ask yourself: Am I selling because stock prices are down or has there been a change in the valuation of the business I’m investing in?

If you’re focusing on what the company is going to do, then you’re investing. If you’re focusing on the stock price, then you are a speculator.

If you’re an investor, market downturns are opportunities to buy—that’s when valuations become cheap—not sell.

So, what should you do during market sell-offs?

First, hold back on your emotions. Emotional decisions are usually terrible ones.

Second, think long-term. Over the long-term, if you buy financially sound companies when they are trading at bargain prices, you should see an increase in your net worth.

Third, look at some of our most recent recommendations. If they are trading at a lower price than the price we added them to the portfolio, they should be the ones you consider for purchase.

If you are new to Hidden Values Alert or underinvested, we recommend you build your portfolio with stocks that have a P/E no greater than 12 and currently trading at or below their original purchase price.

The following stocks pass both rules:

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SOLID INCOME Picks for the Long Haul

By Chloe Lutts JensenEditor

Cabot Dividend Investor

Mosaic Co. (MOS)—current p/e of 11 Chevron (CVX)—current p/e of 11 Sanderson Farms (SAFM)—current p/e of 5 Micron Technology (MU)—current p/e of 5 MRC Global (MRC)—current p/e of 9 Joy Global (JOY)—current p/e of 9 American Railcar (ARII)—current p/e of 7 Copa Holdings (CPA)—current p/e of 7

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A Guggenheim BulletShares Bond ETF Income LadderThis bond ladder composed of four separate ETFs should provide some counter-exposure to the stock market as well as a growing income stream over time while preserving our capital and reducing our risk.

Bond ladders are a way of creating your own adjustable-rate income stream, by buying a series of bonds or bond funds with staggered maturity dates.

Then, as each security matures, you reinvest the proceeds in a new security at the top of ladder, which becomes your new longest-dated security.

If interest rates are rising, the new investments will have higher coupon rates than the investments rolling off the bottom of the ladder and your yield will gradually rise.

It is important that you only buy individual bonds or defined maturity bond funds for your ladder, to preserve your principal guarantee.

In times of rising interest rates, standard bond funds are likely to be a poor store of value, because their existing holdings will lose value while their new purchases become more expensive.

Investing in bonds or ETFs with maturity dates, on the other hand, preserves your principal guarantee, the promise that you’ll get your principal back when the bond matures.

We’re going to keep things simple and use Guggenheim BulletShares ETFs, a group of defined-maturity bond ETFs; these funds are easier to buy and sell than individual bonds, which often have low liquidity.

Guggenheim offers two series of BulletShares ETFs, one that holds investment grade corporate debt and one that holds high yield (or junk) debt.

The high yield ETFs obviously yield more, but there’s a higher risk that some of the securities in the ETF will default, causing the fund to lose value.

I feel comfortable buying high yield ETFs for two of the rungs of our bond ladder, the securities maturing in 2016 and 2018.

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SOLID INCOME Picks for the Long Haul

By Beth PiskoraContributor, Standard &

Poor’s The Outlook

For the other two rungs we’ll buy Guggenheim’s investment grade ETFs (they’re simply called “corporate bond” ETFs) maturing in 2017 and 2019.

If you have a lower or higher risk tolerance, feel free to adjust your own bond ladder accordingly; Guggenheim offers high yield and investment grade ETFs for each year.

Guggenheim’s investment grade funds had a NAV at inception of $20 and the high yield funds had a NAV of $25. The four funds we are buying are:

Guggenheim BulletShares 2016 High Yield Corporate Bond ETF (BSJG)—Current yield: 3.4%

Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH)—Current yield: 1.4%

Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI)—Current yield: 4.3%

Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ)—Current yield: 1.8%

Note that the last letter in each ETF corresponds to the maturity year, so if you’re putting on a four-year ladder starting in 2016, your four funds should end in G, H, I, and J, whether high yield or investment grade funds.

The current combined yield of these four positions is about 3.4%. Note that while the funds’ regular monthly distributions are classified as ordinary income, the funds may also make small distributions of short- and long-term capital gains at the end of each year.

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Acing the Buffett Test: MO, AMGN, BIIB, CNI, CBS, CELG, DFS, EV, FFIV, BEN, GNTX, GILD, INTC, JNJ, LVS, LLTC, MA, MON, QCOM, RMD, RAI, STJ, TROW, TSM, and UNP

Warren Buffett has earned a reputation as one of the preeminent value investors of all time. So, how does Buffett make his picks?

In his rare public remarks and widely followed annual letters to Berkshire Hathaway shareholders, Buffett makes it sound very simple: he says he buys stocks that are “available at a sensible price.”

The fact is, though, that Buffett uses very sophisticated screens to determine which companies belong in his portfolio. Specifically, he uses these five investment criteria:

Free cash flow (net income after taxes, plus depreciation and amortization, less capital expenditures) of at least $250 million.

Net profit margin of 15% or more. Return on equity of at least 15% for each of the past three years and the most recent quarter.

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SOLID INCOME Picks for the Long Haul

One dollar’s worth of shareholder equity created for every dollar of retained earnings over the past five years.

Market capitalization of at least $500 million. For the S&P Capital IQ Warren Buffett portfolio, one more criterion is added to eliminate overvalued stocks: comparing our five-year discounted cash flow estimate with the current price.

The table includes all of the stocks that meet all six requirements and have a STARS ranking of 4 or 5, our buy, and strong buy ratings.

It is important to note these are not stocks Buffett has either purchased or announced plans to purchase. They simply meet the criteria that Buffett has emphasized in the past.

Altria Group (MO)Amgen (AMGN)Biogen (BIIB)Canadian National Railway (CNI)CBS (CBS)Celgene (CELG)Discover Financial Services (DFS)Eaton Vance (EV)F5 Networks (FFIV)Franklin Resources (BEN)Gentex (GNTX)Gilead Sciences (GILD)Intel (INTC)Johnson & Johnson (JNJ)Las Vegas Sands (LVS)Linear Technology (LLTC)MasterCard (MA)Monsanto (MON)Qualcomm (QCOM)ResMed (RMD)Reynolds American (RAI)St. Jude Medical (STJ)T. Rowe Price Group (TROW)Taiwan Semiconductor (TSM)Union Pacific (UNP)

The S&P Capital IQ Warren Buffett (Intrinsic Value) Portfolio was launched on February 13, 1995.

Since inception through August 31, 2015, the portfolio posted an average annualized gain of 11.8%, outperforming the S&P 500’s (SPX) average annualized gain of 7.1% in the same period.

For the three years ended August, the portfolio rose 18.0%, outperforming the S&P 500’s rise of 11.9%. The portfolio is updated twice annually, in March and September.

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SOLID INCOME Picks for the Long Haul

By Todd RosenbluthS&P Capital IQ Director of

ETF Research S&P Marketscope

Appealing REITs: Simon Property, Equity Residental, SL Green Realty, and American Tower

S&P Capital IQ has a positive fundamental view of the retail REIT group, which is comprised of shopping mall operators.

Cathy Seifert, an equity analyst for S&P Capital IQ, thinks increasing absorption of retail space should present retail landlords with more pricing power.

