Market Pulse: I like what I like
The market’s early June swoon turned into a rally and stocks rose through July. After the 13% rally since June 16 investors who panicked and sold are worse off and now face the need to decide what to do now.
Instead of jumping out of and into the overall market, I prefer to hold a portfolio of securities that I’ll be comfortable with no matter the environment. Here are some of my favorites.
My first selection is Kinder Morgan (KMI), a pipeline company. In the first half of 2022 the U.S. became the world’s largest exporter of liquefied natural gas. We are shipping record volumes to Europe to help European Union allies become less dependent on Russian gas. In fact, in June the EU received more gas from the U.S. than they did from Russia.
Half of all gas destined for LNG export terminals flows through Kinder Morgan pipelines. With strict regulations it is very unlikely that a new long-haul pipeline will be built so it is hard to come up with another industry that has such a strong barrier to entry. KMI is paid whether or not oil or gas flows through their pipelines so it can, in effect, be thought of as a utility with a very stable business. KMI yields 6.2%.
Ares Capital (ARCC) is the largest business development company. As a BDC Ares is required to pay out at least 90% of its earnings in the form of dividends to maintain its tax status as a REIT. ARCC’s quarterly dividend was just increased to 43 cents and it also pays a three cent special quarterly dividend. Including both ARCC yields almost 9%. Last Friday ARCC announced an eight million share stock offering and the stock retreated. That created a good entry point.
My final pick is a preferred stock, the Annaly Capital 6.95% Series ‘F’ (NLY.F). The September dividend will begin to “float.” The new rate will be three-month LIBOR plus 4.99%. Three month LIBOR is 2.8 and should continue to rise as Europe (finally) raises rates. Even if it doesn’t NLY.F yields 8% at today’s price. Annaly earned 30 cents in the second quarter, easily covering the 22-cent common dividend. They would have to eliminate that dividend before they could miss a payment on their preferreds. Very unlikely.
These securities were held during last year’s bull market and continue to be held in this year’s bear market. I still like what I like. For both stocks and bonds there will be better days ahead as investors look past the recession. That’s a good bet.
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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