Nuveen Equity Premium Advantage Fund

The Nuveen Equity Premium Advantage Fund (JLA) is a closed-end fund managed by Nuveen Investments. The fund seeks to provide a high level of current income and gains from net index option premiums. The fund's secondary investment objective is to seek capital appreciation.

JLA invests in an equity portfolio that seeks to replicate the price movements of a 50%/50% combination of the S&P 500 Stock Index and the NASDAQ-100 Stock Index. The fund also sells S&P 500 and NASDAQ-100 index call options in the same 50%/50% ratio covering approximately 100% of the value of the fund's equity portfolio. The purpose of selling these call options is to enhance the risk-adjusted performance of the fund relative to an all equity portfolio.

Nuveen cites the following highlights of JLA:

(1) Attractive quarterly distributions;
(2) Capital appreciation, consistent with the Funds' index option strategy;
(3) A measure of downside protection in rapidly declining markets;
(4) Tax-advantaged income from an index option strategy and equity dividends.

The current quarterly distribution is $.2840 per share, for an annual rate of $1.136.  At a December 27, 2012 closing price of $11.84, JLA's yield is 9.6%.

The net asset value (NAV) as of December 26, 2012 was $13.28. The fund is trading at a 10.8% discount to its net asset value.

The annual expense ratios, reported by Nuveen as of November 30, 2012 were:

Management Fees   0.87%
Other Expenses       0.12%
Total                        0.99%.

Morningstar reports the annual expense ratio as .98%.

JLA has assets of $347,402,178.

I have made an initial purchase of JLA for a retirement income portfolio. I chose this closed end fund for the following reasons:

(1) A mutual fund adds diversification (and perhaps a degree of safety) to the portfolio.

(2) The fund does not use leverage. Some funds incur debt to enhance the yield. This is a risk I do not wish to take.

(3) The fund seeks to replicate (on a 50%/50% basis) the S&P 500 and the NASDAQ 100. I like the broad exposure.

(4) The expense ratio is less than 1%.

(5) The share price is trading at a discount (currently 10.8%) to the fund's net asset value.

(6) The yield vis-a-vis the net asset value (currently $13.28) is only 8.54%. I believe a yield of 10%+ runs the risk of not being sustainable over time.

There are many other possible closed-end funds to consider. This is not a recommendation to buy, but rather a suggestion for a fund to study. Everyone's situation is different. Do your own research and make your own decision.

Annaly Capital Management, Inc.

Annaly Capital Management, Inc.

Annaly Capital Management, Inc., began operations in February, 1997 as a self-managed self-advised company. Annaly has elected to be treated as a real estate investment trust (or REIT). Annaly owns and manages a portfolio of mortgage-backed securities. Annaly’s principal business objective is to generate net income for distribution to shareholders from its Investment Securities and from dividends it receives from its operating subsidiaries. Annaly is traded on the New York Stock Exchange under the symbol NLY.

For the quarter ended September 30, 2012, NLY reported GAAP net income of $224.8 million or $0.22 per share as compared to GAAP net loss of $921.8 million or $0.98 per share for the third quarter 2011, and GAAP net loss of $91.2 million or $0.10 per share for the quarter ended June 30, 2012.

Without the effect of the unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities and net loss on extinguishment of 4% Convertible Senior Notes Due 2015, net income for the quarter ended September 30, 2012, was $449.8 million or $0.45 per share as compared to $622.8 million or $0.65 per share for the third quarter 2011, and $546.2 million or $0.55 per share for the quarter ended June 30, 2012.

During the quarter ended September 30, 2012, the Company disposed of $7.3 billion of investments, resulting in a realized gain of $142.2 million. During the third quarter 2011, the Company disposed of $3.9 billion of investments, resulting in a realized gain of $91.7 million. During the quarter ended June 30, 2012, the Company disposed of $6.4 billion of investments, resulting in a realized gain of $94.8 million.

The dividend for the quarter ended September 30, 2012 was $.50 per share, compared with $.60 per share for the third quarter 2011, and $.55 per share for the quarter ended June 30, 2012.  The Company distributes dividends based on its current estimate of taxable earnings per common share, not GAAP earnings. Taxable and GAAP earnings will typically differ due to items such as non-taxable unrealized and realized gains and losses, differences in premium amortization and discount accretion, and non-deductible general and administrative expenses.

In the third quarter earnings release, CEO Wellington Denahan-Norris said, “The active involvement of policymakers in the mortgage market, particularly the Federal Reserve’s latest, open- ended, large scale asset purchase program, has introduced unique challenges for all investors. ...  We continue to pursue a conservative stance in these conditions, as we assess relative value opportunities across asset classes ....” 

For the third quarter 2012, the yield on assets was 2.54% and the cost of funds on was 1.52%, which resulted in an interest rate spread of 1.02%. This was a 106 basis point decrease from the 2.08% annualized interest rate spread for the third quarter 2011, and a 52 basis point decrease from the 1.54% interest rate spread for the quarter ended June 30, 2012. At September 30, 2012, the yield on investment securities was 2.79% and the cost of funds was 1.55%, which resulted in an interest rate spread of 1.24%. Leverage at September 30, 2012 was 6.0:1.  On September 30, 2011, it was 5.5:1. On June 30, 2012 it was 6.0:1.

