The last few years have not been kind to income-orientated investors. The Federal Reserve has instituted a series of initiatives to keep rates extraordinary low. This has punished income investors who traditionally invested in ultra-safe investments such as CDs. In addition, the traditional dividend paying sectors, such as pharmaceuticals, telecoms and utilities, are also problematic.
Pharma has challenges with patent expirations, litigation, slow growth and governments focusing on squeezing costs out of their prescription drug budgets. Telecom is plagued with high fixed costs, slowing cash flow generation, unionization and government regulation. Utilities are bothered by anemic growth, stretched valuation, stricter emission regulations and concerns around coal and nuclear power generation. An income investor must venture into areas they might not have previously considered.
I've identified two equities with net insider buying that those looking for high yield should look at.
Vanguard Natural Resources (VNR) acquires and develops oil and natural gas properties in the U.S., including the Appalachian and Permian Basins.
Four reasons VNR is a solid play for income investors at under $28 per share:
- It yields a robust 8.5% and has grown its quarterly distribution by approximately 100% over the past four years.
- The stock is selling for around 7x operating cash flow and more than tripled cash flow from FY2009 to FY2011.
- Consensus earnings estimates for FY2012 and FY2013 have increased more than 10% over the past two months.
- Insiders have been net insider buyers of the stock over the past year and the stock sells for just over 11x forward earnings, which is cheap given its 8% plus yield.
Chatham Lodging Trust (CLDT) is a real estate investment trust that invests in upscale extended-stay and premium-branded hotels. It owns 18 hotels in the U.S. and has a stake in a joint venture that owns 64 more.
Five reasons CLDT is a good high yield bargain at under $13 per share:
- The company has had numerous insiders buying shares in 2012. It also has had net insider buying in the past 18 months, most of which occurred at higher prices.
- The stock yields 5.5% and its dividend payout ratio will be less than 50% based on consensus earnings estimates for FY2013. If the company hits earnings estimates, the dividend payout should be raised significantly.
- The company looks to have solid earnings growth ahead of it. CLDT made $0.89 per unit in FY2011. Analysts have it making $1.30 in FY2012 and $1.59 per share in FY2013.
- The stock is selling at just 81% of book value, has a well-respected management team and has very low five-year projected price-to-earnings-to-growth ratio of 0.49 for an equity that yields more than 5%.
- The stock rose more than 20% higher last summer and looks like it bottomed at around $10 per share.