3 Favorites for Income

11/07/2014 9:00 am EST

Focus: STOCKS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

It might interest you to know that I eat my own cooking; these three stocks are also my largest holdings in my own IRA, explains Mark Skousen, editor of Forecasts & Strategies.

They enjoy strong upward earnings and all have a rising dividend policy. Not surprisingly, all three companies are “best of class,” outperforming all other publicly traded companies in their respective fields.

First, Omega Healthcare Investors (OHI) is a Maryland-based real estate investment trust (REIT) that owns and manages 563 skilled nursing, assisted living, and other specialty hospitals spread over 37 states.

Omega is profiting from the boom in retirement and assisted living. It enjoys a 41% profit margin with $188 million in earnings on $457 million in revenues. Return on equity (ROE) is 15%.

Omega has increased its funds from operations (the REIT equivalent of profits) at double-digit percentage rates.

It is aggressively expanding operations, investing $3.8 billion in new nursing home facilities during the past ten years. It also just announced the purchase of Aviv REIT that boosted Omega’s nursing-home properties to 874 in 41 states.

OHI also recently raised its dividend for the ninth time in a row to 52 cents a share, up 1 cent, payable November 17.  Now yielding 5.6%, OHI should rally into the final months of the year, as analysts have recently raised earnings estimates from $1.57 to $2.80 a share.

Second is Enterprise Products Partners (EPD). The Houston-based pipeline company is the “best of the breed” energy play, It has improved earnings at double-digit percentage rates for years, and this trend is expected to continue.

Its revenues are dependent more on the volume of oil & gas going through its pipelines rather than the price of energy products. Nevertheless, it has been dragged down by lower oil prices.

In anticipation of its earnings report on October 30, Enterprise Products announced that it is raising its quarterly distribution by 5.8% to 36.5 cents a unit, up from 34.5 cents. The distribution will be paid on November 7.

This is the 50th distribution increase since Enterprise went public in 1998. Yielding 3.9% yield, it is a long-term winner.

Our third favorite stock is also based in Houston: Main Street Capital (MAIN) is the best-performing business development company in the country.

It is a diversified business development company (BDC) with a portfolio of investments across 167 companies in middle markets, family-owned businesses, and private loans. With high profit margins of 82% and return on equity of 13%, revenues and earnings are rising at a 25% pace.

MAIN announced another semi-annual special dividend of 27.5 cents per share, to be paid in December. It means Main Street will pay out a total of $2.59 in dividends in 2014, an 8.6% annual yield at the current price.

Given these spectacular results, why is Main Street’s stock price down this year? Primarily, because the Russell 5000 and S&P 500 Index dropped all BDCs like MAIN from their indexes due to a SEC accounting issue.

But that’s good news for investors, because it means getting a chance to buy MAIN at a bargain price.

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