Here is Annaly’s dividend history, rounded to the nearest cent:

1997 $  .18 (one quarter)

1998 $1.13

1999 $1.33

2000 $1.25

2001 $1.40

2002 $2.59

2003 $2.16

2004 $1.95

2005 $1.44

2006 $  .46

2007 $  .89

2008 $1.92

2009 $2.34

2010 $2.80

2011 $2.51

2012 $2.17

Annaly has reduced the quarterly dividend in five of the last six quarters:

October, 2011 from $.65 to $.60

January, 2012 from $.60 to $.57

April, 2012 from $.57 to $.55

October, 2012 from $.55 to $.50

January, 2013 from $.50 to $.45.

The current dividend of $.45 per quarter equates to an annual rate of $1.80. At a December 27, 2012 closing price of $14.11, NLY’s yield is 12.76%. As the largest residential mortgage REIT in the US, Annaly is heavily traded and widely followed. 

Opinions vary greatly about Annaly as an investment. The dividend reductions are the result of the Federal Reserve’s policy to hold down interest rates. The Fed has given an unemployment rate of 6.5% as the level at which it may allow rates to rise. Federal Reserve policy is one factor in a decision for or against investing in NLY.

Another factor is the October, 2012 death of CEO Mike Farrell, who was widely respected by the investment community. However, new CEO Wellington Denahan-Norris, like Farrell, has been part of the management team since the firm’s inception, and this could provide important continuity.

I own shares of NLY in a retirement income account. Until clarity is achieved regarding the above two factors, I do not plan to purchase additional shares. Neither do I plan to sell any shares at this depressed price. Should NLY rally to $18.75 or higher, I might sell some shares (if I could get a comparable yield in a closed-end fund such as JLA or ETV). The REIT portion of the portfolio is a bit heavier than I would like, so any sale of NLY would be partly driven by a desire to achieve more diversification.

I believe NLY is worthy of consideration as a possible holding in a dividend portfolio. This is not a recommendation to buy, but rather a suggestion for a stock to study. Do your own homework. Make your own decisions.

NuSTAR Energy LP

NuSTAR Energy LP (NS) is a limited partnership based in San Antonio, Texas. According to Curt Anastasio, NuStar Energy L.P. President and CEO, “The L.P.’s growth strategy is based upon our mission statement, which is to solve the logistical needs of our customers by moving products where and when they want them better than anyone else. To do that requires us to offer a safe, reliable operation that meets or exceeds customer expectations.” 

The partnership made its successful initial public offering (IPO) in April, 2001.  On its first day, the partnership, then known as Shamrock Logistics L.P. and part of the former Ultramar Diamond Shamrock Corp., sold 5.175 million partnership units at $24.50, nearly twice the expected price range for this IPO.  The partnership was soon renamed Valero L.P. after Valero Energy Corp. acquired UDS later in 2001.  In April, 2007, the name was changed to NuStar Energy L.P. name and it began trading with the NYSE ticker symbol, “NS.”  The company sees itself as the “new star,” the “rising star” of the energy industry.

In its first year, the L.P.’s network included 2,800 miles of refined product pipelines, 11 refined product terminals, 800 miles of crude oil pipelines and crude oil storage facilities with a capacity of 3.3 million barrels.  In early 2002, the partnership purchased the Wichita Falls, Texas crude oil storage facility and a 272-mile crude oil pipeline that extends from Wichita Falls to the Texas Panhandle. Throughput volumes at the partnership’s refined product terminals increased 23,000 barrels per day (BPD) and throughput volumes transported through the L.P.’s crude oil pipelines increased by 9,000 BPD.

In 2003, the L.P. made several significant purchases:

1. an asphalt terminal and storage facility in Pittsburg, California;
2. pipeline connections to move propane from Texas to Nuevo Laredo, Mexico;
3. 58 storage tanks, plus a 468-mile South Texas pipeline system, and six terminals (one of which was an asphalt terminal); and
4. 3.8 million common units of the L.P. from Valero Energy, reducing Valero’s stake in the partnership from 74% to about 49%.

In 2005, the L.P. acquired Kaneb Pipe Line Partners for $2.8 billion. After this purchase, the L.P. had pipelines, terminals and bulk storage facilities in most of the U.S., as well as Canada, Mexico, the Netherlands Antilles, the United Kingdom and the Netherlands.

In 2006, through two public offerings, the remaining Valero Energy stake in the partnership was purchased. The partnership made significant investments in the asphalt business, eventually becoming the third largest producer of asphalt in the U.S.

In 2011, the company acquired key refining and terminal assets from AGE Refining, including a 14,500 BPD refinery in San Antonio and a 200,000-barrel terminal in Elmendorf, Texas. In 2012, NuStar decided to downsize its exposure to the asphalt and refining businesses and to focus on the pipeline industry. In September, 2012, NS announced that it had sold 50% of its asphalt operations to Lindsay Goldberg LLC and created a joint venture with Lindsay Goldberg that owns and operates NuStar’s asphalt refining assets. December, 2012, NuStar announced an agreement to sell the San Antonio refinery and the Elmendorf terminal (and a pipeline connecting the two) to Calumet Special Products Partners, LP.  In December, 2012, NS announced the purchase of crude oil pipeline, gathering and storage assets in the Eagle Ford Shale region from TexStar Midstream Services LP for approximately $325 million.

NuSTAR has grown from 160 employees at the time of its IPO in 2001 to over 1,900 today; from $387 million in assets to $5.2 billion; and from $99 million in revenues to$4.4 billion. 

