Band's Best for Safety and Yield

03/28/2003 12:00 am EST

Focus:

Richard Band

Editor, Profitable Investing

“The market has pushed up yields on even the safest and strongest income stocks.  Take Consolidated Edison (ED NYSE). New York’s retail power provider carries one of the highest credit ratings in the utility industry, and the company just sweetened its dividend for the 29th year in a row. Yet the stock has been dragged down by concerns that affect other utilities, but not Con Ed. Consolidated Edison has almost no exposure to the volatile power market. Accordingly, there’s no good reason for Wall Street to lump ED in the same category with such problem-plagued utes such as Aquila, Duke, TXU, and other troubled wholesalers. Nonetheless, ED’s yield recently popped above 6%, and given market conditions, may do so again. My advice is to buy ED at $41 or better.

 

”Another high-yielder that catches my eye is really a closed-end fund more than it is an ordinary stock.  It is Gladstone Capital (GLAD NASDAQ). David Gladstone, the chairman, served for many years as CEO of Allied Capital Corp. Like Allied, GLAD lends money to small businesses, often receiving an equity stake along with lofty rates of interest. What I like about GLAD, as opposed to some of its rivals, is the organization’s conservative underwriting standards. Most of its loans are senior debt, which are fully collateralized. As of December 31, 2002, none of its debts were in default. In addition, GLAD has so far invested less than half the $180 million proceeds from its initial public offering  in August 2001. Thus, there is plenty of room for the 5.8% dividend yield to grow as the company puts its cash balances to work.  Buy GLAD at $16 or less.”

 

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