October Stock Considerations

As the month of October begins, dividend growth investors all over the world check up on their portfolio health and scout new investment opportunities. With recent market declines and an overall shakiness to the major averages it would seem that several stocks are going on relative sale these days offering better pricing from all time highs and better valuations as well. This fact presents two opportunities for myself and my portfolio as I have the decision to choose between averaging down with some of my current newer holdings or expand my portfolio by adding new higher yielding stocks.

 

For the month of October I thought about shaking things up a bit and mention several new names I am considering that all offer relatively high yields and run the gamut from standard common stocks to closed end funds. For those that do not know, a closed end fund is basically like a mutual fund except it issues a finite amount of shares that is traded on the stock exchanges. Unlike a regular open mutual fund which can issue new shares to new investors at any time, a closed end fund cannot and its stock value is determined by basic supply and demand laws and trade either at discounts or at premiums to their net asset value (NAV) which is basically the sum of the value of their current assets. Not all closed end funds are created equal and “dividends” received might be a return of capital which is taxed at different rates than standard dividend distributions. Plus, many closed end funds employ leverage to enhance returns and with rising interest rates coming down the pipe higher borrowing costs may impact future earnings. With all that being said here are my October stock considerations.

 

First, up is a utility that I have been watching in recent weeks, Hawaiian Electric Industries Inc. (HE). This company, as the name suggests, produces, purchases, transmits, distributes and sells electricity in Hawaii. It also owns American Savings Bank, the third largest bank in Hawaii. As you know I have been particularly fond of the financial sector for many months and this stock seems to offer the stability of a utility along with financial sector exposure. The stock currently yields a very juicy 4.70% with a PE of 15.21 which is well below the S&P and industry peers.

 

Next, is the closed end fund DNP Select Income Fund Inc. (DNP). This fund primarily invests in very stable public utilities in the oil and gas sector, as well as electric, water and telecom industries. Some holdings include, Sempra Energy, Verizon Communications Inc., AT&T, Inc., Williams Companies, Inc., Southern Company and Duke Energy Corporation to name a few. DNP also, owns MLPs as well as corporate bonds. DNP currently has a high distribution rate 6.20% and trades at a premium of 2.96% to its NAV. This fund has a very long distribution history as well going back almost three decades.

 

Another high quality closed end fund I was looking at is Reaves Utility Income Fund (UTG). Like DNP, this fund invests in many of the same high quality dividend names we already invest in such as Vodafone Group, Union Pacific Corp., Aqua America, Inc., AT&T, Inc., Royal Dutch Shell, Verizon Communications Inc., Dominion Resources, Inc. and many more including MLPs Enterprise Products Partners and Enbridge Energy Partners to name a few. This fund currently has a distribution rate of 6.30% and is trading at a discount to NAV of -4.29%. This basically means you are paying less for the shares of UTG than the holdings are actually valued at.

 

Finally, I have been looking at Tortoise Energy Infrastructure (TYG). As the name suggests, TYG primarily invests in energy infrastructure including many of the top oil and gas pipeline names we all know such as Plains All American Pipeline, Magellan Midstream Partners, Enterprise Products Partners, Energy Transfer Partners to name a few. TYG current has a distribution rate of 5.10% and is trading at a discount of -10.04%. How’s that for a sale price. Demand for this closed end fund has definitely declined as oil prices and overall interest in the energy sector has taken a beating in the past few weeks.

 

I think you can see that I have an affinity for looking at investments in stable, “boring” reliable industries. Each stock above represents a utility, telecom or oil and gas infrastructure play. All steady cash flow businesses by any measure. I figure the added risk of investing in a closed end fund that uses leverage to enhance results might be tempered by the conservative holdings in each respective portfolio.

 

Of course, the above all look interesting to me and one cannot deny the attractiveness of the yield each one offers. Place these closed end funds in a tax advantaged account and reap even more benefits from your distributions received. However, I am also considering averaging down some of my current new holdings I initiated about a month ago. Those stocks include The Bank of Nova Scotia (BNS), The Toronto-Dominion Bank (TD) and Royal Bank of Canada (RY). While all solid financial plays by any measure; I will be watching each of them in the coming days and week to see if I’d feel more comfortable averaging down or initiate a new position in one of the high yield plays above.

 

What stocks are on your shopping list for October? Are any of the names I am considering on your list as well? Please let me know below.

 

Disclosure: Long BNS, TD, RY

45 thoughts on “October Stock Considerations

    • Hi petrusko,

      I’m happy you enjoyed this post. The focus of this post has definitely been on yield rather than growth as each stock mentioned is a great deliverer of yield. There are actually many great closed end funds that retirees rely on for income generation as well which is why I started to look more closely into those types of investments. Thank you for stopping by and commenting.