Distributable cash flow available to limited partners for the third quarter of 2012 was $54.6 million, or $0.75 per unit, compared to 2011 third quarter distributable cash flow of $80.3 million, or $1.24 per unit. For the nine months ended September 30, 2012, distributable cash flow available to limited partners was $114.2 million, or $1.59 per unit, compared to $244.8 million, or $3.79 per unit for the nine months ended September 30, 2011.

Earnings before interest, taxes, depreciation and amortization (EBITDA) was $69.5 million for the third quarter of 2012 compared to $138.8 million for the third quarter of 2011. For the nine months ended September 30, 2012, EBITDA was $5.1 million, compared to $391.7 million for the nine months ended September 30, 2011.

NS reported a third quarter net loss applicable to limited partners of $6.5 million, or $0.09 per unit, compared to net income applicable to limited partners of $59.8 million, or $0.92 per unit, earned in the third quarter of 2011. For the nine months ended September 30, 2012, the company reported a net loss applicable to limited partners of $242.1 million, or $3.40 per unit, compared to net income applicable to limited partners of $160.9 million, or $2.49 per unit, for the nine months ended September 30, 2011.

Third quarter results reflect the restructuring the company, as outlined above.

NuSTAR’s debt, as of September 30, 2012, was $2,036,406,000. NuStar partners’ equity, as of September 30, 2012, was $2,672,099,000. The debt-to-capitalization ratio was 43.2%.

He is the history of the partnership’s distributions, rounded to the nearest cent:

2001 $1.10

2002 $2.65

2003 $2.90

2004 $3.15

2005 $3.31

2006 $3.54

2007 $3.76

2008 $4.08

2009 $4.24

2010 $4.27

2011 $4.34

2012 $4.38

The current quarterly distribution is $1.095, for an annual rate of $4.38.  At the December 27, 2012 closing price of $42.88, the yield is 10.2%.  

There is a lively debate in the investment community about NuSTAR’s prospects. Is it a bargain at these prices or is it a “value trap?” Time will tell. Much needed and much anticipated investments in the nation’s infrastructure have been postponed because of the Great Recession. NuSTARr’s venture into the asphalt business has not, as of yet, been the great success management had hoped for. The company has redirected its efforts and has set forth a plan to expand its pipeline operations. 

I own units of NuSTAR in a retirement income portfolio. I do not currently plan to add to this position and I am not inclined to sell NS at these depressed levels, far below the price at which I would consider selling some units ($67.38). So, for me NS is a “hold.” This is not a recommendation to buy NS, but rather a suggestion for a stock to study for possible inclusion in a dividend portfolio. Do your own study and due diligence. Use your judgment. 

Natural Resource Partners L.P.

Natural Resource Partners L.P. (NRP), as stated on the partnership website, is a master limited partnership that is principally engaged in the business of owning and managing mineral reserve properties.  NRP primarily owns coal, aggregate and oil and gas reserves across the United States that generate royalty income for the partnership. The partnership does not actively engage in the mining of any of its minerals or natural resources, but rather leases its properties to various operators in exchange for royalty payments. Natural Resource Partners is headquartered in Houston, TX with its operational headquarters in Huntington, WV.”

One recent development was the announcement on December 20, 2012 that NRP had acquired overriding royalty interests on approximately 88,000 net acres located mainly in the liquids rich region of the Marcellus Shale for $30.3 million.  The acreage is currently leased and includes established production as well as significant planned development potential. This acquisition is part of NRP’s efforts to diversify revenues and expand NRP's unconventional oil and gas holdings, which currently include assets located primarily in the Marcellus Shale, Mississippi Lime, and Haynesville Shale plays.

For the third quarter of 2012, NRP reported revenues of $94.2 million, and net income per unit of $0.48. In addition, NRP reported distributable cash flow, a non-GAAP measure, of $65.1 million.  President and COO Nick Carter said, "In spite of a weak coal market, compared to the second quarter 2012, production from NRP's lessees increased in the third quarter by 11% and coal royalty revenues by 12%, as we exceeded our expectations."

Net income to the limited partners totaled $51.0 million compared to a loss of $29.9 million shown in the third quarter 2011, which included an impairment charge of $90.9 million. Excluding the impairment, net income to the limited partners was down $8.2 million from the 2011 third quarter, primarily due to lower coal royalty revenues.

Net income per unit for the third quarter of 2012 was $0.48 compared to a loss of $0.28 per unit reported in 2011. Excluding the impairment in 2011, the net income per unit for the third quarter 2011 was $0.56.

Net income attributable to the limited partners for the first nine months of 2012 was $150.2 million, or $1.42 per unit, compared with $0.66 per unit reported in the third quarter 2011, or $1.50 per unit excluding the impairment.

NRP began paying distributions in the first quarter of 2003, shortly after the initial public offering.  In the early years, the company made small increases almost every quarter, through the second quarter of 2009.  Then, NRP paid $.54 per unit for ten straight quarters, but they have managed a small increase the payout in each of the three calendar years of that ten-quarter period (2009-2011).  Here is the complete annual record of per-unit distributions, rounded to the nearest cent:

2003 $1.00

2004 $1.19

2005 $1.40

2006 $1.61

2007 $1.83

2008 $2.02

2009 $2.15

2010 $2.16

2011 $2.17

2012 $2.20

The most recent quarterly distribution was $0.55 per unit was on November 14, 2012.

According to the third quarter earnings release, assets as of September 30, 2012 were $1,713,678,000. Liabilities were $1,096,846,000. Total partners’ capital was $616,832,000. Total units outstanding were 106,027,836.  Book value was $5.82.