Most of the retail REITs have long-term leases with their customers, with embedded rent adjustments that should help insulate them from economic fluctuations.

Simon Property Group (SPG) is the largest retail REIT, with a $57 billion market capitalization.

While occupancy in Simon’s US regional mall and premium outlet portfolio was 96.1% at June 30, 2015, down slightly from 96.5% a year earlier, it remained above most peers.

Re-leasing spreads in the 12 months ended June 30, 2015, rose a healthy 18.4% over the prior year.

Meanwhile, mall tenant sales advanced 2.0% to $620 per square foot. SPG has a 3.3% dividend yield.

S&P Capital IQ also thinks the fundamentals for the residential and office REITs sub-industries are favorable thanks to an uptick in demand, coupled with a muted increase in supply.

For example, Equity Residential (EQR) reported 4.1% second quarter revenue growth and margin expansion. S&P Capital IQ forecasts 5% revenue growth with an occupancy rate an above-peers 96%. EQR has a 3.0% dividend yield.

Meanwhile, New York City-focused office REIT SL Green Realty’s (SLG) occupancy rate for Manhattan at June 30, 2015, was 97.0%; while—on the same basis—occupancy for SLG’s suburban portfolio was 84.2%.

S&P Capital IQ estimates rental rates will grow about 5% to 6% in SLG’s core Manhattan market in 2015. SLG has a 2.1% dividend yield.

The other major industry for REIT investors to understand is specialized REITs, which is a myriad of companies driven by fundamentals ranging from cell phone towers to pulp and timber, all of which have opted to operate under a REIT structure.

With a market cap of $40 billion, American Tower (AMT) is the second-largest REIT in the S&P 500 index.

S&P Capital IQ estimates revenue increases of 13% in 2015 and 14% in 2016, reflecting higher lease activity and more new towers.

Seifert thinks AMT will benefit from the demands of wireless carriers to improve their network quality and coverage.

AMT converted to a REIT in late 2011; former telecom services peer Crown Castle (CCI) also made the REIT conversion in 2014. CCI’s 4% dividend yield is higher than AMT’s 2%.

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SOLID INCOME Picks for the Long Haul

By Genia TuranovaEditor

Leeb Income Performance

The specialty REIT industry also includes companies such as Weyerhauser (WY), a former paper & forest products company that is largely dependent on conditions in the home construction business; sales declined 8% in the second quarter of 2015. WY has a 3.8% dividend yield.

For those investors seeking income-oriented equities with strong fundamentals, these securities are worthy of attention.

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Aqua America: Cash Flow from WaterAqua America (WTR) holds a unique position in the portfolio. It serves approximately three million people in eight states—Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana, and Virginia—providing water and wastewater services.

For many reasons, water presents a compelling investment case; some researchers even argue that this resource is more valuable than oil.

Whatever the actual dollar cost of water, one thing is certain, water is a daily necessity and here lies its attractiveness as an investment.

Aqua America, a regulated utility, is expected to provide stable and sustainable cash flows.

We like it, however, for its aggressive growth stance; since 1995, Aqua America has made more than 300 acquisitions and growth ventures.

From 1999 to 2014, its net income had compounded annual growth of more than 10%, very high for a utility.

In early August, the Aqua America Board of Directors declared a quarterly dividend that represented a 7.9% increase in payout and the 25th dividend increase in 24 years.

Given its relatively low payout ratio, it is expected to continue to increase dividends at or above the level of earnings growth.

The company has capitalized on growth in the number of customers, having added customers in both regulated and market-based businesses, a 0.9% increase in customers that, combined with organic growth, brings its total to a 1.2% increase.

Further, higher surcharges, cases of rate relief, and higher consumption added to the quarter’s positives.

Looking forward, Aqua America plans to invest about $1 billion in capital improvements over the next three years.

Considering its business fundamentals, share valuations (down recently), and its growing dividend, we reiterate our positive recommendation.

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SOLID INCOME Picks for the Long Haul

By Ari CharneyEditor, Utility Forecaster

AT&T Rings Up GrowthFew companies boast the scale and diversity of operations as AT&T (T). Its recent acquisition of DirecTV gives the No. 2 US wireless company an important foothold in Latin America, where the satellite TV provider has 18 million subscribers.

Latin America is one of the largest buyers of Spanish-dubbed TV series and movies from the US, the UK, and Australia.

Only 40% of households in Latin America subscribe to paid-television services (versus 90% in the US) and the Latin American middle class is DirecTV’s fastest-growing demographic.

At the same time, Latin American markets could see challenges as incomes decline on currency devaluations.

But we believe AT&T’s strong domestic presence gives the firm the platform necessary to make significant inroads into new markets at a time when potential competitors are weak and that will pay off when growth returns.

Meanwhile, the tech revolution is bigger than just telecom. Companies such as AT&T are at the forefront of developing new business opportunities for global firms, as rising smartphone adoption creates gateways to selling other products and services.

In recent weeks, AT&T’s stock has fallen somewhat harder than both its telecom peers and the broad market. That’s despite the fact that analyst sentiment has held steady.

But this gives income investors an opportunity to lock in a yield of 5.8%, the stock’s highest yield in more than three years. AT&T is a buy below $35.

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SOLID INCOME Picks for the Long Haul

By Mark SkousenEditor, High-Income Alert

Bank on PacWest for Income and GrowthLike most financial service companies, PacWest Bancorp (PACW) offers checking, savings, credit cards, mortgages, consumer and business loans, and asset management services.

The bank—with $21 billion in assets—is plenty healthy. Revenue topped $800 million over the last 12 months.

Earnings rose 12% in the most recent quarter. And the bank enjoys a whopping 61% operating margin.

But I’m even more excited about its near-term prospects, as we are in a near-perfect environment for bank stocks.

The US economy, as reflected by real gross domestic product, grew 3.7% in the second half. An expanding economy means more consumer business loans and rising asset values.

After eight or nine years of not investing, more businesses are finding that they need to invest in new equipment and infrastructure. That requires credit.

Inflation is negligible, too. That’s a plus for lenders, as they don’t like loans repaid in currency that is worth less. Core inflation, which excludes fuel and food prices, is only 1.3%.

But plunging energy and agricultural prices mean actual inflation is even lower. A strong dollar is disinflationary, too. That’s good for banks.

Joblessness recently hit a seven-year low. More workers means more borrowers. Home sales are hot and so is the homebuilding industry. That creates demand for mortgages. Plus, rising home values create a greater margin of safety for mortgagees.

For all these reasons, I like the outlook for PacWest. And so does Chief Financial Officer Patrick Rusnak. Recent SEC filings reveal that he just purchased more than $200,000 worth of the stock.

In addition to the capital gains potential, you’ll also collect a 4.4% dividend yield here. So pick up PacWest Bancorp at market. And place a protective stop at $36.

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SOLID INCOME Picks for the Long Haul

By Jack AdamoEditor, Insiders Plus

Bank on These Preferred Picks: Cullen/Frost Bankers and Texas Capital BancsharesCullen/Frost Bankers 5.375% Perpetual Preferred Series A (CFR-PA) reported earnings per common share at $1.17, slightly below the prior-year quarter figure of $1.18.

