Buoyed by improving economic numbers and a strong stimulus package, stocks enjoyed another strong month — but not so much for bonds, which were battered by rising interest rate concerns, observes Harry Domash, income investing expert and editor of Dividend Detective.
What’s next? Despite the rhetoric, we don’t see interest rates rising to problem levels anytime soon. In terms of stocks, everything hinges on what happens with COVID.
Although the U.S. numbers generally look good, there are trouble spots in various other countries and even in some states in the U.S. Therefore, caution is advised. Don’t add cash to the market that you’re going to need back soon until the COVID outlook clarifies.
We’re adding Falcon Minerals (FLMN) to the Dividend Speculators portfolio. Falcon, formed in 2018, owns mineral rights, mostly on oil and gas properties in South Texas, including the Eagle Ford Shale.
Falcon leases its properties to major oil producers that develop the properties and do the drilling. Hence, Falcon incurs little or no capital expenses. Last year was not a good year for oil and gas producers and Falcon’s EPS sunk to $0.05 from $0.31 in 2019.
However analysts are forecasting strong rebound ($0.32) this year and continued strong EPS growth (29%) in 2022. Falcon is currently paying a 6.7% dividend yield, but we’re expecting serious growth in that category. That said, it’s in the Speculators portfolio for a reason.
We’ve added two new picks to our Preferred Stocks model portfolio. The first, Global Partners 9.50% Series B (GLP-B), operates and/or supplies 1,500+ gasoline stations and 270+ convenience stores and also offers crude oil, gasoline, and propane storage and logistics services to customers in the Northeastern states.
These preferreds, although not credit-rated, are cumulative, meaning the Global Partners remains on the hook for any missed dividends. Recently trading at $25.45 per share, the market yield is 9.3% and the yield to its 5/1/26 call date is 9.1%.
The only downside is that Global reports its dividends using K-1 tax forms, which are more complicated than the standard 1099 forms. However, the 9%+ yields might make it worth the trouble.
A second new pick in our Preferred Stock model portfolio is Merchants Bancorp 6.00% Series C (MBINN), which operates Merchants Bank of Indiana, Merchants Capital Corp., Farmers-Merchants Bank of Illinois, and related mortgage and small business lending businesses.
The preferreds, which are not credit-rated, recently traded at $25.52 per share. The market yield is 5.9% and the yield to its 4/1/26 call date is 5.5%. Dividends are subject to the 15%/20% maximum personal tax rates as well as the corporate dividends received deduction.