I own units of NRP in a retirement income account. The first purchase was made in May, 2011 at $31.36 per unit. The slow, steady decline of NRP units since then reflects the continued downturn in the coal industry. I believe NRP is well-managed and I have not been tempted to sell at these depressed prices. For me, at present NRP is a solid “hold” because I do not plan to buy more units and the December 27 closing price of $17.78 is well below the $31.88 price at which I would consider selling some shares. I believe NRP will weather the storm in the coal industry, so I am holding my units.

This is a classic example of a stock which may be a great value or a value “trap.” Time will tell. At the current $.55 quarterly distribution, the annual distribution rate is $2.20. At the December 27 closing price of $17.78, the yield is 12.37%. 

Do your own research and due diligence.  This is not a recommendation to buy but rather a suggestion for a stock to study for possible inclusion in a dividend portfolio. 

LinnCo LLC

LinnCo LLC (NASDAQ: LNCO), as described on its website, “is a limited liability company (LLC) created to enhance LINN Energy’s (NASDAQ: LINE) ability to raise additional equity capital to execute on its acquisition and growth strategy. LinnCo’s sole purpose is to own LINN units and has no assets or operations other than those related to LNCO’s interest in LINN. As a result, LNCO’s financial condition and results of operations depend entirely upon the performance of LINN.”

LinnCo LLC was formed in 2012.  The primary difference is that LNCO shareholders receive a Form 1099 and LINE shareholders receive a Schedule K-1.  Retirement accounts have IRS limits for “unrelated business income.”  LinnCo is a way for persons to invest in Linn Energy without risking potential tax consequences for exceeding the UBI limits. It is for this purpose that I hold shares of LNCO in my retirement account.

Those considering a purchase of LinnCo LLC shares will need to evaluate the operations of Linn Energy. LINE's mission is “to acquire, develop and maximize cash flow from a growing portfolio of long-life oil and natural gas assets." 

LINE operates primarily in the Mid-Continent, Permian Basin, Hugoton Basin, Rockies, Michigan and California.  LINE’s strategy, described on the company website, has these key elements: (1) grow through acquisitions of long-life, high-quality U.S. assets; (2) organically grow reserves and production; and (3) reduce cash flow volatility through hedging

Linn Energy is one of the top 15 independent U.S. exploration and production energy companies. Linn Energy became the first publicly traded independent oil and natural gas limited liability company (LLC) in January, 2006. The company consistently has paid a quarterly distribution to its unitholders:  

$1.14 in 2006

$2.18 in 2007

$2.52 in 2008

$2.52 in 2009

$2.55 in 2010

$2.70 in 2011

$2.865 in 2012.

The last distribution increase was in May, 2012, when the distribution was raised from $.69 per unit to $.725 per unit, for an annual rate of $2.90.  At a December 26 closing price of $36.05, LINE’s yield is 8.0%.  LNCO’s distributions will basically track LINE distributions. The initial distribution for LNCO was set at $.71 per quarter, for an annual rate of $2.84.  At a December 26 closing price of $36.51, LNCO’s yield is 7.78%.

I believe either LINE or LNCO are worth considering for a dividend portfolio. I owned shares of LINE in a retirement account and sold LINE to purchase shares of LNCO. I would consider buying more LNCO at or below $35, and I would consider selling some shares of LNCO at or above $47.06. Do your own study and due diligence.  Form your own judgment. This is not a recommendation to buy but rather a suggestion for a stock (or in this case, stocks) to study.

LTC Properties, Inc.

LTC Properties, Inc. (LTC), as stated on the company website, “is a self-administered real estate investment trust that invests primarily in the long-term care sector of the health care industry through the origination of first mortgage loans and acquisition of properties that are leased to numerous long-term care providers. LTC Properties operates in accordance with federal tax laws and regulation governing real estate investment trusts, which enables the Company's income to be distributed to its stockholders without federal tax liability to the Company.”

A map of the company's properties indicates a broad national exposure, as does a list of the communities where the properties are located. The top ten tenants (by annual rental revenues) are Extendicare Inc ($10,963,000), Brookdale Senior Living Inc ($10,734,000), Preferred Care Inc ($10,588,000), Senior Care Centers LLC ($6,748,000), Carespring Health Care ($5,431,000), Traditions Management ($5,243,000), Meridian Senior Properties ($4,742,000), Sunrise Senior Living Inc ($4,14,000), Skilled Healthcare Group ($4,501,000), and The Ensign Group ($1,596,000).

For the quarter ended September 30, 2012, LTC reported a 6.5% increase in Funds from Operations ("FFO") to $17.5 million from $16.4 million in the comparable 2011 period. FFO per diluted common share was $0.57 for the September 30, 2012 quarter, up 5.6% from $0.54 for the comparable 2011 period. Normalized FFO was $17.6 million in the third quarter of 2012 compared to $16.6 million in the third quarter of 2011. Normalized FFO per diluted common share was $0.57 for the third quarter of 2012 compared to $0.54 for the third quarter of 2011. The increase was due to higher revenues resulting from acquisitions partially offset by an increase in interest expense.

