Harry Domash is a leading specialist in income investing, maintaining a variety of model portfolios; in his Dividend Detective, he updates some buy recommendations among common stocks, funds and preferreds.
In our ETF Growth Opportunities portfolio, we’re recommending WBI Power Factor High Dividend (WBIY) — a fund that selects high-dividend payers based on a variety of fundamental factors.
It selects high-dividend payers based on trailing EPS, free cash flow, valuation, and other factors. Sounds pretty basic, but it’s paying a 4.1% dividend yield and has returned 11% over the past 12-months and averaged 10% annually over three years.
In our CEF Growth Opportunities portfolio, we’re adding Sprott Focus Trust (FUND) — a fund that mostly holds value-priced large-caps. Currently paying a 9.1% yield, it has returned 5% year-to-date, 19% over the past 12-months, and averaged 18% annually over three years.
Sprott holds a small portfolio of 35 or so mostly U.S.-based value-priced large- caps. Following a buy and hold strategy, annual portfolio turnover is only 22%.
In our U.S. Banks model portfolio, we’re adding Comerica (CMA). Based in Dallas, Texas, the bank operates 400+ branches, mostly in urban areas of Arizona, California, Florida, Michigan and Texas. Nothing special so far? We’re adding it because we expect this bank to seriously surprise analysts in a good way both this year and in 2023.
Due to a variety of factors, analysts are expecting full-year 2022 earnings to fall below year-ago. However, we expect CMA to surprise on the upside, in that regard. Then, for next year, analysts are already forecasting 27% EPS growth. We expect an upside surprise there too. Comerica is paying a 3.3% dividend yield.
I'd also like to call attention to two holdings in our model portfolio of preferreds stocks. Preferreds issued by Carlyle Group (CGABL) and Brookfield Infrastructure Partners (BIP-B) were recently trading at 25% and 24% discounts, respectively, to their $25 issue and call prices.
Carlyle’s preferreds dropped 12.5%, and Brookfield’s preferreds lost 6.7% just last month. There was no news to account for the selloffs.
For preferred stock investors, your worst-case scenario is when your preferred’s issuer runs short of cash to pay the specified dividends. Thus, concerns about that happening typically trigger the kind of share price drops that we saw last month. That is not the case for either Carlyle or Brookfield.
In fact, both of their preferreds are still rated investment quality (BBB-) by S&P. Both issuers are currently profitable, expected to continue along that path, and both are generating positive free cash flow. Thus, although I can’t explain the recent downdrafts, I see no problem with continuing to advise adding to positions in both.