In a recent Wall Street Journal article, David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, defined his primary investing approach as SIRP -- "safety and income at a reasonable price." If GARP ("growth at a reasonable price") investing is attractive when the economy is growing and markets are steadily marching upward, then the SIRP investor rules in zig-zagging markets marked by slow economic growth, debt deleveraging, and deflation.
Rosenberg recommends allocating a portion of your portfolio to gold as a way for individual investors to practice SIRP investing. That seems curious to me as I don't see an attractive income-producing opportunity with gold. Gold bugs are chasing capital appreciation as gold prices continue to climb in response to fears about future inflation, but where are the dividend yields?
Rosenberg's unsatisfactory recommendation (for me), led me to come up with my own SIRP screen. I tried to look for stocks with high dividend yields that also provide attractive share price appreciation opportunities. Using our CAPS Screening Tool, I looked for stocks that have:
- Greater than a 4% dividend yield
- Return-on-equity greater than 15%
- Market caps greater than $1 billion
- Price-to-earnings multiple below 20
- Four- or five-star ratings, the highest possible, from our CAPS community
I also limited my screen to companies in what are generally considered Defensive Sectors (Consumer Staples, Utilities, Health care) as well as companies that invest in hard assets from the Basic Materials sector.
And the results are in
|
Company
|
Dividend Yield
|
Return on Equity
|
Price-to-Earnings
|
Sector
|
|
Universal Corporation (NYSE: UVV )
|
4.5%
|
18.7%
|
7.4
|
Consumer Goods
|
|
Amerigas Partners, L.P. (NYSE: APU )
|
6.5%
|
33.2%
|
16.6
|
Utilities
|
|
CenterPoint Energy, Inc. (NYSE: CNP )
|
5.6%
|
15.5%
|
12.5
|
Utilities
|
|
UniSource Energy Corporation (NYSE: UNS )
|
5%
|
15.7%
|
10.3
|
Utilities
|
|
Alliance Resource Partners LP (Nasdaq: ARLP )
|
6.5%
|
55.6%
|
16.3
|
Basic Materials
|
Only one consumer staple made the cut. Universal Corporation is a tobacco middleman based out of Richmond, VA. It does not manufacture cigarettes but handles the buying, shipping, processing, storing, and financing of tobacco for sale to manufacturers of tobacco products. Shares have tumbled recently as Philip Morris International (NYSE: PM ) has taken some of UVV's business with Brazilian farmers. It's likely that the market has over reacted to PMI's move to bypass UVV, creating an opportunity for investors. However, if more manufacturers follow PMI's lead, Universal Corporations' share prices could remain depressed.
Among the utilities, AmeriGas Partners, the nation's largest retail propane marketer, is trading at its 52-week high and offers the highest yield at 6.5%. CenterPoint and Unisource are also trading near their 52-week highs. Given that the sector peers are largely moving together, AmeriGas looks like the winner in this group based on a higher yield.
In Basic Materials, our screen also focused on one company, coal producer and MLP, Alliance Resource Partners. Per its partnership agreement, ARLP must distribute all cash quarterly to unitholders. And it's generating a lot of cash flow, $7.06 per share for the last 12 months. The International Energy Agency expects worldwide demand for coal to increase by over 50% over the next twenty years, and that's more than their projected growth in demand for oil, nuclear, biomass, hydro, or gas. That type of demand is a nice complement to a 6.5% dividend yield!
Of course, this screen is only a starting point in the research process. What do you think about these stocks? Click over to CAPS and let the rest of the community know what you think. And let me know if you have an improved SIRP Screen.
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