FFO for the nine months ended September 30, 2012 increased 22.4% to $52.2 million from $42.7 million in the comparable 2011 period. FFO per diluted common share for the nine months ended September 30, 2012 increased 15.8% to $1.69 from $1.46 in the comparable 2011 period. Normalized FFO increased 11.0%, which excludes a $0.3 million non-recurring bankruptcy settlement distribution from the Sunwest Management, Inc., to $52.2 million for the nine months ended September 30, 2012, from $47.1 million from the comparable 2011 period. Normalized FFO per diluted common share was $1.69 for the nine months ended September 30, 2012, up 5.6% from $1.60 for the comparable 2011 period. Normalized FFO for the nine months ended September 30, 2011 excluded a $3.6 million charge and $0.5 million accrued dividend related to the Company's redemption of all of its 8.0% Series F Cumulative Preferred Stock. The increase was due to higher revenues resulting from acquisitions partially offset by an increase in interest expense, acquisition costs and higher weighted average shares outstanding.

At September 30, 2012, assets totaled $709,833,000. Liabilities totaled $244,943,000. Total equity was $464,890,000. Minus preferred equity of $38,500,000, common shareholders’ equity was $426,390,000. With 30,498,000 common shares outstanding, the book value was $13.98 per share.  According to Morningstar, long-term debt as a percentage of capital was 27.4%.

LTC paid quarterly dividends through December, 2004.  From 1995 to 2004, the annual dividend rate ranged from a low of $.40 per share in 2002 to $1.56 per share in 1999. The company ended 2004 with an annual rate of $1.20 per share. In April, 2005, LTC began paying dividends monthly, beginning with $.11 per share, for an annual rate of $1.32 per share. The dividend was raised to $.12 per share in January, 2006, $.125 per share in January, 2007, to $.13 per share in January, 2008. The dividend was maintained, but not raised during the Great Recession. The dividend was raised to $.14 per share in November, 2010, and to $.145 per share in January, 2012. The company increased the monthly dividend again in August, 2012, to $.155 per share.  The current annual dividend rate is $1.86 per share.  At a December 26, 2012 closing price of $34.92, the yield is 5.3%.

I own shares of LTC in my retirement income account. I would consider buying more at $30.49 or lower, and I would consider selling some shares at $38.75 or higher. I believe LTC is worthy of consideration for inclusion in a dividend portfolio. Everyone’s situation is different. Do your own study and due diligence. This is not a recommendation to buy, but a suggestion for a stock to study.

Eaton Corporation plc

From the company website: “Eaton Corporation plc is a diversified power management company providing energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power. The company is a global technology leader in electrical products, systems and services for power quality, distribution and control, power transmission, lighting and wiring products; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy and safety. Eaton acquired Cooper Industries plc in 2012. The new company, Eaton Corporation plc, has approximately 100,000 employees and sells products to customers in more than 150 countries.”  Eaton’s CEO is Alexander M. (Sandy) Cutler.

The big story regarding ETN is their merger with Cooper Industries. The financing of this merger complicates the third quarter earnings statement. Net earnings per share was $1.02 for the third quarter of 2012, a decrease of 5% from the $1.07 earned in the record third quarter of 2011. Sales in the third quarter were $3.95 billion, 4% below the third quarter of 2011. Net income in the third quarter was $345 million compared to $365 million in 2011.

Net income in both periods included charges for integration of acquisitions. Before these acquisition integration charges, operating earnings per share in the third quarter of 2012 were $1.07 compared to $1.08 per share in 2011, a decrease of 1%. Operating earnings in the third quarter were $363 million compared to $367 million in 2011.

Eaton began steadily increasing the quarterly dividend in 2003, moving from 11 cents per share to the current 38 cents per share. The company did not raise the dividend during the Great Recession, but maintained it at 25 cents per quarter throughout 2008, 2009, and the first two quarters of 2010.  If the company continues the pattern of the past two years, it could announce a dividend increase in January.  The dividend was raised from 34 cents to 38 cents per quarter in January, 2011.  The current annual dividend rate is $1.52. At a December 26, 2012 closing price of $53.84, the yield is 2.8%.

I own shares of ETN in a retirement income account and I would consider buying more at $44.71 or less.  I would consider selling some of the shares at $59.31 or higher.  I will adjust these figures if ETN continues its pattern of increasing its dividend in the first quarter.

I think ETN a company worth investigating for inclusion in a dividend portfolio. It can add a growth component to a dividend portfolio and it provides global industrial exposure. This is not a recommendation to buy, but a suggestion for a stock to study. Do your own due diligence and use your own judgment.

Starwood Property Trust, Inc.

Starwood Property Trust, Inc. (STWD) , as stated on the company website, “focuses primarily on originating, investing in, financing and managing commercial mortgage loans and other commercial and residential real estate-related debt investments. Starwood Property Trust, Inc. is externally managed and advised by SPT Management, LLC, an affiliate of Starwood Capital Group, and has elected to be taxed as a real estate investment trust for U.S. federal income tax purposes.” Barry Sternlicht is Chairman and CEO. 

Starwood’s material and their conference calls make it clear STWD is a lending institution. STWD says “We are a balance sheet lender,” using their balance sheet to make “structured and tailored loans ... across all product types except land and ground-up construction.” The website states, “As the country's largest commercial mortgage REIT, measured by equity capitalization, we are well positioned to make competitively-priced loans from $40 million to $500 million+.”

For the third quarter, STWD’s Non-GAAP “Core Earnings” were $58.8 million, or $0.50 per diluted share, for the quarter, an increase of 49% compared to $39.3 million, or $0.42 per diluted share, for the third quarter of 2011.  Core Earnings for the first nine months of 2012 were $163.8 million, or $1.52 per diluted share, an increase of approximately 19% over the per diluted share amount of $1.23 per diluted share for the first nine months of 2011. Core Earnings for the third quarter 2012 included $9 million, or $0.08 per diluted share, of income related to the sale of securities.