Turning to the statistic most important to preferred shareholders, the bank remained very well capitalized with a Tier 1 risk-based capital ratio of 12.61%.

Return on average assets (ROA) and return on average common equity (ROE) were 1.04% and 10.73%.

The ROA is considered good for a bank. The ROE is lower than ideal, but that is largely because the company is holding excess capital, as seen in its Tier 1 ratio. For preferred shareholders this is a big plus.

Texas Capital Bancshares 6.50% Non-Cumulative Perpetual Preferred, Series A (TCBIP) saw total loans grow 17.9% year-over-year to $15.9 billion, while total deposits surged 29.4% to $15.2 billion.

Thus, loans are almost entirely funded by deposits, a rare case in banking these days. Usually, loans are funded largely by borrowing from other sources, leaving the banks with a lower interest rate spread.

On the negative side, credit metrics deteriorated during the quarter with nonperforming assets of $109.9 million or 0.69% of the loan portfolio, compared with $38.4 million or 0.28% in the year-ago quarter.

Net charge-offs rose to $2.3 million from $0.6 million in the year-ago period. ROA and ROE were fair and equity ratios were adequate.

To our benefit was the fact that total shareholder equity increased 22.5% due to a secondary common stock offering of 2.5 million shares. All that extra equity provides a big cushion for our dividends.

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SOLID INCOME Picks for the Long Haul

By Michael RawsonContributor

Morningstar ETFInvestor

Ben Graham and Dividend ETFs: DVY, SDOG, DHS, SPHD, VYM, DTD, and PRF

In his classic book, The Intelligent Investor, he laid out a number of quantitative rules with which to evaluate stocks.

These same concepts underlie the indexes that form the basis of many of the dividend-oriented ETFs investors use today. The rules are:

1) There should be adequate, though not excessive, diversification.

2) Each company selected should be large, prominent, and conservatively financed.

3) Each company should have a long record of continuous dividend payments.

4) The investor should impose some limit on the price he will pay for an issue in relation to its average earnings over, say, the past seven years.

I searched the Morningstar database for dividend-oriented funds. I eliminated international and sector funds from the results.

This resulted in a list of 17 ETFs with over $1 billion in assets that use dividends as part of their screening methodology.

Dividend-oriented ETFs can generally be split into two camps: those that seek out stocks with high dividend-yields and those that seek out stocks with growing dividends. I’ve grouped funds along these broad lines.

Funds that seek out stocks with the highest yields may not be appropriate as core portfolio building blocks, but they could be employed as a tactical tool to improve the yield of the overall portfolio.

Good examples include iShares Select Dividend (DVY), which weights stocks that survive several screens by per-share dividends.

ALPS Sector Dividend Dogs (SDOG) buys the five highest yielding stocks from each of ten sectors. WisdomTree Equity Income (DHS) starts with the highest yielding 30% of the market by dollar amount of dividends paid.

PowerShares S&P 500 High Dividend ETF (SPHD) takes the 75 highest yielding stocks in the S&P 500, selects the 50 with the lowest volatility, and then weights them by yield.

Some yield seeking funds rely on diversification to dull the sting of catching falling knives.

Vanguard High Dividend Yield ETF (VYM) weights the highest yielding stocks by market cap and keeps including stocks until it reaches 50% of the market value of the dividend paying universe.

WisdomTree Total Dividend ETF (DTD) contains virtually all dividend paying stocks and weights them by the dollar amount of dividends they pay.

PowerShares FTSE RAFI US 1000 ETF (PRF) weights stocks based on the five-year average of dividends, sales, cash flow, and the most recent book value.

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SOLID INCOME Picks for the Long Haul

Some funds tilt toward mid-cap companies, where higher yields can be found.

WidsomTree MidCap Dividend (DON) weights mid-cap stocks by the dollar amount of dividends paid. Global X SuperDividend US ETF (DIV) equally weights 50 high yielding stocks and includes master limited partnerships and REITs.

The field of dividend growers tends to have little, if any, overlap with the field of high yielding stocks. These companies aren’t likely to offer the highest yields; the hope is that their dividends will grow in the future.

The indexes designed to isolate these firms typically use several screens based on financial statement data, such as dividend payout ratio or debt/capital to winnow down the field.

For example, Schwab US Dividend Equity (SCHD) ranks stocks that have paid dividends over the past ten years by yield, scores those in the top half on various measures of financial strength and finally weights the top 100 by market cap.

iShares MSCI USA Quality Factor (QUAL) scores stocks based on return on equity, debt, and earnings stability and weights them by their quality score-adjusted market cap.

Vanguard Dividend Appreciation ETF (VIG) looks for stocks that have increased dividends for ten consecutive years that also pass some additional, undisclosed screens.

WisdomTree US Dividend Growth (DGRW) dividend weights 300 companies with high return on equity, return on assets, and forecast earnings growth.

Each of these ETFs has a large percentage of its assets in stocks that have a wide Morningstar Economic Moat Rating, showing a competitive economic advantage.

Companies that have a long track record of paying dividends and are able to consistently pay dividends throughout market cycles typically have stable, repeatable business models or strong brands that give them pricing power.

SPDR S&P Dividend ETF (SDY) looks for companies that have increased dividends for 20 consecutive years and weights them by yield.

PowerShares Dividend Achievers (PFM) market-cap weights stocks that have increased dividends for at least ten years.

PowerShares High Yield Dividend Achievers (PEY) takes the 50 highest yielding stocks from the dividend achievers list.

The average dividend-yield for the 17 stocks discussed above, gross of the fund expense ratio, is 4.1% for the high dividend-yield group, versus 2.8% for the dividend growers.

In contrast, dividend growers have a historical earnings yield of 4.9% and estimated earnings growth of 8.8%.

This is higher than the 1.4% historical growth and 7.6% forecast growth for the ETFs in the high dividend-yield group.

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SOLID INCOME Picks for the Long Haul

By Josh PetersContributor, Morningstar

DividendInvestor

Crown Castle: Tower of OpportunityThe wireless tower industry provides access to fantastic cash flow and exposure to exploding wireless data demand.

Long-term contracts and high switching costs provide a solid base of future business. At the same time, we don’t believe wireless carriers can escape the need to build denser cell site grids to add data capacity.

Despite a short dividend history and a bit of technological risk, Crown Castle International (CCI) offers a lot of appeal.

Crown Castle has focused all of its energy on the US market, recently agreeing to sell its Australian business.

While Crown lacks the international growth potential of its main rivals, we believe it has pulled together assets that will make it an especially indispensable partner for the US carriers.

Crown earns the vast majority of its revenue by leasing out space on communications towers it owns or otherwise controls.

Contracts with wireless carriers typically run ten years or longer and include annual rent escalators.

The majority of these wireless towers were acquired in chunks, primarily from the carriers themselves.

Tower firms can manage these assets more efficiently than the carriers, as independent ownership allows multiple carriers to locate on each structure without competitive concern.

