How To Invest In Preferred Stocks?

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One way to invest in preferred stocks is via ETFs. Three ETFs that invests in these types of stocks are listed below with their current distribution yields.

Preferred stocks are type of security that are both stocks and bonds. They get higher priority than common stocks when a company is liquidated and its assets sold and distributed to creditors.

Here is a definition from Wikipedia:

Preferred stock (also called preferred shares, preference shares or simply preferreds) is an equity security which may have any combination of features not possessed by common stock including properties of both an equity and a debt instruments, and is generally considered a hybrid instrument. Preferreds are senior (i.e. higher ranking) to common stock, but subordinate to bonds in terms of claim (or rights to their share of the assets of the company).[1]

Three ETFs to invest in preferred stocks:

1.Company: PowerShares Financial Preferred Portfolio (PGF)
Current Distribution Yield: 6.25%

2.Company: PowerShares Preferred Portfolio (PGX)
Current Distribution Yield: 6.39%

3.Company: iShares S&P U.S. Preferred Stock Index Fund (PFF)
Current Distribution Yield: 5.97%

Note: Distribution yields noted are as of Mar 18, 2013

These ETFs have higher yields than common stock ETFs. However there is one disadvantage with the preferred stocks and these funds. The dividends paid by the preferred stocks may not always be qualified dividends. Hence as ordinary dividends they will be subject to higher taxes. So before investing in these ETFs investors should carefully analyze them.

Disclosure: No Positions

A Look at Two Large Food and Consumer Staples Retailers

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Walmart(WMT) and Costco(COST) are two of the large retailers that sell food and other consumer staples. In addition, they also sell consumer discretionary items. Both these companies offer membership-based wholesale bulk shopping stores for food and other items. Costcco operates these stores under the Costco brand while Walmart runs it under the Sam’s Club brand.

1.Costco Wholesale Corporation (COST)

Costco operates membership warehouses in the US, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Australia, and through majority owned subsidiaries in Taiwan and Korea. A typical store operates on a seven-day, 69-hour week schedule and is about 143,000 square feet in size. Each store carries thousands of products with many offered in bulk quantities. These stores are popular with consumers as they offer products at some of the cheapest prices anywhere.

Last year the company has about $103.0 billion in sales. In the most recent quarter Costco had revenues of $24.87 billion and made a profit of $547 million. At $101.75/shr the current dividend yield is 1.08%.

2.Walmart Stores Inc (WMT)

Walmart is the largest retailer in the world and is also the world’s largest employer. The company operates in all 50 states in the U.S., Puerto Rico and 26 other countries. Its Sam’s club unit accounted for about 12% of it net sales in 2012.

Walmart’s revenue in 2012 was about four times that of Costco’s at $469.0 billion. At the current price of $72.50 the dividend yield is 2.59%.

Here is a chart showing the long-term performance of the two companies and the S&P 500:

Click to enlarge

WMT-Cost-SP500

 

Source: Yahoo Finance

Note: Dividend yields noted are as of Mar 15, 2013

Disclosure: No Positions

Auto-Parts Maker Genuine Parts Company Reaches 52-Week High

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I wrote about auto parts makers back in January. Among the five big companies in this industry Genuine Parts Company(GPC) reached a 52-week high last week. From a low of about $25.00 in March 2009, the stock reached over $74 last week as shown in the chart below:

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GPC-52-Week-High

Source: Yahoo Finance

The company has over $11.0 B in market cap and has a current dividend yield of 2.91%. Other auto parts makers such as Magna International of Canada (MGA) also reported strong earnings recently. As auto sales have picked up since the credit crisis lows and continues to grow, auto parts makers are bound to grow as well. Hence despite the 52-week high GPC and others are worth adding at current levels.

It is interesting to note that GPC is one of the top holding in The AdvisorShares Global Alpha & Beta ETF (NYSE: RRGR) which is run by fellow blogger and portfolio manager Roger Nusbaum, CIO of Your Source Financial.

Note: Dividend yields noted are as of Mar 1, 2013

Disclosure: No Positions

Performance of KBW Bank Indices vs. S&P 500 Index

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The latest Fed Stress Tests of US banks indicate that 17 of the largest 18 banks could withstand a deep recession and maintain enough capital above the minimums required. Ally Financial(ALLY), the car lending company that used to part of GM is the only odd man out in the Fed’s tests. The final results will be made public on March 14th together with the Fed’s decision on banks’ request to increase dividends or share buybacks.

From a Bloomberg article today:

U.S. banks have grown stronger since the crisis. The Fed said in November the largest banking groups had nearly doubled their Tier 1 common capital to $803 billion in the second quarter of last year from $420 billion in the first quarter of 2009.

The KBW Bank Index (KBX), which tracks shares of 24 large U.S. banks such as JPMorgan,State Street Corp. (STT) and Capital One, has risen 9.7 percent this year, compared with the 8.3 percent gain of the Standard & Poor’s 500 Index.

The Fed for the test gave banks 26 variables — ranging from interest rates to stock and home-price indexes — and showed how they would change over time. The Fed also gave banks an adverse scenario with rising interest rates and a baseline scenario, and didn’t disclose the results for these.