Net income attributable to the Company for the three and nine months ended September 30, 2012 was approximately $50.2 million and $144.9 million, respectively, compared to $14.5 million and $78.3 million, respectively, for the same period in 2011.  Net income per diluted share (EPS) outstanding for the third quarter 2012 was $0.43, compared to $0.15 in 2011.  For first nine months ended September 30, 2012, net income per diluted share increased over 43% to $1.34 compared to $0.94 for the first nine months of 2011.

STWD’s guidance for 2012 Core Earnings is a range of $1.85 to $1.95 per diluted share. 

The 2012 Q3 earnings release stated that the fair value of the Company's net assets at September 30, 2012 was approximately $20.13 per fully diluted share.  On a fully diluted basis, the Company's GAAP book value at September 30, 2012 was $19.56 per share.  Pro forma for the Company's October 2012 equity issuance, the fair value of the Company's net assets at September 30, 2012 was $20.48 per fully diluted share and the Company's GAAP book value at September 30, 2012 was $19.98 per fully diluted share.

Here is STWD’s brief dividend history:

$.01  Oct, 2009

$.10  Dec, 2009

$.22  Mar, 2010

$.25  Jun, 2010

$.33  Sep, 2010

$.40  Dec, 2010

$.42  Mar, 2011

$.44  Jun, 2011 through Dec, 2012 (seven quarters)

On November 6, 2012, STWD declared a dividend of $0.44 per share of for the quarter ending December 31, 2012. The dividend is payable on January 15, 2013 to stockholders of record as of December 31, 2012. The Company decided to "true-up" its required dividend distribution with a fourth quarter extraordinary dividend of 10 cents.  

The $.44 quarterly dividend provides an annual dividend rate of $1.76 per share. At a December 26, 2012 closing price of $23.25, this is a 7.57% yield.  I own shares of STWD in my retirement income account. I would consider adding more shares at $20.71 or less, and I would consider selling some shares at $30.61 or higher. I believe STWD is worthy of study for possible inclusion as a mortgage REIT in a dividend portfolio. This is not a recommendation to buy, but a suggestion for a stock to study. Do your own research.

Southern Company

Southern Company (SO) is the utility parent company of Alabama Power, Georgia Power, Gulf Power and Mississippi Power. Other subsidiaries include Southern Power, which sells electricity in the wholesale market, Southern Nuclear, SouthernLINC Wireless and Southern Telecom.

On November 8, 2012, SO reported third quarter earnings of $976 million, or $1.11 a share, compared with $916 million, or $1.07 a share, for the third quarter of 2011.

For the nine months ended September 30, 2012, SO reported earnings of $1.97 billion, or $2.26 a share, compared with $1.94 billion, or $2.27 a share, for the nine months ended September 30, 2011.

Southern Company has increased its dividend annually since 2002. The current quarterly dividend is $.49, for an annual rate of $1.96. At a closing price of $43.11, the yield is 4.5%.

The following data is from Morningstar:  The payout ratio for the last five years has ranged from 70.0% to 84.1%. The average P/E ratio for the past five years has been 15.6 and the current P/E ratio (based on trailing 4-quarter earnings of $2.53) is 17.0%. The long-term debt as a percentage of capital is 46.2%.

Utility stocks can be an important part of a dividend income. I own shares of Southern Company in my retirement income portfolio.  I would consider buying more at $41.18 or less, and I would consider selling some shares at $49 or higher.  I believe SO is worthy of consideration as a utility holding. This is not a recommendation to buy but a suggestion for a stock to study. Do your own homework.

PPL Corporation

PPL Corporation (PPL) is a utility headquartered in Allentown, Pa. The company website says PPL controls or owns about 19,000 megawatts of generating capacity in the United States, sells energy in several U.S. markets, and delivers electricity and natural gas to about 10 million customers in the United States and the United Kingdom. “With a diverse mix of fossil-fuel, nuclear and renewable energy facilities, our competitive-market generation fleet is positioned for success when wholesale power markets rebound.”

PPL companies include Kentucky Utilities, Louisville Gas and Electric, PPL Electric Utilities, PPL EnergyPlus, PPL Generation, PPL Montana, and PPL Global (U.K).

On November 8, 2012, PPL announced third quarter earnings of $.61 per share, compared with $.76 per share for the third quarter of 2011.  Earnings for the first nine months of 2012 were $2.00 per share, compared with $1.91 in 2011.  The company adjusted its 2012 forecast range of EPS from ongoing operations to $2.30 to $2.40. In the third quarter earnings call, CEO William Spence said, “...our rate-regulated businesses are providing financial stability as we continue to effectively manage through challenging wholesale market power crisis.”

Morningstar indicates PPL’s long-term debt as a percentage of capital is 60.8%.  PPL’s current quarterly dividend is $.36, for an annual rate of $1.44.  At the December 24, 2012 closing price of $28.92, the yield is 5.0%. PPL has a good history of steady dividend increases except for 2011, which maintained the same $.35 quarterly dividend that was paid throughout 2010. The company has paid $.36 per quarter for the past four quarters.  Except for 2011, the company has increased the dividend beginning with the March payment. If PPL continues the trend that was resumed in 2012, there should be an announcement of a dividend increase in the coming weeks.

I own shares of PPL in a retirement account for dividend income and I would consider buying more at $26.67 or less.  I would consider selling some of the shares at $36 or more.  I will adjust these figures if PPL continues its pattern of increasing its dividend in the first quarter.