The tower companies also possess management expertise that can be effectively leveraged across a far larger number of sites than a carrier could accomplish on its own.

Crown’s nearly exclusive focus on the US market has led it to types of assets its rivals have largely ignored.

The acquisition of NextG in 2012 pushed the firm heavily into the distributed antenna system and small-cell markets, while the purchase of Sunesys brought deep fiber assets in several markets.

We believe Crown is assembling a collection of assets that collectively will allow it to offer unique solutions to the carriers as it fills network gaps and adds coverage in high-traffic areas.

Crown’s 4.2% yield is relatively low compared with traditional triple-net lease REITs, but dividend growth boosts the potential total return range to 10%–11% a year over the long run. As we assume a 9% cost of equity, we believe the shares are undervalued.

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SOLID INCOME Picks for the Long Haul

By Deon VernooyEditor, Investing Daily’s

Canadian Edge

Dividend Champ with a Canadian Edge: CI FinancialThe investment management industry and specifically the hedge fund industry have been described as one of the most profitable industries ever.

And CI Financial Corp. (TSX: CIX, OP: CIFAF) is one of Canada’s largest independent asset management companies, with total managed assets of around C$140 billion.

The company, which currently yields 4.4%, went public in 1994 and built its assets through a consistently stellar investment performance and some small acquisitions.

CI Financial makes money from fees it charges customers to manage their investments as well as from the sale of mutual funds and other investment products through its financial adviser business.

Since 1994, the stock has performed exceptionally well. Its share price increase of 4,600% makes it the sixth-best-performing stock on the Toronto Stock Exchange. And we think CI has a bright future, despite the depressed Canadian economy.

CI has an excellent balance sheet and a stellar reputation. Growth could come by acquiring specialized investment management businesses that fit in under its multi-boutique umbrella. Since 2010, CI made several acquisitions, including Lawrence Park Capital Partners and Marrett Asset Management.

Further growth could come from managing money for rich clients; assets under management from such high-net-worth households increased from $7 billion in 2010 to $23 billion in 2015.

CI merits inclusion in our Dividend Champions Portfolio based on its attractive dividend yield of 4.4%, solid balance sheet, relatively conservative payout ratio (60% of free cash flow), and excellent cash flow.

The company’s dividend payment history is strong, despite cuts in both 2008 and 2009 that occurred because of declining profits and the costs associated with converting from an income trust to a corporation at the end of 2008.

The dividend yield of 4.4% is higher than CI’s peers and dividend growth should track expected profit growth of around 10% per year over the medium-term.

We like the business, management’s conservative approach, the scale and high levels of profitability, the strong balance sheet, and the attractive valuation.

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SOLID INCOME Picks for the Long Haul

By Bob CarlsonEditor, Retirement Watch

DoubleLine DuoWe recommend being well balanced and diversified among several funds that each provide good margins of safety and are positioned to do well in almost any scenario that is likely to come our way.

Such is the case with two of our recommended funds, both from the DoubleLine fund family.

One top performer has been DoubleLine Total Return Bond (DBLTX), managed by Jeffrey Gundlach. The fund is up 2.28% for the year to date. The yield is 4.22%.

Gundlach continues to believe that there is too much risk in the global economy for the Fed to raise interest rates by much and that deflation is more of a risk than inflation.

While others have talked about preparing for interest rates to increase, he hasn’t changed the portfolio much over the last few years.

It continues to be more than half in agency mortgage securities, which are based on mortgages issued by government agencies or quasi-agencies. These provide a low yield and a lot of stability, because the focus in on short duration securities.

About 22% is in non-agency securities that were purchased substantially below face value. These generate cash through mortgage prepayments and refinancing.

The rest of the fund is in cash, Treasury bonds, commercial mortgages, and other assets that are traded as markets create opportunities.

Many emerging market bond funds did poorly so far this year. We did better with DoubleLine Emerging Markets Fixed Income (DBLEX) for two reasons.

First, DoubleLine has believed for several years that the dollar would be strong while other currencies—especially emerging economy currencies—would stumble. That’s been the case.

As a result of this policy, the fund owns few bonds denominated in foreign currencies. It seeks bonds denominated in US dollars.

The other reason the fund has held its value well is that it generally avoids sovereign debt. It looks for corporate debt and quasi-government debt, which is debt issued by entities that are explicitly or implicitly backed by governments.

Emerging market sovereign debt generally hasn’t held up well. As a further protection, the fund seeks debt issued by entities with improving finances that aren’t yet reflecting in higher credit ratings.

The fund likes to buy when rates are still lower and then watch the prices rise when the ratings are upgraded.

The fund’s yield is 5.23%. In our view, emerging market debt invested in this way is a good place to be in the current environment.

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SOLID INCOME Picks for the Long Haul

By Vita NelsonEditor, MoneyPaper

DRIP Expert Powers Up Utility Duo: NextEra Energy and Piedmont Natural Gas

While the stock market continues to be unsettled and investors uncertain, many companies—such as utilities—continue to roll along as before.

These firms are growing their revenues and earnings at a steady pace and often boosting their dividends regularly. Power companies are a perfect example.

To a large extent, they aren’t subject to market panic, since the population in general is not going to stop using electricity, gas, or water.

And, while the rates they may charge are subject to approval by state utility commissions, those governmental bodies allow for a reasonable level of profitability.

Other necessities of life, such as food, gasoline, and phone service, also provide investors with some degree of reliable returns and a respite from uncertainty and volatility.

NextEra Energy (NEE)

NextEra is the parent of Florida Power & Light, a utility that engages in the generation, transmission, and distribution of electricity to 4.7 million customers in a 27,650 square mile area of eastern and southern Florida.

Its NextEra Energy Resources subsidiary is a non-regulated power generator that produces electricity from nuclear, natural gas, solar, and wind generation.

It is the US leader in production of energy from wind, with a capacity to produce 8,500 megawatts from those sources and 44,900 megawatts of electricity in total.

The company is expected to earn about $5.66 per share this year and $6.15 in 2016, compared with $5.30 in 2014. The dividend has been increased for 21 consecutive years and the annual payout of $3.08 per share results in a yield of 3.2%.

Piedmont Natural Gas (PNY)

Founded in 1949, Piedmont Natural serves more than one million retail customers in the Carolinas and Tennessee. It also transports, stores, and markets natural gas, propane, and related appliances.

Revenues for the fiscal year that ends in October are expected to top $1.4 billion and consensus estimates call for PNY to earn about $1.87 per share in fiscal 2015 and $1.99 in fiscal 2016, compared with $1.84 last year.

The annual dividend, which has been increased for 37 straight years, now stands at $1.32 per share, providing a 3.6% yield, and the DRIP offers a 5% discount on reinvestment.

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SOLID INCOME Picks for the Long Haul

By Doug FabianEditor

Successful ETF Investing

Fabian’s Favorites: Go-to Income ETFs, iShares Select Dividend, US Preferred, and US Real Estate

Our Fabian Domestic Plan buy signal—our proprietary long-term timing indicator—allowed us to do what we’ve been wanting to do for some time, add a variety of dividend and high yield exposure to the Income Portfolio.

