Three Dividend Stocks for Cautious Investors
Endless squabbles in Washington between Democrats and Republicans, counter-balanced by a coordinated intervention by the world's major, central banks to maintain liquidity in credit markets in Europe and around the world. Now that's a week that shows you how the political and financial spheres can move in different universes. (And at different speeds.)
The Dow was set to close above 12,000 Friday, but if you're a little hesitant to invest some new money in stocks, that's understandable.
The uneven, uncertain U.S. economy, the nation's 13.3 million job shortage, and lingering concern about Europe's government debt have created the proverbial question mark regarding the U.S. and European recoveries.
What's one way to cautiously commit new money to equities? Consider stocks that also offer modest safety via paying a decent dividend, and here are three.
BP Prudhoe Bay Royalty Trust: Dividend Superstar
If you're looking for a low-risk dividend play, BP Prudhoe Bay Royalty Trust (BPT), may be for you.
The trust distributes royalties on 16.4% of the first 90,000 barrels per day (bpd) of average daily production per quarter from BP's share of the Prudhoe Bay oil field.
BPT's current annual dividend is $9.40 per share, good for an impressive 8.6% yield at the current trust price.
Investors should not expect an outsized capital gain with BPT: a 5-7% annual stock appreciation is the realistic forecast, but shares could just as easily retreat 5% during that period. BPT is a decidedly dividend-base play, hence don't consider BPT if your emphasis is capital gain.
BPT's 1-year stock range is $79.56 to $131.49, and the 5-year stock range is $50 to $131.49.
TransCanada Corp.: Natural Gas Play and a Dividend, to Boot
Natural gas/energy storage and transmission company TransCanada Corp.'s (TRP) is a dividend play with the promise of above-average growth.
In addition to its a natural gas transmission and storage assets, TransCanada also owns oil assets and electric power generation assets, including 19 wholly-owned power plants.
TRP annual dividend is solid $1.65 -- good for a 4.2% yield at the current $42.30 share price.
Further, Phase 1 of TRP's $12 billion Keystone Pipeline System, with the capacity to transport 435,000 barrels per day (bpd) of crude oil, opened in June 2010. Phase 2 boosted production capacity to 591,000 bpd in February.
Add 380 billion cubic feet of natural gas storage capacity in an era in which natural gas will play a larger role in energy consumption, and one can see why there's considerable upside with TransCanada's shares. Reuters expects TRP to earn $2.30 and $2.46 per share in 2011 and 2012, respectively.
Ferrellgas Partners LP: Propane Play
Low-profile play Ferrellgas Partners LP (FGP) is the second largest seller of propane in the United States -- a fuel primarily used in areas where natural gas in not available or can not be easily transported to.
Ferrellgas will likely post a nice 8-11% revenue gain in 2011, after booking a 1% rise in 2010. Sales gains will likely be supported by slowly increasing prices for propane.
A company-wide cost cutting program, and FGP's effort to expand its more-profitable cylinder exchange program add to the positive story.
Further, Ferrellgas' dividend is a solid $2 per year -- good for a 8.9% yield at the current roughly $22.60 share price. Reuters expects TRP to earn 59 cents and 74 cents per share in 2012 and 2013, respectively.
Dividends Decrease, But Do Not Eliminate, Risk
Keep in mind that all of the above stocks contain moderate risk and are not suitable for low-risk investors.
Safest Pick: BP Prudhoe Bay Royalty Trust (BPT).
Best Pick: (higher risk) TransCanada Corp. (TRP).
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Disclosure: L.C. Jacobs of New York , N.Y. reviews stocks on a quarterly, semi-annual and annual basis.
L.C. Jacobs has no positions in stocks reviewed, but does own federal, municipal and corporate bonds.
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To contact L.C. Jacobs about this stock review, write to: stockreview@mail.com.
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