I think PPL is a company worth investigating for inclusion in a dividend portfolio. As always, this is not a recommendation to buy, but a suggestion for a stock to study. Use your own judgment.

W. P. Carey Inc.

W.P. Carey Inc. (WPC) is a publicly traded real estate investment trust (REIT) that provides long-term sale-leaseback and build-to-suit financing for companies worldwide and manages an investment portfolio of approximately $13.7 billion. The company was founded in 1973 by William Polk Carey, who died in 2012 at the age of 81.

W. P. Carey’s portfolio is "diversified by geography, property type and industry so that overall performance may not be impacted by any one industry, tenant, property type or region.”

In 2012, WPC converted from an investment company to a REIT. This was not a change in business model, but simply a reclassification for tax purposes. The change coincided with a merger with an affiliated company. The result was an increase in the September 28, 2012 quarterly dividend from $.567 to $.65.  The dividend was raised again in December, 2012 to $.66 per share, for an annual rate of $2.64. At a December 24, 2012 closing price of $51.96, WPC’s yield is 5.1%. The company has a long history of a small dividend increase each quarter.  

The quarterly earnings call on November 8, 2012 was the first call after the merger and the conversion to a REIT.  CEO Trevor Bond said the pro forma results AFFO for the combined company for three quarters would have been $2.78 per share.  He said, “...our core business remains strong and growing, our dividend coverage is solid and the portfolio is in good shape as we enter into our first full quarter as a REIT.”  Bond pointed out that one result of the merger was a dramatic increase in the volume of daily trading.  Prior to the merger, the average daily volume was less than 50,000 shares.  In the first weeks after the merger, the daily volume was about 448,000 shares.

WPC has been the best performing stock in my retirement income portfolio. I first purchased shares in 2009 at $23.99 a share and I have steadily added to the holding.  I would consider adding more at $43.75 or less and I would consider selling some shares at $55.32 or more.  I believe it is worthy of study for possible inclusion in a dividend portfolio. This is not a recommendation to buy, but a suggestion for a stock to study. Do your own research.

National Retail Properties, Inc.

National Retail Properties, Inc. (NNN) is a real estate investment trust (REIT). The company focuses on “triple-net” leases in which the tenant pays all real estate taxes, building insurance, and maintenance (the three "Nets") in addition to normal fees such as rent and utilities, etc. This form of lease is most frequently used for commercial freestanding buildings, such as those owned by NNN.

NNN is one of only 104 publicly-traded companies to have increased dividends for 23 or more consecutive years.  NNN acquires and owns single-tenant net lease retail properties nationwide. Additionally, they offer real estate financing programs and occasionally sell properties. NNN owns a diversified portfolio of 1,530 investment properties in 47 states. These properties are leased to more than 300 tenants in 36 industry classifications. Current occupancy is 97.9%.

The number of consecutive-year dividend-raising public companies decreased dramatically during the Great Recession.  NNN is one of only four REITs among the list of 104 companies that have increased dividends for at least 23 consecutive years. They were able to maintain this record because of the conservative nature of the triple net lease and because they were not heavily leveraged with debt.

NNN most recently increased its quarterly dividend in July, 2012, from $.385 to $.395, for a current annual dividend rate of $1.58.  At a closing price of $31.26 on December 24, 2012, this is a yield of 5.1%.

Diluted earnings per share (EPS) for the third quarter of 2012 were $.29 before extraordinary items, compared with $.23 during the third quarter of 2011.  Funds from operations (FFO) were $.52 per share, compared with $.39 per share in the third quarter of 2011.

At the end of Q3 2012, total liabilities were $1.656 billion and total assets were $3.935 billion, leaving shareholder equity of $2.278 billion.  Total shares outstanding as of September 30, 2012 were 109,422,000.  Book value was $20.82 per share.

I own shares of NNN and I would consider buying more at $29.81 or less.  I would consider selling some of the shares at $35.91.  I think it's a company worth investigating for inclusion in a dividend portfolio. As always, this is not a recommendation to buy, but a suggestion for a stock to study. Price is an important consideration. Use your own judgment.

Universal Health Realty Income Trust

Universal Health Realty Income Trust (UHT) is a real estate investment trust (REIT) formed in 1986. UHT has 54 real estate investments in 15 states, including acute care hospitals, medical office buildings, rehabilitation hospitals, behavioral healthcare facilities, sub-acute facilities and childcare centers. 

Dividends have increased steadily from 42.5 cents per quarter in 1997 to the current 62 cents per quarter, beginning 12/31/12. On October 25, 2012, UHT released third quarter 2012 results, which indicated earnings per diluted share of $.24, compared with $.26 per diluted share in the third quarter of 2011.  UHT reported adjusted funds from operations (AFFO) of $.71 per diluted share, compared to .66 per diluted share for the first quarter of 2011. At a price of $49.48 (as of December 24, 2012), the dividend yield is 4.9%.

REITs can be an important part of a portfolio of dividend-paying stocks. One advantage REITs enjoy is freedom from corporate income tax if at least 90% of company profits are paid as dividends. I own shares of UHT and I believe it is worth studying as a possible holding in a dividend portfolio. This is not a recommendation to buy, but a recommendation to study. Make your own judgment.

UHT has appreciated significantly in the past two years. Price is an important consideration.  UHT is well above my target “buy” price of $42.07, and near the price that I would consider selling some shares ($50.83).  My strategy is what some investors call trading around a core position, which means holding a core position in a stock and selling a percentage of the holding as it increases beyond a target “sell” price, and adding to the position when it falls below a target “buy” price.

