Today I’m doing something that I hope I don’t end up doing too often. I’m recommending that you buy a stock I’ve been selling recently. And it’s stock pick that has cost me a lot of money as I chased it down thinking GE shares can’t go any lower. And then they fell. And fell. And fell.

First of all, let me tell you why I’m selling – to harvest some losses to offset gains I’ve made in other trades this year. It’s a pure tax play, and I suspect I’m not the only one who’s going to be selling GE this fall to offset capital gains from other parts of their portfolio. That could keep the stock price down or even drive it to more attractive valuation levels.

To be fare, this isn’t a play for impatient investors. My thesis is that GE is undervalued given its breakup plan, which should leave stockholders with a large stake in a newly independent medical device firm and a revamped GE focused on power (including renewable energy) and aviation.

But spinning off a standalone health care company is expected to take 12 to 18 months. The company says it may take two to three years to extricate itself from its stake in Baker Hughes. Substantial debt reduction is also part of GE’s restructuring plan.

It’s an ambitious agenda that will take time. In the meantime, GE currently pays a dividend of 3.7%, and CEO John Flannery told investors they plan to maintain the dividend at the current level until the Health Care spin off is completed.

At that point, investors will have an interesting choice. Maintain stakes in both GE and the new health care company, or divest of one and pick the other. It’s too soon to know which company will have the stronger long term prospects, but I think investors who get in at today’s stock price will enjoy a decent dividend payment for a year or two until the health care divestiture is complete. Then they will have the prospect of finding themselves with stakes in two companies that look more attractive than today’s stock price for GE would suggest.

In a recent report, Morningstar called GE shares oversold, despite laying blame for the company’s recent woes on ill-advised “financial engineering” and a “poor record of capital allocation” undertaken by previous CEOs.

The environmentalist in me is a little wary of the energy sector. The pragmatist in me says that pipeline company Enbridge is a smart choice to boost dividend income and a pretty good corporate citizen, all things considered.

They have to be. They need regulatory approval to do just about everything they do.

Big picture: Enbridge’s stock got a bounce recently when regulators in Minnesota approved its plane to replace an ageing crude oil pipeline. Replacing the ageing and decaying existing pipeline will allow the company to increase the volume of oil it exports from Canada to processors in the U.S. The proposal sparked opposition from some environmental and Native American groups, but on balance the decision to approve the pipeline makes sense to me. Transferring crude by pipeline is more efficient, less expensive and safer than transporting it on trucks and trains. Regulators agreed with the company’s assertion that the existing pipeline needs to be replaced.

My vote on the environmental front is that we all should be taking steps to reduce our carbon footprints and dependence on fossil fuels. That said, gas and oil are going to be in demand for decades to come. That’s why I’m comfortable having Enbridge in my portfolio. (I became a stockholder largely by accident, when Enbridge acquired U.S. based Spectra, a provider of natural gas pipelines and services. The company announced a deal to acquire the remaining piece of that company, Spectra Energy Partners, last week in a $3.3 billion deal stock deal.)

Here’s the fun part – the stock, trading at about $36.00 (U.S. dollars) on August 24 – has a 5.7% dividend yield. Canadian taxes will reduce the payout by about a quarter, from my experience. That’s still a very nice yield in today’s environment.

Bottom line: a wide economic moat, an attractive price point to enter or add shares, and a dividend yield that’s hard to match. If I were buying this week, I’d add more Enbridge to my portfolio.

According to the Wall Street Journal, total debt to total assets is 40%, which seems reasonable. The company has been selling “non-core” assets as part of a deleveraging strategy.

 

 

Well, last week I was on vacation, so I didn’t unveil a new dividend pick. This week I’m sort of sitting back and celebrating the gains I see across my portfolio, and then jolting upright and worrying about whether the stock market is overvalued.

This Motley Fool article by Matthew Frankel is one of the factors adding to my gut feeling that maybe it’s better to sit on the sidelines rather than add shares or buy into a new name for my portfolio. The article does a good job of explaining the “Buffett Indicator” and why measuring the capitalization value of all public U.S. companies relative to the economy is one tool to try to determine if stocks are expensive or cheap. I’m not one to try to time the market, but when things start to look frothy I’m inclined to sit on the sidelines. And when a particular stock seems to ascend into “irrational exuberance” territory, I’ll trim my stake and take some gains. With the Buffett indicator at an all time high, perhaps we should be bracing ourselves for some kind of correction. But there are no guarantees in the stock market.

While there are a number of dividend stocks I’m keeping an eye on, this week nobody wins the pick-of-the-week award. That’s partly because I’m lazily recovering from vacation mode, and partly because I think valuations across the broad market are stretched a bit high right now. Nonetheless, I’m confident that by next week I’ll find a dividend payer that seems ripe for recognition.

 

I stand by my choice of Senior Housing Properties Trust as good bet for long term income generation, despite the thumping the stock took last week (down a bit over 2.5% on Friday. Since I’ve been on vacation the past week, I didn’t offer a fresh dividend pick on Friday, Aug. 10, so I’ll just add a few thoughts about last week’s pick and settle into finding something fresh for next Friday.

Any stock with nearly a 9% dividend yield has some risk attached to it, and Reuben Gregg Brewer, writing for the MotleyFool, does a good job of sorting out the management and economic risks that have held SNH back relative to some of its senior housing and medical property peers. Here’s a link to the MotleyFool article. He compares SNH to HCP, finding HCP more attractive because of its more appealing risk profile. I’d add Welltower, another health sector REIT with a relatively low debt load and attractive risk profile as an alternative to SNH for investors who are concerned about SNH’s relationship to the company that manages its portfolio or its heavy dependence upon on a single tenant.

Like HCP, Welltower offers a dividend yield above 5%, but that’s still far shy of SNH’s nearly 9% yield.