Junk bonds have been out of control for the past several months. In just the first three quarters of this year, high-yield bond sales outpaced all of 2009 by 25%.

Since yields in the junk bond landscape are now at record lows, investors are now chasing equity yields with just as much fury. Take a look at IncrediMail Ltd (NASDAQ: MAIL), the income industry darling of the past two years. MAIL paid a grand total of $1.78 per share in dividends since July 2009. Meanwhile, its share price is sitting at just $6.49. Using this year’s numbers, that’s a 13.6% dividend yield — an unheard of number in today’s environment.

But that too had to come to an end. Just this month, MAIL’s board decided it was better for the company to conserve cash and put that money back into this growth play’s future. Meaning, no more dividends for its income-hungry shareholders.

That seems to be the story almost everywhere you look. But we pinpointed one area that it’s not the case…

When most investors think about dividends, they are talking about companies like Altria Group Inc (NYSE: MO) and Procter & Gamble (NYSE: PG). One typically pays 6-plus percent yields, and the other has been paying out shareholder distributions since 1891. But most are forgetting where some of the best dividends have come from over the last several decades: the U.K.

According to Barclays, GBP£100 invested in the U.K. stock market at the end of the Second World War would be worth GBP£5,721 today. But if you factor in reinvested dividends throughout that time period, that 100 quid would be GBP£92,460 today. And now may be the best time of all to get in on British dividends.

The Turnaround Story of 2010

Not only did the U.K. face a recession equal – or nearly equal – to its American brethren, it was dealing with a debt problem that seemed nearly impossible to combat. In the height of the recession, The Economist writes:

Britain’s public finances, however, are on some measures the worst of any rich country. It is likely to have a bigger deficit in 2010, as a percentage of GDP, than even the likes of Italy.

All seemed hopeless… that is, until election season. Unlike U.S. politics, the U.K. political calendar is relatively short. The month-long campaign produced the first coalition government since 1945. While it may sound like a bad idea bringing liberals and conservatives together to battle out an austerity plan to keep their government solvent during such a horrible economic environment, the outcome might surprise you.

Prime Minister David Cameron and his Deputy Prime Minister Nick Clegg have been able to adopt policy after policy that alienates people on both sides, yet not to the degree most expected. Their mild, yet powerful reforms have generally eased debt tensions for Britain… or at least business uncertainty in the old empire.

According to a Capita Registrars study this past month, U.K. businesses are making a full recovery… or at least their dividends are beginning to. As you can see in the graph below, the most recent quarter, which ended the past September, was the first period of positive dividend growth since the start of 2009. And these numbers even factor in the massive BP dividend cut suffered this year.

This trend is expected to continue. Most expect 2011 to blow 2010 away as far as income distributions are concerned.

All this worked out to create a remarkable investment opportunity for the near term. You see, when you combine British dividend policy with a more comfortable investment landscape, you get a few plays that seemed unreasonable just six months ago look great today.

That’s not to say that you should put your life savings into the British Pound. Sometimes, even bad, long-term pictures create short- and medium-term opportunities. For now, we can’t think of many better places than Britain for income.

Two Sets of British Dividends to Consider

Take a gander at Aviva Plc (NYSE: AV). Aviva is in the least-favored industry in the world: insurance and fund management. However, the company was able to return to profitability quickly after the 2008 crash. It is now estimating that it will have profitable growth in both life and general insurance sales throughout the rest of 2010 and all of 2011.

But what makes Aviva attractive to income investors is its 5.8% dividend. More importantly, the company continues to grow that payment each year. And seeing how this stock was only recently listed in the U.S., the opportunity is ripe for the risk taker.

Another U.K. payer that caught our eye was Rexam Plc (Pink Sheets: REXMY), which is listed on the prestigious tier of the Pink OTC Market’s quotation system, OTCQX International Premier. Rexam is a packaging giant. It makes everything from prescription bottles to soft drink cans. This, as you can imagine, is a big-money business. It’s been good enough to allow Rexam to pay a solid 3.6% yield over the past year. Going forward, we expect that number to grow.

[Editor’s Note: Because of Rexam’s size and its Pink Sheet listing, be careful entering and exiting this play. As always, use limit orders.]

