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Plaehn's Picks: Three Favorites for Income
05/02/2016 10:00 am EST
Dividend expert Tim Plaehn walks us through the underlying strategies of his 2 leading income oriented newsletters — plus his just-launched 3rd publication focused on total returns. Tim also highlights a favorite stock within each of these newsletter's model portfolios.
Steve Halpern: Joining us today is income and dividend expert, Tim Plaehn, of Investors Alley. How are you doing today, Tim?
Tim Plaehn: Doing really well Steven.
Steve Halpern: Now you run a number of newsletters and your flagship publication is The Dividend Hunter. Can you tell our listeners about the strategy behind this service?
Tim Plaehn: Yes, The Dividend Hunter, it’s primary focus is to find stocks with high current yields and with a secondary approach to growing dividends over time.
But it’s for people who want to generate a high current cash yield out of their stocks and I try to keep about 20 stocks in the portfolio and most of them will be like REITs or business development companies.
Steve Halpern: Now looking at business development companies, one of the stocks you particularly like is Main Street Capital (MAIN). What’s the attraction here?
Tim Plaehn: Main Street Capital just really is the class of the BDC sector. The company, throughout its history, it pays monthly dividends, it increases that monthly dividend rate at least once a year. They also pay special dividends up to twice a year.
Just last month, I was able to attend a presentation by the CEO of Main and I was completely impressed with their business strategy and their focus on protecting the value for shareholders and providing an attractive income at the same time.
Steve Halpern: Now you also publish a service called 30-Day Dividends. Could you explain the strategy underlying this service?
Tim Plaehn: 30-Day Dividends, it looks for, what I call intermediate term trading opportunities based around dividend events. A typical holding period is one month up to as much as five or six months.
But because I watched so many high-yield or income-focused stocks, I just see opportunities pop up, you know, when the market misreads the stock and makes it undervalued, so I have a high level of confidence that that share price will recover based upon ongoing dividend payments or possibly a dividend increase in their near future.
Steve Halpern: Now one stock that meets your criteria is Western Refining (WNR). Could you expand on that?
Tim Plaehn: Western Refining is a small, very well run, medium — we’ll call it a mid-cap — refining company, and the refining business is cyclical with fuel and oil prices and last year, we played it several times.
I track crack spreads and refining margins and we were able to generate about 40% in total returns over a couple of trades, and we’re back in it this year, at the beginning of the year when crack spreads are narrowed with the expectations of a nice gain by the time we get into summer.
Steve Halpern: Now you’ve also recently launched a new service, Automatic Income Machines. Can you explain how this service differs from your others?
Tim Plaehn: The Automatic Income Machine is focused on total returns, the market meeting total returns, through investing and dividend stocks that grow their dividends at a high annual rate.
Kind of my minimum threshold is 12% annual dividend growth, so if you combined, let’s say a mid-teens dividend growth rate with a 3% or a 4% yield, you should end up over time with total returns that get you up into those high teens. Sometimes it takes a few years, but if you look historically, it’s a very sound strategy.
Steve Halpern: Now one stock you like in this new service is Targa Resources. Could you share your thoughts?
Tim Plaehn: Yeah, I actually put the wrong symbol on there, Steve. I was actually thinking of Tall Grass Energy General Partners (TEGP). I messed up my typing there.
Steve Halpern: Oh, well, that’s fine.
Tall Grass Energy Partners has been one of the fastest dividend growers in the MLP space for the last three or four years.
And then TEGP went public last year and, generally speaking, if you have a growing distribution from the MLP, the General Partner can grow their dividends at some multiple of that,
And for TEGP, right now my expectations are 30% to 40% per year annual dividend growth for at least the next several years and just recently, they increased their dividend by 20% quarter-over-quarter. It’s just a hot little underappreciated dividend growth stock.
Steve Halpern: And just to emphasize to our listeners, you’re discussing Tall Grass and it was my error to suggest Targa Resources.
Steve Halpern: Again, our guest is Tim Plaehn of Investors Alley. Thank you so much for your time today.
Tim Plaehn: Thank you, Steve. As always, it was a pleasure.
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