STORE Capital (STOR) is a REIT that manages hundreds of restaurants, retailers and other business pr...
Best Bets for Income
04/29/2013 8:30 am EST
Richard Lehmann, who specializes in income strategies, shares his advice on where such investors should be looking now.
Richard, it’s been tough for income investors lately, hasn’t it?
There are some great stocks with good income, there are some REITs and MLPs and all that. The bond market hasn’t been too good. So what are you suggesting for your subscribers right now?
Well, right now the best place is dividend-paying income stocks, because we now have some certainty about what the tax policy is going to be going forward.
Last year, there was uncertainty, and therefore it was not a definite commitment to either interest-paying or dividend-paying. Now there’s a definitely bias toward dividend-paying stocks, and I think that that accounts for much of the run-up in the stock market.
Yeah, and it has been very nice, because those tend to be a little bit more conservative companies when you’re talking about dividend-paying companies...although some technology companies have begun paying dividends.
Yeah, some of the technology companies are attractive for that reason, because they obviously have strong cash flows and they can afford to make those payments. The caution there on dividends is the fact that it is a way for companies to boost their stock price without being able to sustain that dividend rate. Therefore, you have to look for the quality and the continuity and history of the dividend.
Yeah, the consistency is really important. We often will see a lot of marketing materials that say we’ve paid a consistent dividend for 40 years, but that’s not the only thing that’s important.
No, obviously. A good example is like Pitney Bowes (PBI), who have one of these 30- or 40-year-long histories of that. It’s a business that is recognized as being in a decline, so the chances of their being able to continue that policy is definitely in jeopardy. So it took a huge hit last year, despite that stellar dividend policy.
Why do you think investors have been running to a lot of mortgage REITs and some of the MLPs that are paying really very high dividends today? I’ve seen some dividends 17%, 18%, 19%. Are there some cautions there that investors should look for instead of just running for the highest yield?
Yeah, I think you have to look at whether or not they’re paying dividends out of income, or whether it’s just a return of capital, because as I said sometimes you see a payout of something because it’s beneficial to the management and because their stock options are coming. And so there are a lot of elements that go into dividend policy, and/or continuity is an important component.
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