Sincerely,
Jim Nelson
Penny Sleuth

November 18, 2010

Two British Income Plays That’ll Make You Drool was originally featured in the Penny Sleuth.

Over the past year, the search for yields has been alarming for growth investors. In a market with finite investment capital, finding the next trend is important. And since volatility and uncertainty rule the day, the flight to safer investments has been prominent.

The first place most threatened investors go is treasuries. Since we’re also seeing record low Fed note rates, they are looking elsewhere… specifically, corporate bonds.

There’s been such a flood of new bond investors, we’re seeing some of the lowest yields in recent history (more money in bonds causes prices to skyrocket and yields to plummet). Since the 2007 peak, the Dow Jones Corporate Bond Index — which measures a basket of 96 investment grade laddered bonds — has significantly outperformed stocks.

This has pushed yields down in the bond sphere, which should soon bring an exodus from bonds. Now the time has come for equities.

In just the last month, stocks have outperformed bonds nearly 8 to 1. But of course, the stocks investors are choosing are dividend payers. That’s where they can continue to collect income, limit their downside and position themselves for a longer period of economic uncertainty… just in case.

But we noted that this is important to penny investors. And it is. You see, some of the best opportunities are left in the penny stock universe.

In my Lifetime Income Report, readers have taken advantage of high payers like Hatteras Financial Corp (NYSE: HTS), which pays a 15% yield, and CPFL Energia (NYSE: CPL), which pays us 13.6% on our initial investment. But you’ll note these aren’t penny stocks. We have, however, recently discovered more and more in this field. And we think this is a trend that’ll continue.

We’re already seeing large caps move upwards. And eventually, they too will become overbought. That’s where penny income stocks will come in.

Now, we aren’t predicting a massive rally anytime soon. But certain income-paying penny plays should move higher in coming months. Just this week, we’re already starting to see some early moves.

Take a look at China Nepstar Chain Drugstore (NYSE: NPD). This is a $390 million, sub-$4 stock that saw an 18% jump on Monday morning. Why? Because of its large 9% dividend yield. Investors are also expecting another special dividend payment… last year was a 24% single payout.

If that’s not enticing enough, take a look at IncrediMail LTD (NASDAQ: MAIL), a $57 million Israeli software and search engine operator. Since mid July, MAIL is up more than 43%. Why? Because investors are excited about its whopping 15% dividend yield.

While it’s true that finding safe income payers in the penny stock universe can be difficult, the rewards — as always — are much higher.

So, just because a penny stock pays a dividend, doesn’t mean you should avoid it. On the contrary; now’s the best time to start looking into it.

Sincerely,
Jim Nelson
Penny Sleuth

September 28, 2010

P.S.: There’s a lot more to picking out a good dividend stock than just looking for the biggest yield. I’m showing my readers some of the most enticing dividend plays out there – all while avoiding pitfalls in these plays. Visit the Lifetime Income Report website to learn more…

Why Yields Are Important… Especially for Penny Stocks was originally featured in the Penny Sleuth.

As an investor, it’s absolutely essential to make sure that you’ve got the best information at your fingertips – after all, bad data or poor assumptions can completely invalidate your investment analysis (think “garbage in, garbage out” when it comes to investment research). That’s why knowing which data sources to trust is such an important part of the investment process. Today I have a word about online dividend information.

As the editor of Lifetime Income Report, a dividend-focused investment advisory, I’ve received many emails and calls from readers concerned about differences in the listed dividends they find on various websites. Regardless of your income portfolio, I think this is an issue worth clarifying…

Oftentimes, a website like Google Finance or Yahoo Finance has the wrong dividend amounts listed for a stock in my readers’ portfolios… and more often than not, it’s one of our foreign plays. This happens because of currency conversion, share-to-unit conversion and tax issues.

If a company announces a dividend that won’t be paid for several months, the exchange rates will change continuously until the dividend is actually sent to shareholders. In that time, these currency changes will alter the amount that dividend is worth. Most quoting services don’t account for these price movements. So when a company goes ex-dividend, they’ll just use whatever number they have to adjust the trailing price.