I began buying UHT in 2008 at $34.55 and I have never sold any shares.  I have added to my position during pullbacks.

Johnson & Johnson

Johnson & Johnson (JNJ) is a holding company with subsidiaries operating in three healthcare-related business segments: Consumer, which includes baby care, skin care, oral care, wound care, and women's health fields among others; Pharmaceutical, which includes anti-infective, antipsychotic, contraceptive, dermatology, hematology, immunology, and neurology among others; and Medical Devices and Diagnostics, which includes products distributed to wholesalers, hospitals and retailers.

During a conference call on October 16, 2012, Dominic Caruso, Vice President for Finance and CFO, summarized JNJ’s third quarter results:

“Despite continuing marketplace and economic pressures, we reported solid sales growth in the third quarter of 6.5%, which was slightly higher than analyst estimates as published by first call. Foreign currency, in particular the weak euro, continues to negatively impact sales results. Third quarter sales on an operational basis excluding the impact of unfavorable currency grew 10.8%. Currency translation negatively impacted sales by 4.3%.”

Earnings per share for the first nine months of 2012 were $2.96, compared with $3.40 for the first nine months of 2011.  Adjusted earnings per share for the first nine months of 2012 was $3.91, compared with $3.87 for the first nine months of 2011. 

In April, 2012, JNJ increased the quarterly dividend from 57 cents to 61 cents. Dividend increases have occurred annually since 1963. If the present trend continues, another dividend increase may be announced in April, 2013. 

The JNJ closing price on December 24, 2012 was $70.02. At an annual dividend rate of $2.44, the yield is 3.5%. I think this company is worth investigating for inclusion in a dividend portfolio. It offers both growth and stability. Morningstar indicates that the long-term debt as a percentage of capital is 14%. I own shares of JNJ and I would consider adding more at $68.50 or less, and I would consider selling some shares at $76.25. As always, this is not a recommendation to buy, but a suggestion for a stock to study. Price is an important factor. Use your own judgment. 

JNJ will host an analyst meeting at 8:30 a.m. (Eastern Time) on Tuesday, Jan. 22, 2013, to discuss fourth-quarter and full-year 2012 financial results.

Genuine Parts Company

Genuine Parts Company (GPC) distributes automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials. Standard and Poor's puts them in the consumer discretionary sector.

GPC increased its quarterly dividend in February, 2012 from 45 to 49.5 cents per share. It was the 56th consecutive annual increase. 

Third quarter results were released on October 18, 2012.  Compared with Q3 2011, sales were up 3%, net income was up 14%, and earnings per share were up 14%.  

For the first nine months:

Automotive Group revenue was up 4%, operating profit was up 11%, and profit margin was up from 8.2% to 8.7%. 

Industrial Group revenue was up 8%, operating profit was up 10%, and profit margin was up from 7.9% to 8.1%. 

Office Products revenue was down 1%, operating profit was up 2%, and profit margin was up from 7.4% to 7.6%. 

Electrical Group revenue was up 7%, operating profit was up 27%, and profit margin expanded from 7.2% to 8.6%.  

Morningstar indicates that GPC's long-term debt as a percentage of capital is 14%. At the December 24, 2012 closing price of $63.82, GPC yielded 3.1%.  I own shares of GPC and I would consider buying more at $60 or less.  I would consider selling some of the shares at $69.47.  I will adjust these figures if GPC continues its pattern of increasing its dividend in February.

I think it's a company worth investigating for inclusion in a dividend portfolio. As always, this is not a recommendation to buy, but a suggestion for a stock to study. Price is an important consideration. Use your own judgment. 

Simplify

This is the first post since November, 2010.  (I haven't been as "retired" as I thought I would be!)  I have simplified my retirement portfolio. Currently, there are 14 dividend-paying stocks and one closed-end fund.

The stocks are ranked according to the number of consecutive years each one has raised its dividend or distribution. The year that the annual increases began is listed for each stock. Each stock's percentage of the portfolio is given.  Currently, W.P. Carey is the largest holding.  JLA is the most recent addition, with a small initial investment.

Genuine Parts Company (GPC), 1957, 3.9%
Johnson & Johnson (JNJ), 1963, 5.6%
Universal Health Realty Income Trust (UHT), 1987, 7.2%
National Retail Properties (NNN), 1990, 6.9%
W.P. Carey, Inc. (WPC), 1999, 7.9%
Southern Company (SO), 2002, 7.0%
NuStar Energy LP (NS), 2002, 7.9%*
Natural Resource Partners LP (NRP), 2004, 7.1%**
Starwood Property Trust, Inc. (STWD), 2009, 7.5%***
Eaton Corporation (ETN), 2010, 7.5%
LinnCo LLC (LNCO), 2010, 7.1%

LTC Properties, Inc. (LTC), 2012, 7.8%
PPL Corporation, (PPL), 2012, 7.2%

Annaly Capital Management, Inc. (NLY), 7.1%****
Nuveen Equity Premium Advantage Fund (JLA), 0.5%*****
Cash 2.4%

*NS's last distribution increase was declared on July 29, 2011
**NRP's last distribution increase was declared on October 21, 2011
***STWD's last regular dividend increase was declared on May 10, 2011
****NLY recently has reduced its dividend several times
*****JLA's dividend was reduced slightly in the wake of the Great Recession

LNCO is a new issue, holding shares of Linn Energy (LINE).  LINE has increased its distribution since 2010.