We accomplished this with three fantastic funds that I want all Income Portfolio investors to add to their current mix.

On the dividend-paying equity front, we bought iShares Select Dividend ETF (DVY), which is our go-to fund for large-cap dividend stock exposure.

This fund holds dividend powerhouses such as Lockheed Martin (LMT), Philip Morris (PM), and McDonald’s (MCD), to name just a few.

On the preferred front, we have the iShares US Preferred Stock ETF (PFF), my favorite exchange-traded fund (ETF) to get preferred-stock exposure.

Companies, primarily in the financial space, that issue high yield preferred stocks are in this fund.

Such holdings are what give PFF its big annual yield of 6.17%. Finally, there’s the iShares US Real Estate ETF (IYR), our go-to fund for real estate investment trust (REIT) exposure.

REITs are structured as pass-through securities and that means they pass through most of their earnings to shareholders. For income investors, it means a yield on IYR of 3.94%.

The mix of high quality dividend-paying stocks in DVY, high yield preferreds in PFF and high yield pass-throughs in IYR reflect the kind of well-rounded income-generating securities that need to be in your portfolio if you want to generate strong yields and solid price appreciation.

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SOLID INCOME Picks for the Long Haul

By Jason SimpkinsContributor, Outsider Club

Magellan: Bargain Buys in MLPsWith oil prices in the tank, energy stocks have taken a beating; but if you believe, as I do, that oil prices are at least near their bottom, now would be a good time to start bargain hunting.

To be clear, I’m talking about the long game, which means taking an initial position now and adding to it piecemeal over the next year.

And, if you get a stock with a high yield, you can use the dividends to accumulate more shares.

And the best place to find high yielding energy stocks are among MLPs, in particular, midstream pipeline companies that store and transport oil and gas.

What makes them so appealing, in addition to their lofty yields, is the fact that they get paid on volume. The more fuel they move, the more money they make.

That’s important because oil and gas production have remained extremely robust in the face of low prices. Both are currently amid a glut, and rather than crushing production, low commodities prices have buoyed demand.

Of all the MLPs out there, I like Magellan Midstream Partners (MMP). Its assets include a 9,500-mile refined products pipeline system with 53 terminals.

I’m very bullish on the market for refined products, which are made cheaper by low oil prices.

The company also has 1,600 miles of crude oil pipelines and storage facilities with an aggregate storage capacity of 21 million barrels.

Additionally, it has five marine storage terminals with an aggregate capacity of 26 million barrels. That’s beneficial because storage is in high demand right now.

Magellan boosted its full-year guidance for distributable cash flow by $10 million to $880 million, ensuring its ability to build on its robust track record of increasing cash distributions.

In July, Magellan raised its quarterly distribution by 16%, to $0.74 per unit. That was the 53rd distribution increase since the company’s 2001 IPO.

At current prices per unit, that equates to a 4.5% yield, which is well ahead of the stock market average (not to mention Treasuries). Better still, there’s room for growth.

The average 12-month price target among brokers that cover the stock is $85. That’s a near-30% increase from its current level.

The bottom line: Magellan is especially well suited to withstand the downturn in oil prices, its payouts are strong and reliable and there’s a surprising amount of growth potential.

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SOLID INCOME Picks for the Long Haul

By Bryan PerryEditor, Cash Machine

Not Your Grandfather’s Bond FundAgainst a backdrop of near term uncertainty, I thought it best to invest alongside one of the best fixed-income managers on the planet to assist in navigating through the next few months.

To that end, I am adding a closed-end fund—DoubleLine Opportunistic Credit Fund (DBL)—to our Conservative High Yield Portfolio.

Jeff Gundlach, the renowned founder, CEO, and Chief Investment Officer of DoubleLine Funds, is one of the most trusted names in the industry.

The fund falls into a newer breed of what are called “unrestricted bond funds.” Its objective is to seek high total investment return by providing a high level of current income and the potential for capital appreciation.

With these as its two primary objectives, the fund may invest in debt securities and income-producing securities of any kind.

With this pick, this fund manager seems to be pulling the right levers for risk-adjusted returns that deliver very attractive yields and preservation of capital.

Within the past 12 months, with all the gyrations endured by investors trying to stay in lockstep with a fickle Federal Reserve, Gundlach and his management team have turned out a solid +13.34% total return.

In second-quarter 2015, the fund produced a 1.24% gain in net asset value (NAV) when the 10-year Treasury yield jumped from 1.8% to 2.4%.

This is proactive bond management at its best, with its NAV posting an annualized return of 9.74% since inception (January 26, 2012).

At present, the fund owns 213 positions, with roughly 92% of capital invested in asset-backed bonds; additional holdings in reverse repos, unrated securities, and 14% structured leverage are how the lofty 8.22% current yield is manufactured.

This is not your grandfather’s bond fund for sure, and, like any actively managed fund, there is risk of principal loss, especially if interest rates spike for some unforeseen reason that catches the market off guard.

But Team Gundlach has demonstrated adroit skill in managing this fund so well in the past year, experiencing only 22% turnover.

With the financial world bracing for higher interest rates, I’m comfortable buying DBL at this time.

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SOLID INCOME Picks for the Long Haul

By Jimmy MengelEditor, The Crow’s Nest

Nucor: A Steal in Steel?Nucor Corporation (NUE) is now the largest steel company in the United States. It’s also the most valuable steel company, globally, by market cap.

Nucor is also among the top dividend-paying steel companies and has paid 170 consecutive cash dividends. This fact cannot be overstated in a cyclical industry like steel.

Most of this is simply due to the fact that steel has been hammered since China’s economy has slowed.

But here are a few reasons why Nucor can withstand this current downturn and emerge victorious once prices go back up:

Nucor is the only North American steel company to hold an investment grade credit rating.

If steel prices manage to hold their ground in the coming months, Nucor’s earnings might be even better than the analysts’ average estimates.

Nucor’s healthy dividend yield of 3.48% is another attraction for value investors. Unlike some of its peers, Nucor can sustain the dividend payout even if steel market conditions turn worse from here.

Meanwhile, the housing and construction sector is the largest consumer of steel today and home construction recovered at a steady pace last year.

The automotive sector is the second-largest steel consumer and it is also showing significant promise.

In fact, for the first time since 2008, US auto sales surpassed 16 million units in 2014 and the rising trend in sales is expected to continue in 2015.

The auto industry in the Asian countries, particularly China and India, is also expected to flourish over the next five to seven years.

Finally, Nucor just announced a share buyback program of up to $900 million. Share buybacks are part of Nucor’s long-term strategy to return capital to shareholders.

Just like its dividend increases, the share buyback is all the more impressive since its competition is just struggling to manage its debt, let alone pull off a share buyback.

We’re buying Nucor in a dividend reinvestment program, looking for long-term stability and growth.

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SOLID INCOME Picks for the Long Haul

By Chuck CarlsonEditor, DRIP Investor

Outsized Dividend Supports ExxonIt is always dangerous to call a sustained turn in energy stocks. A slowing economy in China still represents a headwind for the group and there are still questions about over supply of energy.