  1. I’m not familiar with any of those companies, so I have some reading to do. Thanks for the ideas DH. I have a laundry list of companies I’m interested in. My question is, “will the stock price get down to the level where they are reasonable buys?” Have a great day
    Income Surfer recently posted…New Purchase: Mattel (MAT)My Profile

    • Hi IS,

      Happy to introduce you to some new investing concepts. Closed end funds typically deliver a higher yield than many stocks as a portion of the distribution comes in the form of return of of capital. Nevertheless, the primary reason for investing in a CEF is for yield and not necessarily for growth. This is why many people in retirement age use closed end funds, income generation. I appreciate your comment.

    • Hi RBD,

      As mentioned in my post a CEF does have an inherent risk when the use of leverage comes in to play. However, I feel that the risk is somewhat muted when the CEF invests in very stable utility, telecom or MLP plays. I think that buying a CEF at a discount which has utility exposure can be a great way to generate higher current yield rather than simply investing in one or two stocks. By buying into a CEF you get exposure to multiple companies all in one stock. Thank you for commenting. Much appreciated.

  2. Some interesting investments on your watchlist DivHut. I am also watching the three Canadian banks, and will likely pick up one of them later this month as I am in the process of rolling a part of an old 401(k) into my DG portfolio. In addition to one of the banks, I am considering UTX, GE, BBL, V, BP, and AFL. Quite the mix, but plenty to look into for the next few weeks.
    writing2reality recently posted…Trades – September No-Cost Dividend Growth Portfolio PurchasesMy Profile

    • Hi w2r,

      The market has definitely been giving us a lot more choices in recent weeks. I remember not too long ago every dividend investor blogger complaining about how there are no bargains to be found in the market. Now, MAT seems to be very popular among many of the names you mention too. I started looking into closed end funds a little while back and thought I’d share some of the names I was looking into. It seems to be a great vehicle for achieving current high yield especially when put in a retirement account. Of course, with the continued market slide I may simply want to average down my Canadian bank holdings, TD, BNS and RY. Thank you for commenting.

  3. The closed end funds on your watch list have solid yields, but I’m missing the “growth” component. I guess you’re focus is on dividend income and dividend growth, not exclusively on dividend growth. Perhaps the need to increase portfolio exposure in Utilities warrants looking wider than just dividend growth stocks…

    Take care!
    FerdiS recently posted…Monthly Review, September 2014My Profile

    • Hi FerdiS,

      The point of considering a closed end fund is to achieve a high current yield with diversification exposure and the ability to buy at discounts to NAV. The funds I mention in the article all invest in stable infrastructure or utility companies we all know and already invest in. These funds are definitely not in any growth category but if you are looking for utility or infrastructure exposure this might be a great way to achieve a high current yield. Thank you for stopping by and your comment.

  4. Interesting, I can’t say I’ve heard a those companies before. HE sounds interesting though depending on what the potential growth profile is like. I’ve been on an industrial sector kick and just initiated a new position in UTX. I think it’s one of the better valued conglomerates right now. I’d love to add some more traditional defensive companies but they all seem too expensive right now. I should probably add some more financial exposure so maybe it’s time to look at the Canadian banks again.
    JC recently posted…Recent BuyMy Profile

      • Hi JC,

        Very true. Oil and many other commodities have had the bottom fall out in recent weeks. Look at copper, gold, silver, corn, etc. Some might say it’s because of a much stronger dollar.

    • Hi JC,

      Growth is definitely not the name of the game with any of the stocks I mention. These are basically high current yield plays and should be bought if you are looking for income generation. Many retirees own closed end funds for this purpose. UTX has been quite popular among the dividend bloggers recently. I have eyed that one for many years and just never pulled the trigger. I am already pretty heavy in the industrial space but UTX really looks like a good call. I’m sitting on my hands these days and waiting to see what Mr. Market does. Things are really starting to become priced more reasonably when compared to the last six months or so. Thank you for stopping by and commenting.

  5. DivHut,

    Hawaii Electric is interesting, because it is not like there is a lot of competition out there. However, there have been some issues locally with alternative energy (home owners with solar / wind). They are claiming it is making their grid less stable, which is a bit of a red herring. The state is also requiring a super high amount of power generation to come from green sources, so that fight may soon come to a head. I think HE will survive, but they will have to adapt.

    The argument from utilities that solar, wind, etc. destabilized their grid is still up for debate, but most professionals in the energy field strongly disagree. The problem is that a lot of the technology utilities use is out of date, but of course upgrades are not cheap. I’d read up on those issues.

