A Six-Pack of New Ideas from a "Dividend Detective"
01/24/2018 5:00 am EST
Economies worldwide continued to strengthen as the year progressed and the market reflected those fundamentals. Passing of the U.S. tax bill didn’t hurt, suggests Harry Domash, income specialist and editor of Dividend Detective.
If nothing unexpected happens business should continue strong as effects of the federal tax cuts percolate through the economy. That probably lasts around four to six months. Then, we’re likely in for a slowdown.
If we’re right about the economy, and hence the market staying strong for a few months, fixed income products such as corporate bonds would underperform. So we’re making changes to our ETF and Closed-End Fund portfolios to accommodate those conditions. We’re adding two picks to our Oil Industry portfolio that should do well no matter which way crude oil prices go.
First off, we’re replacing two picks in our ETF portfolio to accommodate the changing market conditions:
PowerShares Global Private Equity (PSP) holds securities representing holdings in U.S. and global private equity investors. It pays a 10.2% dividend yield and has averaged an 11% annual return over the past three years.
WisdomTree Global Real Estate (DRW) invests in dividend paying real estate firms operating in developed and emerging markets outside the U.S. It pays 6.3% and has also returned 11%, on average, annually, over the past three years.
In line with this month’s theme of emphasizing funds likely to outperform in a growing economy, we’re adding two new growth stock funds to the closed-end fund portfolio.
BlackRock Enhanced Capital and Income (CII) holds U.S. and global stocks and then sells call and put options to enhance returns. The fund pays monthly dividends equating to a 5.8% yield. It returned 28% in 2017 and averaged 15% annual returns over the past five years.
Liberty All Star Growth (ASG) has a portfolio that combines the picks of three (small-, mid-, and large-cap) growth-style investment managers. It pays quarterly dividends (7.9% yield). It returned 45% in 2017 and 17% on average, annually, over the past five years.
Although oil drilling activity is declining globally, it’s on the rise in the U.S. We are adding two new picks that take advantage of that trend and could produce good returns regardless of which way crude oil prices move.
Core Laboratories (CLB) offers technological services to oil drillers that help them predict and optimize oil volumes achieved from drilling activities. These are increasingly important functions as oil producers are focusing more on maximizing drilling profit margins than on volumes produced (2.0% yield).
Helmerich & Payne (HP) offers land and offshore oil and gas well drilling services globally. But 80% of revenues come from land drilling in the U.S. HP recently developed a new drilling technology that substantially cuts drilling costs.
Drilling activity in the U.S. is on the rise and we expect HP to capture additional market share. In 2017, HP mostly reported EPS losses, but it has been consistently cash flow positive. Most analysts are rating HP at hold or worse, so there’s plenty of upside potential if it exceeds expectations (4.3% yield).