Focusing on Income Growth

 | Jun 07, 2013 | 4:30 PM EDT
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It has been an exceptionally noisy and busy week for investors. The talking heads and Internet pundits have been in overdrive predicting various ominous outcomes or miraculous recoveries. Neither has exactly occurred as of yet, although volatility has picked up quite a bit. The headliners have been out in force calling bottoms and picking stocks with great abandon -- and usually at great cost to the wallet of anyone who is listening to them.

When we get into these high-news/low-value periods, I try to keep my head down and wait for something to actually happen. If the bulls win, the stocks I currently own will go up and I can sell those that become overvalued. If the bears turn out to be right, some inventory will be created and I can buy some safe and cheap stocks. I try to use the principle of "react, don't predict" to keep this as close to a win-win endeavor as possible.

In my mental bunker, I keep busy screening and searching for stocks that might fit my own criteria, or perhaps fit the needs of investors who are related to me or read my column. As many of my friends are of a similar age, many of us are dealing with parents who need to earn a higher income from their investments while we are also looking toward yield-oriented investments our own portfolios. Earlier today, I ran some screens for stocks that have a decent dividend yields and high rankings from the S&P Capital IQ Research service for total return potential.

Even with the strength of the market so far this year, I found a couple of names that appear to have decent yields and the potential for solid long-term returns. I pay a regular monthly bill to CenturyLink (CTL), so I was intrigued by its presence on the list of income stocks. This company has used strategic acquisitions to become the third largest telecom provider in the U.S. Like every other telecom right now, the legacy landline business is under pressure but there is strong growth out of broadband.

Century Link also has a data center business that should help its top- and bottom-line profits. Management is very kind to shareholders as it offers a well-covered dividend yield in excess of 6% and it has a $2 billion stock buyback plan in place. The company did lower the dividend earlier this year to maintain coverage ratios, but the payout should be stable going forward. The stock receives four out of five stars from the rating service and is a solid addition to a diversified income portfolio.

One intriguing stock on the list fits in with my view of shipping stocks. Either the world will end, or shipping will recover from its current depressed levels. In 2003, Frontline (FRO) formed Ship Finance International (SFL) to own oil tankers and lease them back to the company. The company has a 65-vessel fleet that includes crude oil carriers, container ships, car carriers and even jackup rigs and submersibles for service to the oil industry. The bulk of the fleet is leased to Frontline. Unlike most shipping companies, Ship Finance has been expanding its fleet and has four container ships scheduled for delivery next year. When the global economy finally recovers, this company should see revenue and profits soar. In the meantime, the company has proven its ability to navigate a difficult economic environment. The shares receive a four-star rating from Standard & Poor's and yields a very generous 9.2% at the current price.

It is important to keep in mind these are not classic Melvin value selections. These are for investors whose primary concerns are income and growth of income in their portfolios. If you are moving toward equities to provide income from your portfolio, please take a very long-term approach to your holding. The price of the shares 10 years from now is much more important than the price today.

Your primary concern is the maintenance and growth of the dividend payout. As long as the company's finances are stable and the checks are hitting your account on a regular basis, the short-term movements of the market are a minor secondary concern.

Columnist Conversations

I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...
I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...
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we will add this here to cheaply protect our downside a bit BOUGHT SPY SEP 244 PUT AT 2.70 ...



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