    Not too familiar with the funds you suggest, but I will look at them. Also I love the Canadian banks too. I only have CM, which has been doing awesome of late. I’d love to add some more whether it be BNS, BMO, RY, or TD.

    – Dividend Gremlin

    • Hi DG,

      Thanks for your insight regarding HE and the green wave hitting many utility companies. HE, while a typical utility, has the added benefit of being a financial play as well with their ownership of American Savings Bank. Though small, it still accounts for a decent percentage of HE revenue. Time will tell how solar, wind and other green sources of energy will impact future earnings of many utilities in general, not just HE. I think we still have a way to go before any meaningful home power generation impacts earnings of these utilities. Thanks for stopping by and commenting. Much appreciated.

      • It is cool they are bank, certainly strange for a utility. Its kind going to an auto dealership or mechanic, who also happens to sell ice cream. “My car needs an oil change, and can I get a large vanilla cone with sprinkles?”

        I think you are right about the amount of time it will take to put a dent into utilities. Still there are some geographic utilities I would watch – anything in the Southwest, Florida, and Mid Atlantic parts of the country – for solar of all sizes.

        Most large wind projects of utility scale are built by large financing companies, entities such as tribal organizations or other energy companies. In the long run I see utilities getting directly involved with wind from a generation stand point or charging generators extra transmission / distribution fees. The place to watch for that is the West and Plains, but off-shore is coming too.

        Oddly 1 utility not impacted by this is Southern (SO). The states where they operate do not necessarily require net meters (essential for home solar or small wind).

        – DM

        • Hi DG,

          I hear you about the utility/bank combo but realize that the bank is only about a third of their overall business. I still think it may be their long term hedge against future solar, wind or other green forms of energy generation. Time will tell and I think the time can be measured in decades. There’s no doubt that technology will impact future utility income but as you mentioned any new large scale green energy project is very costly to implement and may of the large utilities will become directly involved in the process as well. Thanks for your insight.

  6. I came across HE a while ago, but there was something I didn’t like about it, besides the lack of dividend streak. High debt levels or the possibility of competition? Be sure to do your due diligence on that one. I know nothing about CEFs so I can’t help you there. I just picked up 23 shares in KMB, both to average down and to hopefully take advantage of the HYH spinoff.
    DividendDeveloper recently posted…Stock Purchase – KMBMy Profile

    • Hi DD,

      I have to admit when I compiled this list my primary criteria was high current yield among utility and infrastructure plays. You bring up some valid points regarding HE stock, particularly the debt levels. However, many “solid” utilities have high debt levels on their books already and HE does give exposure to the financial sector as well with their bank ownership. Definitely something unique among utility companies. Regarding the CEFs I think they warrant additional research and can actually be great ways to earn high current yield that can be reinvested or used to purchase other stocks especially when they can be bought at discounts to NAV. Thanks for sharing your opinion.

    • Hi Tawcan,

      Happy to introduce you to some new names for potential investment. Closed end funds can be a great way to start earning a high current yield that can be reinvested or used to fund other stock purchases. All the funds mentioned invest in many of the same names many dividend bloggers already have in their portfolios but the very nature of owning a CEF give you instant diversification. Thank you for stopping by.

  7. Keith,
    I can always count on you to talk about interesting companies that fly a little bit under the radar! With names like KO, WMT, MCD, JNJ, and so on, sometimes I think investors forget that there are other great deals to be had in the market.

    As always, your posts provide much food for thought. I think I’ll do some investigating on HE.

    Thanks for sharing your watchlist!
    Seraph recently posted…Dividend Income, September 2014My Profile

    • Hi Seraph,

      I’m happy to highlight the less talked about dividend income plays as there are many other solid income plays that go beyond the stocks that we talk about usually such as the ones you mention. Closed end funds definitely deserve a little more attention in my opinion than they currently receive but I guess that’s why we blog; to share new and alternative investing themes and ideas. HE looked like an interesting utility to me as it also encompasses a financial play with the bank they own. As always, I appreciate your comment.

  8. DH,

    I have an interesting play on Tortoise. Correnegy (CORR) is a triple lease reit that specializes in mid and downstream. It’s a strange company that was first a BDC and then became the first of its kind Reit to invest in midsteam and downstream. It gets even stranger that the CEO, CFO, COO, and board are all externally controlled by david shutle…..who is on the management team of Tortoise

    Basically this is tortoise’s baby but they can’t claim it because of MLP tax issues. Take a look of its assets. All long term leases to oil companies, the US government, other companies. In term of “wow” factor, this company has none. It is an extremely boring company that will produce money 15-20 years in the future. My kind of company.