And if you’re dealing with companies registered in tax-heavy countries, then you should be aware that the taxes might also be taken out of the listed dividend price. Of course, it’s impossible to know what everyone’s individual financial condition is. Instead, we try to focus on the gross dividend amount on the date it is paid.

There doesn’t seem to be any specific rhyme or reason behind many quoting services’ dividend information. It seems to change with every company you look up and every individual payment. One of the best ways to find accurate information on a foreign dividend is to look at whatever its depositary bank uses (BNY Mellon, Citibank Shareholder Services, etc….).

The only thing less reliable than a quoting service’s listed dividend is its listed yield. Take Zecco.com for instance. This is one of the fastest-growing discount brokerages in the world and one of our favorites.

Yet when you take a look at one of our foreign stock income plays on Zecco’s site, it derives its dividend yield from the last payment ($0.75) and multiplies that by two (the number of payments per year). So as far as Zecco is concerned, the company’s dividend yield is 2.7% (75 cents x 2 payments / current share price). But in reality, the 75 cent payment was only an interim payment. If you use the trailing 12 months’ worth of payments, you’d use $1.72 + $0.75. Using the right numbers would give you a yield of 4.4%. That makes a huge difference. That’s nearly a full $1 off your total return, based on an improper computer calculation.

Of course, in the above example, you’d have still received the right dividend, even if you used Zecco. The payment comes from the company and is simply added to your account. It doesn’t, however, affect Zecco’s quoting service, which is separate.

This is why you’ll see some differences when you read about dividend-paying companies, then look up the stocks on your broker’s site (or any other quoting service, for that matter).

Here at Agora Financial, the way we calculate our dividends and yields is based on actual SEC and company information. For foreign stocks like these, we convert the announced dividend into U.S. dollars. We also make sure we have the right number of shares per unit conversion rate, since most ADRs represent more or less than one ordinary share. We also make sure the trailing dividends are used correctly. .

Of course, we’d love to see online quoting services put in the due diligence and find the correct dividend amounts and yields. But in the age of quick information, we’re always going to see mistakes like these.

While all of this can be frustrating, it’s still important. Information is king. We’re constantly digging deep into company filings to find you everything you need to make an informed investment decision. But most other sites don’t. So when you are looking up a dividend online, be aware that it might not be 100% accurate.

Sincerely,
Jim Nelson
Penny Sleuth

August 31, 2010

Beware of Online Dividend Information was originally featured in the Penny Sleuth.

When you put money into a stock, what’s the number one thing you always think? If you answered, “I hope this one goes up,” then you think like 99% of the investors. That’s fine. Most investors will always think that way.

Today, I’d like to introduce you to the other 1%. The few that fall into this group have one thing in common: they demand their gains. For them, hoping isn’t always good enough.

Into the Psyche of a “One Percenter”

If you’re like me, you have strict demands for your hard earned money. 

If your cable goes out, you call the company to make certain the problem is fixed. You wouldn’t pay the bill if your service weren’t working. The same goes for the other expenses in your life. If your cell phone bill showed a strange $200 charge, you would call your provider and have it removed.

And as much as you shouldn’t pay for problems beyond your control, you should also be compensated for your foresight. Let’s say your best friend asked you for $5,000 to start a business. If you see that his business is booming a few months down the road, wouldn’t you say: “Hey, I deserve some of that?”

If this sounds like you, you might have the perfect “one percenter” attitude. And if you care about your money and what you receive in return for it, you are definitely a “one percenter.”

So why don’t you invest like one?

Introducing “Retirement: Plan B”

When buying a stock, a “one percenter” never thinks, “I hope this one goes up.” It’s simply not his first concern…

No, a “one percenter” is not asking too many questions. He already knows what his return on investment is, how long it’ll take, and how he can spend that money. He’s an income investor.

By income, I mean real investment plans that actually pay you. Most investors aren’t even aware you can invest like this.

These plans are very similar to classic pension plans… except, you don’t have to work for these companies. That’s why I call plans like this: “Retirement: Plan B”.

There’s a lot more to it than just sneaking onto a company’s pension plan. You can actually choose how many you want to pay you. You can start and stop them at any time without early withdraw fees. And, a few of these Plan B companies even match your investment as if you worked for the companies.

