Mango trees will settle into a cropping pattern by the third year after planting and reach peak production in six to eight years. The tree is long-lived with some specimens known to be over 300 years old and still producing fruit. Dividend investing is similar to planting a mango tree. Things start very slowly at first. It appears as if all your efforts are in vain, but ever so surely the process begins to produce fruit (dividends). Just as picking fruit from a mango tree does not harm it, living off dividends does not damage the investment’s ability to produce future results.
Here are several companies sharing the fruits of their labor with their shareholders via double-digit dividends:
Barron’s: Linn Energy (LINE) 21% Yielding Dividend Is Safe
Linn Energy, LLC (Linn Energy) is an independent oil and gas company focused on the development and acquisition of long-lived properties in the United States.
LINE is an astute and disciplined hedger and, as such, was able to lock in favorable prices during this summer’s energy-price bubble for its products going out three to four years. In fact, based on its third-quarter distribution of 63 cents per unit (or $2.52 annualized), the company is throwing off a current yield of more than 20%. Citigroup analyst Richard Roy wrote in a recent report that this distribution level is “relatively secure” for at least the next two years or more. And the company appears to have done a nice job of protecting its distribution levels. Given its current knockdown unit price, Linn seems poised to deliver some capital gains, too. Link to Barron’s Article
Dow Chemical (DOW): Yielding 11% After K-Dow Unravels
The Dow Chemical Company (Dow) is a diversified chemical company that offers a range of chemical, plastic and agricultural products and services. The Company is engaged in the manufacture and sale of chemicals, plastic materials, agricultural and other specialized products and services.
The pressure on DOW shares earlier this week is related to the termination of its multi-billion dollar K-Dow Petrochemicals joint venture. The funds that the deal would have provided to Dow were crucial to the Rohm & Haas (ROH) acquisition. Without access to that cash, Fitch Ratings has warned of possible future downgrades of its credit ratings on DOW and ROH.
DOW has publicly defended the $1.68 per share annual dividend payout, but with a major recession and an unstable merger deal, it might be difficult to maintain.
40|86 Strategic Income Fund (CFD) Increases Dividend (12.75%)
40/86 Strategic Income Fund (CFD) is a non-diversified, closed-end management investment company. The Fund’s primary objective is to seek high current income. The Fund invests primarily in high-yield bonds, debentures, notes, corporate loans, convertible debentures and other debt instruments rated below investment grade. The Fund’s investment advisor is 40 | 86 Advisors, Inc.
Three very different securities, one thing in common – No dividend cuts.
Disclosure: No position in the aforementioned securities.
(Photo: Steve Woods)