Still, the rebound is certainly a welcomed event for yield-hungry investors who may have gotten a bit heavy in the group.

In the Editor’s Model Portfolio, the only energy-related play is Exxon Mobil (XOM).

To be sure, these blue chip shares have been beaten up pretty badly after peaking at around $97 a year ago, so the stock still has plenty of ground to make up.

Recent earnings results have been fairly brutal for Exxon. However, the rebound in the group may mean Wall Street is probably looking past the poor near term results.

Indeed, the silver lining of weak near term profits is that the poor results provide easy comparisons for earnings beats in 2016 and the group’s rally may be reflecting a possible earnings recovery next year.

Of course, stabilization in oil prices—certainly not a given—would go a long way toward restoring the bottom line. Some softening in the dollar—also not a given—would be helpful as well.

One appeal of these shares continues to be the outsized dividend yield of 3.6%. Exxon is currently paying an annualized dividend $2.92 per share.

Of course, earnings estimates for energy stocks, given the price volatility of the underlying commodity, can be relatively imprecise.

Still, it seems the company should comfortably cover the dividend with earnings, although I am less inclined to see significant stock buybacks coming from Exxon over the next 12 months given the pressure on profits.

While it is nice to see the rebound in Exxon Mobil stock, I’m not ready to say it’s onward and upward for these shares.

I like the long-term potential of the stock. I think the dividend is safe and will continue to grow, albeit probably at a low single-digit rate over the next 24 months.

I have no problem if investors who are looking to play the energy rebound but want to remain in blue chips take positions at these levels. Still, you might get an even lower price in the next few months to build positions.

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SOLID INCOME Picks for the Long Haul

By Tim PlaehnEditor, Tax-Smart Hunter

Plains: Premier Play in PipelinesPlains All American (PAA) has a decade-long history of above average distribution growth and total returns.

And, in a moment of clairvoyance, the management team at Plains All American forecast the energy price declines in early 2014.

Because of their preparedness, they have been positioning the company to get through the current challenging times and are ready to resume growth when energy prices are expected to recover after 2016.

PAA owns and operates one of the largest crude oil gathering, pipeline, and crude storage networks in North America.

Plains has a very positive outlook of the North American energy sector for the intermediate- and long-terms, but expects the current low prices to negatively affect results through at least the latter part of 2016.

Plains has an investment grade credit rating, which gives a low cost of debt capital to fund growth and acquisition projects.

Historically, Plains All American Pipelines has provided an above average combination of yield plus distribution growth from a very high quality MLP.

Historically, this MLP has carried a 5% to 6% yield, so the current rate of 8% is well above average.

Management has indicated that it expects distribution growth of 0% to 3% for 2016. They have stated that more typical high single digit growth rates should resume in 2017.

When distribution growth again ramps up, the market should push the yield back down to the historic range, producing nice unit price gains compared to the current value.

Our recommendation is to buy and accumulate PAA units at the current above average yield. This is a buy-and-hold investment that will pay off with attractive total returns later in the decade (2017-2019).

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SOLID INCOME Picks for the Long Haul

By Pat McKeoughEditor, TSI Research

Procter & Gamble: Reliable IncomeProcter & Gamble (PG) has raised its dividend for each of the past 59 years. Still, the mark of a successful company is its ability to make the necessary adjustments to keep on growing.

The company has been selling off some of its less profitable brands over the past few years. While these product sales cut into current earnings, they also give Procter a large infusion of cash for efficiency improvements, share buybacks, and more dividends.

Wal-Mart (WMT) supplies 14% of the company’s sales. In the past few years, Procter has sold many of its less profitable brands, including its recent deal to transfer 43 beauty product lines, including Wella, Clairol, Max Factor, and CoverGirl, to Coty, Inc. (COTY).

Instead of a typical sale, which would result in a large tax bill, the company will split-off these brands into a separate firm that will later merge with Coty.

Procter will then give its shareholders the option of exchanging all or some of their shares for Coty stock. Following the deal, Procter investors would hold 52% of the combined firm.

The company expects to realize a gain of $5 billion to $7 billion when it completes the merger in the second half of 2016.

Procter’s balance sheet remains strong. As of September 30, 2015, its long-term debt was $17.4 billion or just 8% of its market cap. It also held cash of $12.6 billion.

The company is using the cash from its asset sales to boost its efficiency, including streamlining its supply networks and distribution channels. It feels these actions will cut $3.0 billion from its annual costs when it completes the plan by the end of fiscal 2017.

These savings will give Procter more cash for share buybacks and dividends; it repurchased $4.6 billion worth of its stock in fiscal 2015.

The company has raised its payout for 59 straight years. The current annual rate of $2.65 a share yields 3.4%.

International markets supply two-thirds of Procter’s sales and the high US dollar will probably cut its 2016 earnings to $3.76 a share.

The stock trades at 20.5 times that forecast, which is still a reasonable multiple in light of its well known brands and improving long-term profitability. We rate the stock a buy.

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SOLID INCOME Picks for the Long Haul

By Benjamin ShepherdEditor, Personal Finance

Realty Income: 81 Dividend IncreasesWith growing speculation that the Federal Reserve may raise rates later this year, REITs and other high yielders are having a tough time.

Realty Income (O) owns over 4,000 properties, leased to over 200 different commercial tenants.

Operationally speaking, the REIT is unfazed by those worries, with both revenue and earnings up 11% in the second quarter.

Revenue jumped from $228.6 million to $253.9 million year-over-year, while net income bounced from $51.4 million to $59.3 million.

Realty Income also completed acquisitions and developments worth $721 million. Occupancy was another high point of the report, coming in at 98.2%.

The REIT pushed through some pretty meaningful rent increases, with rents on new leases—compared with expiring leases—up 5.7%, while same-store rents increased 1.5%.

That solid performance helped fund Realty Income’s 81st dividend increase, totaling 4% to $0.569, marking 71 consecutive quarters of growth.

The stock is now more than 13% off its 52-week high, which it hit at the end of January thanks to growing worries over rates. But I don’t believe Realty Income has much to worry about.

Higher rates will certainly produce bigger transaction costs, but this isn’t the first time the REIT has had to deal with rising rates, having increased its dividend for 17 years in a row.

Buy Realty Income, currently yielding 4.8%, under $50 with a stop-loss at $40.

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SOLID INCOME Picks for the Long Haul

By Todd LukasikContributor

Morningstar StockInvestor

Spin-Off Boosts VentasVentas (VTR) has decided to spin-off the majority of its skilled nursing facilities as a separate real estate investment trust, Care Capital Properties (CCP).

This reduces Ventas’ exposure to our least favorite property type within healthcare while giving Care Capital its own management team, shareholders, and balance sheet to focus on its area of specialization.

We’re relatively bearish on the growth prospects of skilled nursing facilities because of their reliance on government reimbursements through Medicaid and Medicare.

After the Care Capital spin-off, Ventas derives only 4% of its net operating income from skilled nursing facilities, down from 18% previously.

Ventas’ portfolio is now more concentrated in senior housing and medical office buildings, which are among our favorite healthcare property types.

