Even in a time of rising rates, utility stocks have their place in a portfolio, as a form of diversi...
Domash, Dollars and Dividends
05/27/2016 10:00 am EST
Harry Domash covers the full spectrum of dividend investing to find the best income opportunities in the current market environment. Here, the editor of Dividend Detective discusses his strategy and a trio of top income ideas.
Steve Halpern: Our special guest today is income-investing expert, Harry Domash, editor of Dividend Detective. How are you doing today Harry?
Harry Domash: I'm doing fine; how are you doing?
Steve Halpern: Very good; thank you for taking the time. Can you give our listeners an overview of your investment strategy and talk in general about the importance of dividends, as part of an investment portfolio.
Harry Domash: Well, I didn’t start out with dividends; I don't know whether you know this or not, but I used to have a newsletter called Winning Investing, which was all about growth “stocks and rockets”. This was in the late 1990s, when the internet boom was happening.
Then when the internet stocks crashed, around 2000, I decided to put in some dividend-paying portfolios into my newsletter, just so people would have something to buy while the tech stocks were going down.
Over the years, I had these in Winning Investing and I noticed at the end of the year it was always the dividend portfolios that outperformed; even though I had all of these rockets in the growth portfolio. Rockets crash. I ended up deciding that the dividend stocks just look like a long-run, more profitable way to go.
Around early 2000s, I started a separate website called Dividend Detective and then I made it a premium site a year or two later. In end of 2008, I closed Winning Investing and just concentrated on Dividend Detective.
The reason is that in investing, it’s kind of slower and steady is better. I found dividend stocks really work well.
Steve Halpern: Now, one of the most valuable parts of your advisory service is your four sample portfolios. Can you explain how you compiled these portfolios and how they differ from each other?
Harry Domash: Well, I started with three; one was conservative portfolio, which was supposed to be a low-risk portfolio. Of course, that’s hard to predict what’s low risk until it’s too late.
But then, I also had the Growth and Income; the portfolio was designed to track the market in a sense. In other words, in a strong market, Growth and Income stocks outperform regular dividend stocks. All of these are dividend payers but the ones that have high growth outlook are the ones that perform best in a strong market.
Then I had high-yield speculative portfolio for investors who want to walk a little bit on the wild side and just want to take a little more risk -- with the chance of getting higher returns.
Then about a year-and-a-half ago, I added a fourth one, called Monthly-Paying Stocks. That’s not too exciting a name, but people -- a lot of subscribers of Dividend Detective -- are retired and want monthly income.
That’s who this portfolio was aimed at. In fact, in the next month or so, I'm going to rename it to the monthly paying retirement portfolio or something like that. Those are the portfolios that we have.
Steve Halpern: Now, you cover a very wide breadth of income opportunities; are there any particular subsectors of the income market where you’re seeing the best opportunities now?
Harry Domash: Yes, as everybody is aware, this is a treacherous market and anything can happen. What I've found is - first of all -- preferred Stocks, which are more akin to notes or bonds than they are to common stocks, they’ve been a really hot sector this year and are doing well. I'm advising subscribers to overweight those.
Another area that’s done really well this year is Real Estate Investment Trusts, or REITs, as they are called. There are two kinds of REITs; the kind that invest in property and the kind that invests in mortgages and secured by property.
When I say Real Estate Investment Trusts have been good in this market, I'm talking about property REITs; those that own shopping centers and housing, apartment house and office buildings and things like that.
The ones that invest in mortgages, I don’t expect them to do well -- especially, if interest rates rise.
Steve Halpern: Now, looking at some of your specific recommendations, within your portfolio of Preferred Stocks, you recently added an issue that was related to eBay (EBAY). Could you tell us about this?
Harry Domash: Well, preferred stocks; we’re not the only ones that have realized preferred stocks are a good place to be now.
Preferred stocks, generally, most of them are issued at $25 a share and they can be called, typically, five years later $25 a share; but because the preferreds are kind of popular now, a lot of them are trading at $26, $27, even $28.
And the downside of that is when it can be called -- usually five years later, at $25, you’re going to lose that $3.
You have to factor that in and you do that by calculating it yield-to-call, which is how much your net yield would be if you bought a stock for $27 and you had it called at $25, five years from now; that sort of thing.
What’s happening, is preferred stocks tend to be going up in price, almost every month. And so sooner or later, they get to the point where the yield-to-call does not meet our requirements for buy rating, so we have to keep selling those and putting in new ones that are trading at a more reasonable price.
So, eBay’s preferred is a new IPO that came out in February and it was trading at $25.88, at the beginning of this month. It’s investment quality rated, which some of our subscribers need to have only investment-quality credit rated preferreds, so those work for them.
It’s yielding 5.9% if you were to buy it say, now, and hold and then sell it a year later, your return would be 5.9%. If you held it until it was called in 2021, your yield-to-call would be 5.2%, which is pretty good if you can think about what you’re getting from the banker, money market account, these days.
Steve Halpern: Now, just out of curiosity, for our listeners who are interested in this issue, what specifically is it called; is it just eBay Preferred?
Harry Domash: Well, it’s eBay 6.00% note and its ticker symbol EBAYL.
Steve Halpern: Now, on closed-end funds, you’re also recommending the John Hancock Premium Dividend (PDT). What’s the attraction here?
Harry Domash: Well, what the attraction is, is that PDT returned (and when I say returned, I mean some of dividends and capital gains), it returned 13% over the past 12 months and 15%, on average, annually, over the past five years.
It’s just an enticing investment and I constantly spend a lot of time looking at closed-end funds and I've developed some pretty good ways of spotting the ones that have the best prospects. That’s why we included PDT, which owns preferred stocks -- which as I've already said, is kind of a hot category right now. So it’s a good place to be.
Steve Halpern: Now, among MLPs, or Master Limited Partnerships, you recently recommended Tesoro Logistics (TLLP). What’s the story here?
Harry Domash: Well, as you know, Master Limited Partnerships, or MLPs, have really gotten hit hard over the last year or two and we’ve lost money. I know that everybody has lost money on it.
But the category is now starting to come back. This year -- year-to-date -- MLPs have beat the market substantially. We felt we needed to be back into that.
Tesoro Logistics is a little on the risky side. Tesoro was formed by Tesoro Corporation (TSO), which operates six oil refineries and more than 2200 gas stations.
It owns and operates oil and refined products, pipeline systems, truck terminals, storage facilities, and natural gas processing plants.
In other words, it’s an infrastructure kind of company and it has services and products that people need -- everybody needs. It doesn’t matter what the price of oil or natural gas is.
It’s well funded; it’s not in any danger of running out of cash to pay its dividends so it seemed like a good way for us to kind of get back into the MLP area.
Steve Halpern: Again, our guest today is income expert, Harry Domash, of the Dividend Detective. Thank you so much for your time today.
By Harry Domash Editor of Dividend Detective
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