Now, you might think only a mega corporation could afford to do something like this. While the list of 987 Plan Bs does include the likes of ExxonMobile, Microsoft, and Wal-Mart, the majority of Plan B companies are small caps (under $1.5 billion market cap). And many of these trade for less than $10 a share, which makes them true penny stocks.

As promised, here are five of my favorite penny stocks that offer the Plan B:

• Kelly Services Inc. (NASDAQ: KELYA) – temporary staffing company, which provides over 750,000 people with jobs annually.
• Myers Industries Inc. (NYSE: MYE) – plastic moldings and rubber parts manufacturer.
• Insteel Industries Inc. (NASDAQ: IIIN) – steel wire reinforcing products for infrastructure projects.
• Alumina Limited (NYSE: AWC) – international alumina and bauxite miner, with limited smelting operations.
• World Wrestling Entertainment Inc. (NYSE: WWE) – a leader in wrestling media.

Unfortunately, it’s not as easy as buying shares of these companies. Instead, you have to set up the plan. It should only take three minutes, but you have to know what to ask for.

Sincerely,
Jim Nelson

February 9, 2009

Penny Stock Income Investing was originally featured in the Penny Sleuth.

This technique let’s you invest in penny stocks practically for free. It’s a two-part system that should protect you in all markets, without limiting your returns. This simple system is based on both income investing and high growth investing.

To start, you have to figure out how much of your money you are willing to part with for a few years. This money will be tied up, so be sure not to use the cash you need to pay next month’s mortgage.

Your best bet is to start a separate online account to handle this portfolio. You must make sure that you don’t continue to pour all of your savings into it — just as much as you can stand to lose.

Once you do that, you need to put all or nearly all of your new account’s money into income stocks. By income, we mean stocks that pay out dividends to shareholders.

Many blue chips pay dividends to entice investors seeking cash as you go. Companies like McDonalds and Wal-Mart cut dividend checks to investors every quarter. Some pay less, and others pay as often as monthly.

When deciding which companies to invest in, there are a number of questions you need to ask yourself:

Question to Ask: How much will this company pay through dividends?
Why the Answer is Important: For the sake of this technique, you want companies that pay a higher percentage. To find this, look for companies with dividend yields above 7%. That means, every year the company will pay at least $700 for every $10,000 invested.

Question to Ask: Is the company growing its dividend?
Why the Answer is Important: A growing dividend can lead to larger payments the longer you are invested. It also shows the company is strong and growing.

Question to Ask: How strong is the company’s financial health?
Why the Answer is Important: If the company is struggling to make money, you can bet that they’ll eventually stop paying dividends. That would leave you without the income you need for Step Two.

These are the basic questions you need to ask yourself in the first step of this system.

Once you find a few companies that you feel comfortable in, you are ready for step two. This is where the big money comes in…

Fast-forward a few months after your initial income investments. You should start receiving dividend checks. With that money, you can use it how you want. But to truly take advantage of this system, you should take it and invest in penny stocks.

That’s right, be aggressive. You don’t have to take any money out of your initial income investments, so these dividends are more or less fair game. Make the most of it.

If you like a small component maker in the tech industry, go ahead and put some of your dividend money in it. Find a junior exploration miner that you like? Buy some shares of it.

After awhile, you’ll find yourself with a fairly even portfolio. You’ll have safe income plays along side your high-risk, high-reward penny stocks. As the income payments grow, so do your penny stock investments.

This system gives you more than just a growing portfolio. It gives you safety in bear markets like this one, and profit potential in bull markets.

You see, income investments typically perform better in bear markets because of their stable dividend plans. Investors, with nowhere left to turn, will look for ways to profit even if stocks go down. These investors put their money in dividend payers to collect those payments, while the market finds a bottom.

You’ll benefit from this flood of investment. It’s certainly not going to push shares up to astronomical prices, but it does deliver safety in falling markets.

Then, when stocks begin to recover, those investors will be buying aggressive stocks, such as your penny stocks. That will push prices up to astronomical heights. You benefit from both the safety of your income stocks, and the potential gains of your penny stocks.

While this sounds like the perfect way to invest, the most difficult part — as always — is finding the right companies to invest in.