    Take a look at its assets

    http://corenergy.corridortrust.com/assets.cfm

    • Hi TBDI,

      Awesome! Thanks for sharing this info about CORR. This is why I love our DGI community. The new investing ideas shared can be great. I’ll be taking a closer look at CORR. It definitely fits the bill of owning some solid and boring assets. Just the way I like it. Thank you for sharing this stock with us.

    • Hi TBDI,

      Thanks for sharing your next buys with us. Liking GE in the $25 range too. Still haven’t touched oil but with the recent slide in crude prices and stocks following suit, energy is starting to look very enticing.

  9. Hi DivHut! Right now I see two sectors that are cheap. Oil and financial sectors. They offer attractive yield and attractive PE. My dilemma is I am getting overweight with these two sectors especially like you I am looking forward to diversify to the big 3 canadian banks TD, RY and BNS. Your October stock consideration are alien to me, I will check them out.

    • Hi Ogie,

      I have been liking financial stocks for many months now and have been adding to my holdings since April. Been buying each month, AFL, CB, WFC, TD, BNS and RY so I fully agree that the financial sector presents great value in this market. I also agree that energy is becoming very interesting as well with the recent slide in oil prices. I have BP and TOT on my watch list. Thank you for stopping by and commenting.

  10. Interesting picks! Ive never heard of any of those companies except for the Canadian banks of course 🙂 The CEF can provide with some good income plays – i used them in the past but the lack of any raises and the falling prices when the crisis came around turned me off of CEFs.

    Looking forward to see which ones you go with.

    Best wishes
    R2R
    Roadmap2Retire recently posted…Outlook for October 2014My Profile

    • Hi R2R,

      CEFs are basically high current yielding stocks and one shouldn’t see them as “dividend growers.” I like the ones mentioned because they all invest in many stable utilities and MLPs that many dividend investors already invest in. I understand that the leverage some use can be a risk, especially with rate increases coming in the next year but one cannot ignore the long distribution history these have along with a great current yield.

      The way the markets are behaving in recent days it looks like I’ll opt to average down my current holdings instead if initiating new buys with these CEFs. But I have added them to my watch list so we’ll see how the market develops. Thank you for stopping by and commenting.

  11. DivHut,

    Interesting choices!

    I’ve never taken a look at HE, but a utility/bank is an awfully confusing business model. That’s like the strangest mini-conglomerate I’ve ever heard of. Although, I’m not a real big fan of utilities, which is why I have almost no exposure there. I’m fearful of the move to alternative/green energy. Might take time, but it’s expensive to maintain/upgrade infrastructure, and every customer getting energy elsewhere is a problem. The growth with utilities was historically low anyway, and that may be exacerbated in the future.

    Interesting CEFs. I don’t particularly like the idea of all that leverage, especially with the market at all-time highs. Just my $0.02. I wish you much luck! 🙂

    I’m currently looking at a few different REITs, BAX, and BBL. I noticed BNS has fallen a bit lately. That might be a solid opportunity.

    Best wishes!
    Dividend Mantra recently posted…Freedom Fund Update – October 2014My Profile

    • Hi DM,

      The utility/bank combo of HE is definitely and interesting one to say the least. Perhaps management sees this is a long term hedge to some of the points you bring up regarding alternative energy sources? No one really buys utilities for growth. I think that any investor in the sector realizes that it’s about decent to high current yield in a business that is as steady as they come. In my portfolio I own ED, SO and D which give me some small exposure to the sector but not much as I prefer dividend growth stocks much more. Nevertheless, they each provide provide good current yield.

      Regarding the CEFs, I happen to like these when I was searching among the hundreds to choose from because they all offer a great current yield, have long distribution histories and even distribution raises over the years. They all invest in well known utilities, telecom and MLPs many of us already have holdings in. I do agree that leverage can be an issue with the markets at all time highs and with rising interest rates coming as well. But where else can you buy an NAV of these holdings at 4% to 10% off?

      Curious to see which way you’ll go with your picks this month. As for me, Mr. Market is giving me a chance to average down, especially with my BNS so I may just go that route. I have added those CEFs to my watch list and we’ll see where the market heads in the coming weeks and months. Thanks for stopping by and commenting.

