Buying High Yield on the Pullback

 | Nov 15, 2012 | 9:30 AM EST
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The post-election selloff accelerated Wednesday after President Obama's press conference made clear that both sides are going to dig in their heels before they meet to talk about resolving the fiscal cliff later this week. While some posturing is to be expected, the strident tone of the conversation is not helpful to the market. The president has publicly staked out a position of desiring to double the amount of tax revenue that was agreed to during the last debt talks in 2011. Hopefully, once these negotiations move behind closed doors Friday, the tenor of the conversation will moderate and be less impactful to market volatility.

We are getting closer to an environment where the market can recover, and I even took off some of my short positions just before the market close Wednesday. I also added to some of the high-yielding plays in my income portfolio as these dividend stocks have been hit hard since the election by investors taking profits to avoid higher taxes on dividends and capital gains in 2013.

One of the places I put some new money into yesterday is Calumet Specialty Products Partners (CLMT), a high-yielding specialty energy master limited partnership that I profiled in June when it was trading significantly lower than it is now. Calumet sells specialty hydrocarbon products, such as lubricating oils, in North America.

Five reasons CLMT still is a solid value at $29 a share:

  • Although no longer yielding the 10% when I recommended it back in June, Calumet still provides its holders a juicy 7.9% payout level. It has also raised payouts just under 25% in the last year.
  • Analysts continue to raise earnings estimates on CLMT. Consensus earnings estimates for 2012 and 2013 have risen markedly over the past three months.
  • The company beat significantly on the top and the bottom line when it last reported earnings in late October. It was the third straight quarter Calumet easily beat earnings estimates.
  • The company is on track to more than double revenue in this fiscal year on the back of an acquisition of a 45,000-barrel-a-day refinery last year to process product from the Bakken shale and its own organic growth. Analysts have pegged 15% sales increases in 2013. The stock has a minuscule five-year projected price/earnings/growth ratio of 0.65 for such a high yielder.
  • The company has more than tripled its operating cash flow over the past three years and the stock sells for less than 8x forward earnings, a discount to its five-year average of 11.2.

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