Ventas also recently acquired Ardent Health Services, setting the stage for consolidation of the fragmented hospital real estate market.

In general, we think healthcare REITs enjoy some of the best growth prospects in the REIT industry.

We reduced our fair value estimate for Ventas to $81 per share from $90 to reflect the value of the properties spun-off as Care Capital.

Although we are not formally covering Care Capital Properties, our initial valuation work puts its fair value around $38 per share ($9.50 per Ventas share, accounting for the 1:4 distribution ratio).

Meanwhile, Ventas’ senior housing operating assets are concentrated in top metropolitan areas with relatively high average household incomes and home values.

These factors, combined with the aging of the population, should drive strong demand.

Similarly, Ventas’ medical office portfolio benefits from favorable locations, with 96% of its properties on or affiliated with a hospital campus.

At the current stock price, Ventas yields 5.2% and we forecast dividend growth in the mid- to high-single digits for the foreseeable future. Subscribe to Morningstar StockInvestor here…

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SOLID INCOME Picks for the Long Haul

By Robert RapierEditor

MLP Investing Insider

Stonemor: High Yield from Grim ReaperEarly in my investing career, I made what ultimately turned out to be a very good long-term decision. I figured that as the Baby Boomers grew older, they would likely spur a boom in the pharmaceutical industry.

About a decade later, I was telling a friend about my rationale for investing in the sector. He paused for a moment and then said “I guess in 20 years you may want to think about moving some of that money into funeral homes.”

My first thought was “My gosh, that’s morbid,” but then I decided that maybe he had a point.

There were a total of about 76 million births in the US from 1946 to 1964, the period usually called the “baby boom.”

At present, about 99% of those Baby Boomers are still alive, but those numbers are projected to steadily decline over the next few decades.

Of course, this means more business for the funeral industry. Not only does this mean more funerals, but it also means more pre-sales to the Baby Boomers who plan ahead.

And there is a way for MLP investors to invest in the space. StoneMor Partners (STON), which owns and operates 304 cemeteries and 102 funeral homes in 28 states and Puerto Rico.

It is the only operator in this space organized as an MLP. Unlisted StoneMor GP LLC serves as the general partner of StoneMor Partners. StoneMor was founded in 1999 and is headquartered in Pennsylvania.

StoneMor debuted as a publicly traded partnership in 2004; at that time, revenue was $89 million and operating profit was $29 million.

For the most recent 12 months, Stonemor had revenue of $386 million and operating profit of $66.7 million.

StoneMor has been aggressive at making acquisitions since its IPO. It employs a disciplined acquisition strategy with specific target criteria for cemeteries and funeral homes.

Following the most recent quarter, StoneMor increased the quarterly distribution by $0.01 per unit to $0.65/unit or $2.60 on an annualized basis.

StoneMor has increased the annual distribution every year since its IPO and the latest payout translates to an annualized yield of 9.5%.

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SOLID INCOME Picks for the Long Haul

By Beth FoosContributor

Morningstar FundInvestor

Summit Muni: Solid Choice for IncomeT. Rowe Price Summit Muni Intermediate (PRSMX) remains a solid choice. Hill has a strong track record with this fund, which he’s been running since inception.

During his tenure, the fund’s returns beat 80% of its intermediate-term muni peers’, while providing a relatively smooth ride for investors.

Volatility, as measured by standard deviation, clocks in below 80% of its peers since its 1993 inception.

Interest-rate bets are off the table: Hill keeps the fund’s duration close to the duration of the fund’s benchmark, the Barclays Intermediate Competitive (1-17 Year Maturity) Bond Index.

But he’s more adventurous when it comes to the fund’s yield curve positioning and will go further out on the curve when valuations are attractive.

For example, as long bonds were punished in 2013, Hill added to long-maturity bonds (15-year bonds jumped from 24% of assets at yearend 2012 to 32%) while shedding shorter-term bonds (three- to five-year bonds dropped to 20% from 27%).

As the yield curve flattened in 2014, Hill kept his overweighting to 15-year bonds but added to his stake in the shorter end of the curve.

Historically, Hill has preferred mid-quality bonds, keeping allocations to the highest-rated bonds below the category average and the stake in the index. This is not set in stone.

In 2013, after higher-rated muni bonds suffered from the summer bond-market sell-off, he added to the fund’s AAA stake on market weakness (13% at yearend up from 8% a year before) while reducing AAs from 46% to 37%.

In 2014, Hill returned to a focus on value in AA rated bonds (47% as of December 31, 2014), while keeping an overweighting to bonds rated A and below.

He prefers revenue bonds to general-obligation bonds and believes his team and their analytic tools are capable of navigating the riskier waters within his favored sectors deftly.

A sound strategy, experienced manager team, and focus on research and quantitative analytics should serve investors well, earning the fund our top Morningstar Analyst Rating of Gold.

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SOLID INCOME Picks for the Long Haul

By Mark SalzingerEditor

The Investor’s ETF Report

Take a Ride with Convertibles from SPDR Barclays, Vanguard, and iSharesMost convertible bonds are hybrid securities that are redeemable, i.e., convertible, for stock at a predetermined price and quantity.

Convertibles are best considered a way to gain equity-like exposure to smaller companies, whose risk is mitigated over longer periods by the steady income production and floor value of its bond-like characteristics.

Given this kind of structure, convertibles tend to generate performance in between that of stocks and bonds over longer periods.

Through September 30, 2015, SPDR Barclays Convertible Securities (CWB) generated a three-year-annualized return of 9.3%.

Over that time, Vanguard Total Stock Market (VTI) and Vanguard Total Bond Market (BND) had annualized returns of 12.5% and 1.6%, respectively.

CWB also experienced 25% less volatility than VTI, giving it comparable risk-adjusted returns to the broader stock market.

This does not mean that convertibles are always a less risky way to gain equity-like exposure. Many issuers of convertible bonds are smaller companies with low credit ratings...or they have no credit rating at all.

So, while CWB’s average credit rating was recently BBB—the lowest tier of investment-grade credit ratings—more than one-third of its portfolio was unrated.

Technology companies are the largest issuers of convertible bonds. They make up more than 43% of CWB. Consumer noncyclical (17%) and finance companies (13%) are the only other sectors to account for more than 10%.

iShares Convertible Bond (ICVT) invests in a portfolio that is similar to that of CWB. Technology companies dominate (43% of assets), followed by consumer stocks (cyclical and non-cyclical, 29%).

ICVT has a bigger proportion of its portfolio in bonds rated below investment grade (about 38%), as well as more in unrated securities (41%).

Part of that divergence stems from ICVT’s broader portfolio: it holds more than 155 bonds, vs. about 100 for CWB.

This breadth results from holding a greater number of smaller issues. ICVT invests in convertibles with at least $250 million in total face value; CWB only invests in those with at least $500 million.

This could make ICVT slightly more risky than CWB despite their similarities. To compensate for its additional risk, ICVT recently yielded more (3.8%) than its peer (3.0%).

For now, investors who are interested in such securities should stick with CWB because of its larger size and less risky portfolio.