  12. Hi Divhut,

    XOM is becoming attractive… MCD, AFL and O still appear fairly valued to me. MAT is an intriguing one… I’m not sure I want to add to my position at this point…

    Anyway I won’t have a lot of capital to invest this month so I’m not quite sure yet of what I will do with it but it is most likely that I’ll only be able to do 1 stock purchase…

    I came across 25000dividend strategy with his canadian taxfree saving account recently and found it appealing. I really need to take advantage of and maximize that account. Canadians can invest 5000$ per year tax free since 2009. I can still invest 28,000$ there. 25kdividend has chosen to invest in high yielders to maximize his tax free return there. Since I can’t hold US dividend growth stock there (not tax efficient since IRS would withhold 30%) I will probably focus on high yield canadian dividend growth stocks like banks, POT or utilities like FTS, CU or I could consider adding high yield (low or very low growth) Canadian REITs or high yield stocks like : LIQ.to, AW-UN.to, CUF-UN.to.

    TD and RY are my favorite banks and they currently offer decent yields and good value… these could be interesting picks.

    As you can see I’m pretty all over the place right now lol There are a lot of interesting possibilities and I’ll only have 1300$ to invest…

    I guess october is still young and I still have a lot of time to choose where to allocate my capital.

    Thanks
    Allan recently posted…I have reached a milestone! 1000$ in growing dividend income!My Profile

    • Hi Allan,

      All commodities are coming under serious pressure as of late. Look at gold and silver prices and regarding your XOM you can see oil is dropping along with copper, corn and others. With regard to oil, a stronger dollar and continued OPEC production is continuing to put pressure on the sector. Some say the Saudi government is looking to drop oil prices in order to make it less profitable for American drillers thereby curtailing U.S. oil output. I do like your MCD and AFL calls. I know MAT is very popular these days as continued price drops make this one a very nice high yielding stock. I happen to agree with you and not sure I’d initiate or add to that one.

      I’m all for utilizing tax advantaged accounts. Being in the U.S. I have a ROTH account that I max out every year at $5,500. It’s always nice to collect dividends and not have to pay any taxes on them.

      My Canadian banks might be the place where I invest this month. It seems that they have taken a nice drop since I purchased them and will most likely look to average down instead of adding new positions. I still like those CEFs I found and will keep an eye on them going forward. As you said, October is still young and I too am waiting a few days to see where to put my money. Thank you for stopping by and sharing your thoughts.

  13. Thank you for introducing the energy and utilities stocks. I will definitely review them and see if they can fit into my portfolio. I eco DM comments – utilities-bank combo is a confusing model.

    You may consider adding Enbridge and TransCan stocks. They are solid dividend growth Canadian pipeline companies.

    I love those Canadian banks – TD, RY & BNS. I am holding them for long time and enjoying their double digits grow for last couple of years.

    Best Regards,
    Finance Journey recently posted…Dividend income report – September 2014My Profile

    • Hi FJ,

      I have looked into the Canadian pipelines as well and several do look appealing to me. The CEF investments, though leveraged, seemed like another interesting way to play the MLP/energy space and gain exposure to multiple companies all in one stock and at potential discounts to NAV. The ones mentioned have very long distribution histories as well and with oil prices dropping may be offering even more attractive opportunities to buy in than in the past.

      That being said, with the recent market slide I may just opt to average down my Canadian bank holdings instead. Thank you for stopping by and commenting.

  14. DivHut,

    Interesting choices. I don’t have any banks in my portfolio, but am strongly considering TD since it has come down in price recently. CVX, XOM, BP, RDS-b, and BBL are other companies that have been hit pretty hard this past month. Some pretty good values are beginning to surface which is good for dividend investors.

    MDP
    My Dividend Pipeline recently posted…September 2014 Passive IncomeMy Profile

    • Hi MDP,

      There’s no doubt that the oil sector is coming under some serious pressure in recent weeks and is presenting all of us with an enticing investment opportunity. BP and TOT have been on my watch list for some time and in the last month or so have both fallen a lot.

      My bank exposure was limited to WFC for many, years till I added TD, BNS and RY. I think the large Canadian banks can all be good long term dividend growth investments. I have also added CM and BMO to my watch list as well. Thanks for stopping by.

  15. DivHut,

    thanks for sharing your ideas. HE sounds interesting for my portfolio. The bank exposure seems awkward but may turn into value when the company spins it of. I am looking for a good utility stock myself, but have trouble deciding.

    Good luck!
    Grow Independent

    • Hi GI,

      Based on the comments from several folks it seems that a utility/bank seems like a “unique” combination. To be honest, I don’t see a problem with this structure. The banking unit is only about a third of HEs net income as its primary business is an electric utility. Perhaps they will spin their bank off or as I suggest might be a long term hedge to growing solar and wind generation.

      I own three utilities in my portfolio; ED, SO and D. Not amazing growers (like most utilities), but good stable dividend payers nonetheless. I appreciate your comment and stopping by.

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