Dividend-Paying Turnarounds

05/13/2015 10:00 am EST


George Putnam

Editor, The Turnaround Letter

George Putnam is well-known as the newsletter industry's leading authority on turnarounds; here, the editor of The Turnaround Letter looks specifically at stocks that also pay solid dividends, providing investors with income while waiting company fundamentals to improve.

Steven Halpern: Joining us today is George Putnam, editor of the industry leading advisory, The Turnaround Letter. How are you doing today, George?

George Putnam: Fine, thank you, Steve.

Steven Halpern: Today we're going to focus on the subject of one of your recent special reports, dividend-paying turnaround stocks. Now, first you note that there are three specific reasons that you've always liked dividend payers. Could you walk us through these factors?

George Putnam: Sure. First of all, if a stock's price doesn't move very much for a while, you still get paid something while you wait for the upturn.

Second, if there's a broad market downturn, the dividend paying stocks usually don't go down as much as the other stocks because people feel some comfort from the dividend.

Finally, even though dividend yields may seem small, they add up to some real money over time. For example, if you hold a stock that has a 3% annual yield for four years, that gives you 12% extra return, which is something worth hanging on to.

Steven Halpern: Now, because bond yields have been so low for the last few years, investors have been putting money into certain dividend paying areas like utilities and REITs, which, you know, might now be more vulnerable to an upturn in interest rates. Is that a worry?

George Putnam: I think it is. As bond yields go back up-which they're going to have to do one of these days-that will attract interest-oriented investors back into bonds and cause them to sell some of the REITs and the utility stocks that they've been using as substitutes for bonds.

Steven Halpern: So, your strategy has been to avoid these vulnerable sectors, and in your latest featured report, you prefer to look at dividend-paying stocks that have recently underperformed but in cases where you believe there's the potential for a turnaround in the not-too-distant future. Now, one of those stocks is AT&T (T). Could you share your thoughts on that?

George Putnam: AT&T has a very powerful business franchise in landlines, mobile telecom, video, and other areas. It also has a rock-solid balance sheet.

Recent results have been a little soft because of the heavy competition in the mobile space, but I think that will pass and the company is well set up for the long-term, and meanwhile, you get paid more than 5% a year from the dividend.

Steven Halpern: Now, you also highlight Coach (COH), the well-known luxury goods maker. What's the attraction here?

George Putnam: Well, Coach is still searching for the turnaround formula, but it has a terrific brand to work with and the dividend pays you 3-plus% while you wait for the turnaround, gaining some traction.

Steven Halpern: Now, another favorite is Royal Dutch Shell (RDS.A). What do you see happening with this large energy firm?

George Putnam: The sharp fall in oil prices over the past year has hurt the stock, but it's a very solid company, again, with a great balance sheet and both the price of oil and the price of the stock will eventually bounce back. Meanwhile, you're getting paid about 4.7% a year while you wait.

Steven Halpern: Finally, you're a fan of Mattel (MAT). Could you share your thoughts on the toy maker?

George Putnam: Yes. The company has some of the most dominant brands in the toy business but it got left behind a bit by the growth in electronic play. Now it has a new management team that is reigniting the spirit of creativity at the company. Even if it takes a while for the rebound to really take hold, the stock is paying you more than 5% a year.

Steven Halpern: All of these stocks that you've mentioned, do you feel you would be comfortable recommending to a conservative investor?

George Putnam: Absolutely.

Steven Halpern: Again, our guest is turnaround stock expert, George Putnam. Thank you so much for joining us today.

George Putnam: You're very welcome, Steve.

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