The KBW Bank Index (BKX) is leading the S&P 500 year-to-date as noted above. However the KBW Regional Bank Index (KRE) is over 11% compared to KBW Bank Index’ return of over 9% as shown in the ETF charts for these indices below:

Click to enlarge

SP500-vs-Bank-Indices-YTD-1

Source: Google Finance

The KBW Regional Bank Index (KRE) is composed of about regional banks such as Bank of Hawaii(BOH), Susquehanna Bancshares (SUSQ), First Horizon National Corp (FHN), etc.

In the 5-years both the bank indices have lagged the performance of the S&P 500 due to the big crash in banking shares during the financial crisis. While the S&P is up about 20% the regional bank index and the bank index are down about 10% and 27% respectively. Here again the regionals have performed better than the large banks.

SP500-vs-Bank-Indices-5-Years

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • SPDR KBW Bank ETF (KBE)
  • SPDR KBW Regional Banking ETF (KRE)

Disclosure: No Positions

A Look At Three Truck Maker Stocks

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Truck markers may see an upswing in sales as the economic recovery continues to strengthen. Three of the truck makers are listed below with their current dividend yields and market caps:

1.Company: Navistar International Corp (NAV)
Current Dividend Yield: No dividend Paid
Market Cap: $2.6 B

2.Company: Oshkosh Corp (OSK)
Current Dividend Yield: No dividend Paid
Market Cap:$3.5 B

3.Company: PACCAR Inc (PCAR)
Current Dividend Yield: 1.65%
Market Cap:$17.5 B

Note: Dividend yields noted are as of Mar 7, 2013

Disclosure: No Positions

TruckOf these companies, PACCAR is the largest in terms of market cap and it pays a dividend too with a yield of about 1.65%.  Both Oshkosh and Navistar are mid-cap stocks and pay no dividends.

Oshkosh is a major military equipment maker specializing in trucks and other vehicles. Hence the company’s sales are dependent more on Pentagon orders than the other two competitors. Oshkosh had sales of over $8.0 billion last year and the profit margin was just about 3%.

PACCAR sells its vehicles and parts in North America, Europe and Australia. In the U.S. its trucks are sold under the Kenworth and Peterbilt brands.Total revenues exceed $17.0 billion in 2012 and the profit margin was about 6.5%.

Similar to Oshkosh, Navistar also makes both commercial and military vehicles. Total revenue in 2012 was about #13.0 billion but the company had a loss.

The following chart shows the multi-year return of these companies:

Click to enlarge

Three-Maker-Stock-Returns-Since-2000

Source: Yahoo Finance

PACCAR is the best performer since 2000. Navistar has been the worst performer. That sharp spike in Osh Kosh’s share price is due to a bid from activist investor Carl Icahn to buy the company. Mr.Ichan’s later abandoned his efforts to control Osh Kosh as the company rejected his bid as a “low-ball” price.

Hat Tip:  Navistar Ready to Put Pedal to the Metal (WSJ)

Airgas: A Superb Stock To Own in the Chemicals Sector

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ChemicalsOne of the best sectors to own during any market is the chemical sector. Though they are cyclical chemical stocks tend to perform well in the long-run. In the mid-cap chemicals space, one of the names investors can consider is Airgas Inc (ARG). The company is an industrial gas distributor with a solid track record.

The excellent  performance of Airgas since 2000 is shown below:

Click to enlarge

Airgas-Returns-Since-2000

Source: Yahoo Finance

A brief overview from the corporate site:

Airgas, Inc. (NYSE: ARG), through its subsidiaries, is one of the nation’s leading suppliers of industrial, medical and specialty gases, and hardgoods, such as welding equipment and related products. Airgas is a leading U.S. producer of atmospheric gases with 16 air separation plants, a leading producer of carbon dioxide, dry ice, and nitrous oxide, one of the largest U.S. suppliers of safety products, and a leading U.S. supplier of refrigerants, ammonia products, and process chemicals.

Airgas was founded in 1982 by Executive Chairman Peter McCausland and became a publicly-traded company in 1986. Through strategic growth initiatives and more than 400 acquisitions, Airgas has become one of the premier industrial gas companies in the U.S., with an unparalleled packaged gas distribution platform. More than 15,000 employees work in approximately 1,100 locations, including branches, retail stores, gas fill plants, specialty gas labs, production facilities and distribution centers. Airgas also markets its products and services through eBusiness, catalog and telesales channels. Its national scale and strong local presence offer a competitive edge to its diversified customer base.

Currently Airgas has market capitalization of over $7.0 billion and a dividend yield of 1.59%. Last year the company had total revenues of around $5.0 billion and the profit margin is around 7.0%.

According to the company’s data, a $1,000 investment on Dec 19, 1986 would be worth $103,500.04 today with dividends reinvested yielding a superb return of 10,275.94%.

Also a $1,000 investment made on January 2, 2000 would be worth $ 12,662.55 for a return of 1,176.39% assuming dividends were reinvested.

Note: Dividend yields noted are as of Mar 1, 2013

Disclosure: No Positions