But, if you do it right, you’ll be practically bulletproof in all markets.

Sincerely,
Jim Nelson

October 31, 2008

P.S.: Over the next few weeks, we’ll be sending you a report that outlines a detailed income investing strategy. It will be called Retirement Plan B and it will take an in-depth look at the world of dividend stocks.

Bulletproof in Any Market was originally featured in the Penny Sleuth.

If you’re sick of the gloom and doom permeating markets right now, you can find solace in one investment… Well, it’s actually a type of investment. I’m not talking about options or shorting or even bonds. We still like to buy low and sell high, but we also like our investments to pay us as we go.

Income investing is a great way to do that. It gives you the chance to take cash out of your investments without selling shares. One way to successfully do this, while staying aggressive, is to reinvest your dividends in penny stocks. That way, you have the best of both worlds: Security and potential money multipliers.

There’s never been a better time to start. With the recent thrashing in the markets, many companies are sporting unbelievably high yields.

More Income Than Ever Before

The S&P 500 is now sporting a yield of 2.65%, up from its low of 1% in 2000. The same goes for the Dow, which is now at 3.74%, up from its 2000 low of 1.5%. These yields may not sound high to you, but they both factor in non-dividend paying companies.

We are seeing enormous yields everywhere we look. Others are too…

Warren Buffett, you might have heard, is buying up depressed stocks. But instead of buying just any old ones, he’s investing his hard-earned money in these high yields.

The Oracle of Omaha recently bought up $5 billion worth of Goldman Sachs preferred shares. For his gutsy investment, the company is going to send Buffett a check for $500 million every year. That’s a 10% yield on one of the largest banks in the country.

Yields that high can mean one of two things: Either the company’s payments are too high and a drop is coming, or its shares are depressed and should rise. In this market, most companies fall into the second category.

Sure, companies like Bank of America and Citigroup cut their dividends. But, there are many others riding through this stormy market with consistent dividend payments. Just take a look at JP Morgan Chase and Wells Fargo. Those are two banks still paying nice premiums to shareholders.

We aren’t interested in banks though. You don’t want to stand too close to this economic fire. That’s why we are looking for companies with consistent dividend payment and piles of cash in their coffers in other industries. We are finding tons out here.

As Chris Mayer puts it, “According to the WSJ, nearly one in 10 stocks trades below the value of its per share cash holdings, an even greater proportion than Graham found in 1932.” Combine that with a high yield in a safe industry, and you are looking at a monster of a buying opportunity.

We are seeing stocks tied to real resources — like oil, natural gas, and coal — paying enormous dividends. Take BP for instance. It’s one of the largest integrated oil companies in the world and it’s paying 7.6%. That’s absurd. Last year this time, the company only paid 3.5%.

Royal Dutch Shell is another massive oil and gas company that’s offering a relatively astronomical yield. Shares of Shell fell from $88 in October 2007 to just $55 today. That fall from grace set up a yield rally from just 2.2% to 5.9% in that 12-month period.

Double Your Income Even As Jobs Disappear

Think of it this way: While millions are taking pay cuts or even losing their jobs, both BP and Shell are offering more than double last year’s income to shareholders.

If you are wondering how income investments like these will hold up as this bear market continues, take a look here: From 1970 through 2005, dividend stocks returned twice the gains of non-dividend paying stocks in the S&P 500. In that period, there were at least seven bear markets and economic crises. So maybe now, more than ever, you should be looking into income stocks.

But before you start buying the highest yields out there, remember that it’s only based on previous or planned dividends. No one knows when a company will cut its payments. If a company is paying more than 15%, take a serious look at why. If the business is still producing solid gains at a respectable growth rate, you may be ok. But if it’s starting to take a loss, that yield may not be an attractive opportunity.

Keep a lookout now more than ever. You don’t want to miss the chance to grab shares of solid companies like BP and Shell while they are willing to pay you this well.

Sincerely,
Jim Nelson

October 29, 2008

P.S.: This is a story we’ll be following for a while. In the coming weeks, we’ll be sending you an opportunity called Retirement: Plan B. It focuses on these investments. So keep your eyes peeled.

The Market’s Unintended Opportunity was originally featured in the Penny Sleuth.