Despite the fact that the bears on Wall Street say that the long bond market rally is over, rates on government bonds sure don’t seem to agree. In fact, the spread between the yield on the five-year and 30-year Treasury bonds is a puny 102 basis points, or just over 1%. Investors who look for income have been hammered by the Federal Reserve pushing interest rates to generational lows, and for the most part, keeping them there.
We decided to screen our 24/7 Wall St. research database for companies that investors can own that not only pay a huge dividend or distribution, but are also rated Buy. We found five companies that fit the bill, and while they are only suitable for aggressive accounts, they could pay off big in a total return way for patient investors.
Alcentra Capital
Shares of this business development corporation (BDC) make sense for aggressive accounts. Alcentra Capital Corp. (NASDAQ: ABDC) is an externally managed BDC that primarily invests in the debt of companies operating in the lower middle market. The company typically aims to invest $5 million to $25 million per transaction.
The company has covered its dividend from net investment income since its initial public offering, but the analysts at Raymond James feel that it had a slight under-earn for the third quarter. They said this in a recent report:
The stock is currently trading at a discount to the group average yield of 9.7%, leaving significant price appreciation potential, plus a higher than average dividend yield. In the event of credit and multiple deterioration from current levels, our risk scenario indicates 18% downside (based on extreme recessionary pressures) vs. an upside reward case of 31%.
Shareholders receive a stunning $12.72 distribution. Raymond James has a price target on it of $13. The Wall Street consensus target is $12.38. The shares traded Wednesday morning at $10.70.
CenturyLink
This company offers solid value and has zero foreign sales exposure. CenturyLink Inc. (NYSE: CTL) is the nation’s third-largest telephone company and the largest rural exchange provider serving residential, business and wholesale customers. It has 11 million access lines and 5.9 million high-speed internet connections across 37 states, and it is the product of the acquisition of Embarq by CenturyTel in 2008 and Qwest Communications in 2011.
Back in March, shareholders of CenturyLink and Level 3 Communications approved their merger by overwhelming majorities. Wall Street loves this deal, and the synergies the two have combined are very strong. While it is possible the company could cut the dividend after the deal closes, the stock may be an incredible value at current levels as arbitrage accounts have leaned on the shares and will need to cover when the merger is complete.
CenturyLink investors receive a 11.44 % dividend. Merrill Lynch has a staggering $42 price target, while the consensus price objective is at $26. The stock was last seen at $19.20 a share.
Energy Transfer Partners
This energy master limited partnership (MLP) merged with Sunoco Logistics Partners last year. Energy Transfer Partners L.P. (NYSE: ETP) engages in the natural gas midstream and intrastate transportation and storage businesses in the United States.
The company’s Intrastate Transportation and Storage segment transports natural gas from various natural gas producing areas, and through ET fuel system and HPL system. It owns and operates 7,500 miles of natural gas transportation pipelines and three natural gas storage facilities in Texas. Its Interstate Transportation and Storage segment provides natural gas transportation and storage services; owns and operates approximately 12,300 miles of interstate natural gas pipeline; and has interests in various natural gas pipelines.
The Midstream segment gathers, compresses, treats, blends, processes and markets natural gas. It owns and operates 35,000 miles of in service natural gas, 31 natural gas processing plants, 21 natural gas treating facilities and four natural gas conditioning facilities.
The unitholders receive a 11.83% distribution. The $29 UBS price target compares with a consensus target of $26.95. The shares traded Tuesday at $18.75.
Golar LNG Partners
This is a shipping and storage play that holds a big distribution for shareholders and is a top pick across Wall Street. Golar LNG Partners L.P. (NASDAQ: GMLP) owns and operates floating storage regasification units (FSRUs) and liquefied natural gas (LNG) carriers under long-term charters in Brazil, the United Arab Emirates, Indonesia and Kuwait. The company also engages in the leasing of its fleets.
The Marshall Islands–based company has a fleet of six FSRUs and five LNG carriers, a combined average remaining useful life of 25 years, and an average remaining charter duration of five-plus years. The company posted solid third-quarter results and also was successful in lowering leverage.
The company has a diverse pipeline that includes Golar’s FLNG projects and as a result, some Wall Street analysts feel it has the largest growth potential in its peer group, with potential drop-downs/newbuilding inventories of 16 vessels.
Shareholders receive a $10.56% distribution. Merrill Lynch has set its price target at $25. The consensus target is $23.20, and shares traded at $22.00.
24/7 Wall St.Icahn Enterprises
Icahn Enterprises L.P. (NYSE: IEP) is Wall Street legend Carl Icahn’s publicly traded investment vehicle, a combination activist hedge fund and a diversified holding company. The current portfolio holdings span energy, automotive, real estate and a host of smaller investments across other industries.
All investments made by Icahn are conducted through IEP, and IEP primarily executes its investment strategy through the hedge fund, focusing mostly on the equity markets. The company was originally formed in 1987 as an MLP, and Icahn continues to control the company, owning over 90% of IEP’s outstanding shares.
Jefferies analysts like the company and said this in an August report:
Icahn Enterprises reported adjusted EBITDA of +$506 million in the second quarter, up from +$412 million in the first quarter. Positive performance at the hedge fund (+4.3% return vs. -2.7% last quarter) was the primary quarter over quarter difference. The company’s net asset value of approx. $37.50/unit was down approx. $1/unit as growth was offset by share dilution.
Investors are paid a 11.32% distribution. The Jefferies price target is at $61. The consensus target is $50, and shares were last seen at $53.10.
These five companies pay massive distributions or dividends and have upside potential. It should be noted that limited partnerships often include return of capital in their distributions. Again, these are only suitable for aggressive accounts, but they could be great vehicles for those seeking income and some growth.
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