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SOLID INCOME Picks for the Long Haul

By Briton RyleEditor, The Wealth Advisory

Tanger: Outlet PioneerTanger Outlets (SKT)—a family-run business that pioneered the outlet mall industry—is back at our original entry point and looks like a solid buy.

Starting in 1981 with one outlet mall in North Carolina, the company now has 47 outlet malls in 24 states and it is expanding into Canada.

In a testament to the popularity of the outlet mall concept, the company has kept occupancy rates at 95% or above every year since it IPO’d in 1993. The current occupancy rate is around 97%.

Tanger has also raised its dividend every year since it has been public. In 2015, the dividend was hiked 18% to $1.14 a share.

Tanger keeps a large and diverse group of retailers at its malls and consumers get a large variety of goods that are often heavily discounted. That’s why Tanger Outlets gets 185 million shoppers a year.

Many of its outlet malls are near vacation destinations like Ocean City, Maryland, Hilton Head and Myrtle Beach, South Carolina, and Nags Head, North Carolina.

This is a shrewd strategy to make a visit to Tanger part of annual vacations, a time when people tend to spend their money.

I think we are once again catching Tanger at a great time. On the macro front, unemployment continues to improve and the wealth effect is helping spending.

For Tanger, current expansion plans will grow the company 20% in the next two years. That’s fantastic growth and will push revenues, dividends, and the stock price higher.

Tanger’s balance sheet is in great shape. The company has among the lowest percentage of debt in the entire REIT space and it has lots of available credit.

With the shares just off a 52-week low, we think this is an opportune time to get back into Tanger Outlets. It is a strong buy under $33. I have a 12-month target of $39 per share.

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SOLID INCOME Picks for the Long Haul

By Kelley WrightEditor

Investment Quality Trends

Timely Ten: Blue Chips for Long-Term Income: CVS, SLB, ABT, UNP, UTX, UNH, IBM, ETN, FLR, WBA

Our Timely Ten list is not just another ‘best of, right now’ list. Rather, it is our reasoned expectation—based on our methodology and experience—that these ten currently offer the greatest real total-return potential over the next five years.

Whether you are building a portfolio from scratch, are partially invested and seeking new positions, or are fully invested and in need of some affirmation and hand holding, The Timely Ten represents our top ten current recommendations.

The Timely Ten is comprised of stocks from the Undervalued category that generally have an S&P Dividend & Earnings Quality ranking of A- or better and a rating for exemplary long-term dividend growth.

These stocks also have a P/E ratio of 15 or less, a payout ratio of 50% or less, and technical characteristics that suggest the potential for imminent capital appreciation. Our latest Timely Ten selections are:

CVS Health (CVS)—yielding 1.3% Schlumberger Ltd. (SLB)—yielding 2.5% Abbott Labs (ABT)—yielding 2.1% Union Pacific (UNP)—yielding 2.4% United Technologies (UTX)—yielding 2.6% UnitedHealth Group (UNH)—yielding 1.7% International Business Machines (IBM)—yielding 3.7% Eaton Corp. (ETN)—yielding 4.1% Fluor Corp. (FLR)—yielding 1.8% Walgreens Boots Alliance (WBA)—yielding 1.7%

Do we believe that all ten will appreciate simultaneously or immediately? Of course not.

Our four-plus decades of research and experience, however, lead us to believe that these stocks, purchased at current Undervalued levels, are well positioned for both growth of capital and income.

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SOLID INCOME Picks for the Long Haul

By Cathy SeifertContributor

Standard & Poor’s The Outlook

Top Tenants Keep Kite Realty FlyingAs of June 30, Kite Realty Group Trust (KRG) owned interests in a portfolio of 119 retail operating properties totaling about 23.9 million square feet.

Its properties are located in 22 states but concentrated in Indiana, Florida, and Texas.

Kite Realty considers location and the financial health and growth of its retail tenants as among the most important factors in the success of its portfolio.

Its tenants include many of the nation’s major retailers such as Publix, Petsmart (PETM), TJX Companies (TJX), Dick’s Sporting Goods (DKS), and Office Depot/Office Max (ODP).

Kite Realty’s primary business objectives are to generate increasing cash flow, achieve sustainable long-term growth, and maximize shareholder value.

It focuses on a dual growth strategy to grow its business. The first part of this strategy is to focus on increasing its internal growth by leveraging its tenant relationships.

The second part is to focus on achieving external growth through the expansion of its portfolio.

Kite Realty’s portfolio expansion strategy received a boost in July 2014 when it completed its merger with Inland Diversified REIT in a $2.1 billion stock transaction.

In 2013 Kite Realty acquired 13 shopping center assets for a total of about $408.1 million; in 2012 it acquired four properties for about $75 million.

We foresee double-digit revenue growth in both 2015 and 2016 and expect margins to be aided by a highly efficient and streamlined operating platform and by an occupancy rate that we expect will approach 96%.

Risks to our recommendation and target price include a sharp contraction in GDP and consumer spending and a surge in retailer bankruptcies.

Also, because Kite Realty (as a REIT) must distribute 90% of its taxable income to shareholders in the form of dividends, it relies on external sources of capital to fund growth. A sharp rise in interest rates could impair its ability to fund growth.

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SOLID INCOME Picks for the Long Haul

By Roger ConradEditor, Capitalist Times

Vanguard Tax-Exempt: Yield and StabilityOur outlook has several ramifications for income-seeking investors:

As long as your holdings’ underlying businesses remain healthy and growing, you’re better off hanging on to your dividend-paying stocks through the sell-off. Patience paid off in 1987 and will again.

Blowups in individual names remain the biggest risk to investors’ bottom line; selling stocks where the underlying business has deteriorated and won’t recover anytime soon is more critical than ever, even if it means locking in a loss.

The correction will give investors an opportunity to pick up high quality stocks at favorable prices. Keep some powder dry and consider adding some hedges to help offset the pain of a bear market.

With money-market funds and bank accounts offering yields near zero, investors have fewer options where they can park their money and earn a decent return.

Investors should consider Vanguard Intermediate-Term Tax-Exempt (VWITX) as an alternative.

The mutual fund offers a significantly higher yield with slightly higher risk than money-market funds and similar fare.

This low risk fund focuses on shorter-duration municipal bonds. It has paid tax-advantaged, monthly dividends at an annualized rate of about 3% without any major fluctuations in our principal.

Its massive size ($43.79 billion in net asset value) enables management to limit credit risk through broad diversification.

The more than 5,000 individual bonds in the fund’s portfolio sport an average duration of 4.9 years and 98.4% of these holdings have an investment-grade rating. And the fund’s ten largest holdings account for only 2.29% of its overall assets.

At the same time, the fund boasts one of the lowest expense ratios in its category, which means investors keep more of their returns and management doesn’t need to take on much credit or interest rate risk.

The fund has a long track record of stability, giving up 0.14% of its value in 2008 and posting its biggest loss of the past decade (1.56%) in 2013.

Vanguard Intermediate-Term Tax-Exempt isn’t an FDIC-insured product. But management has proved its ability to protect investors’ principal in up and down markets; the fund remains our favorite place to park cash.

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