Stocks are down today, fueled by concerns that bond yields have turned negative on German government bonds and that U.S. Treasuries have suffered an “inversion,” with yields on 10-year bonds falling below those on three-year bonds. That kind of activity can foreshadow a recession, if history is any clue.

The Wall Street journal said these two negative omens reflect falling bond yields world-wide, which may be caused by weakness in European manufacturing activity.

So I’m looking at my portfolio and thinking, is there anything I’d like to buy on the dip this week? In a “fools rush in” state of mind, I’d be tempted to take a nibble on Senior Housing Properties Trust and Clearway Energy again. Both stocks are depressed due to concern about the viability of their dividend. In SNH’s case, because a key tenant in its senior housing properties is facing financial troubles. In CWEN’s case, because of fallout from the PG&E bankruptcy. Both stocks will recover, I think, and both should remain solid dividend payers, even if one or both have to trim their payout ratio. But you have to be willing to buy shares with a lot of uncertainty baked into their current share price. Most investors would like a little more visibility into how their challenges are going to be resolved before taking the leap.

Bank shares? UBS shares are down more than 2% and the company still sports an annual dividend yield of more than 5%. Tempting, but I’m inclined to wait and see if today’s sell off is just a hiccup or if the omens for a slowdown turn out to be accurate.

 

It’s been a nice few months to be logging into my investment account on an almost daily basis. My portfolio of dividend stocks, despite some weak spots, has performed quite a bit better than the stock market as a whole.

And apparently I’m not the only one. The Wall Street Journal today had a nice story by Dan Weil about why dividend paying stocks are regaining popularity. Obviously, the expectations that the Fed will stop raising interest rates, at least in the near term, is a factor. And the story points out that over the long haul, dividend stocks have generally outperformed the overall market on a total return basis.

Still, Mr. Weil’s sources caution against seeking too high a yield, arguing that dividend payout ratios higher than 6% suggest that the market thinks the payout rate is unsustainable. I tend to agree, though a few stocks in my portfolio that have long paid more than 4% have held up pretty well. Still, I think any payout rate above 4% is indeed probably a sign that investors should do their research before buying shares and presuming that the yield is sustainable going forward.

 

Years ago my father gave me some good advice about investing that, like a lot of good advice I’ve received from my father over the years, I often ignored. 

That advice was to sell a stock anytime its value fell by more than 10%. 

He meant, I believe, anytime the value fell relative to the broad market. I’m not a believer in trying to time the market, so a market wide sell off is something I typically endure. But in looking back at my portfolio over the last several years, I think I would have been well served to take that advice with regard to stocks that fell sharply relative to their peers. Certainly in the case of GE, I could have spared myself a lot of headache by heading for the exits once I saw the first 10% drop in value. 

More recently, both Clearway Energy and Senior Housing Properties Trust have suffered setbacks greater than 10%, and I’ve held on. In each case, it would have behooved me to sell after the first drop and then consider taking new positions after the stock fell further. But here I am, stuck in the middle with…well, with you if you bought on my earlier recommendation. 

So what to do now? Both companies are hampered by uncertainty related to external business partners. Clearway Energy (CWEN) counts the California utility PG&E as a major client. Yep, the same PG&E that has sought bankruptcy protection in light of its possible liability for last fall’s catastrophic California wildfires. Questions remain about its ability to pay Clearway for the energy it buys from Clearway’s renewable energy platforms. 

In the case of Senior Housing Properties Trust (SNH), one of its major lessees, Five Star, has announced that it is uncertain if Five Star can continue as a going concern. In its earnings release this week, SNH said that it is in negotiations with Five Star to try to resolve the situation and hopes to have some sort of resolution within the next 60 days. SNH said the result of those negotiations could affect its distributions to shareholders. (The company pays a dividend of about 10% based on Friday’s share price.)

While I regret not shedding shares at the first sign of trouble, I’m not planning to do so now. Hindsight is 20/20, and I certainly should have followed Dad’s advice. But at this point, I think the risks are so fully baked into the stock price of both companies that it would be foolish to sell. I’m hoping shares will stabilize and climb out of their funk once some of the uncertainty about their business environment clears up. But only time will tell if I’m right. And, as any reader of this blog knows, I’ve been wrong before.

Stay tuned.

Ever wonder what happened to a stock you sold years ago? Once upon a time I owned Kimco, a retail space REIT that focuses on strip malls, mostly anchored by grocery stores. The company paid a nice dividend and seemed well managed with a strong balance sheet. 

I can’t even remember how many years ago I sold Kimco or even what my rationale was. I have a hazy memory of preferring the senior housing sector to retail. (I have both Senior Housing Trust and Wellpoint in my portfolio today.)

Turns out my decision may have been well timed. Since peaking at over 30 bucks a share in mid-60, Kimco’s shares have fallen. The woes of regional shopping malls has taken a toll on REIT’s exposed to retail real estate, despite the company’s moves to strengthen its portfolio and sharpen its focus on major urban markets.

But recently Kimco has made a bit of a comeback, with shares rising from about $13 to about $17 over the last 12 months. And get this, Kimco currently pays a dividend yield of 6.3%.

So I’m tempted to buy back into the stock. 

Fundamentally, I believe Kimco’s real estate portfolio looks stronger than most retail portfolios.

Sure, there are risks — the biggest being an accelerated consumer move toward e-commerce shopping — but I think grocery stores and discount retailers will continue to drive walk in traffic to the kinds of open air shopping malls that dominate Kimco’s portfolio. And with occupancy rates north of 90%, Kimco isn’t one of those REITs saddled with empty storefronts. (Over 95% of its anchor-tenant spaces are occupied.)

Kimco has been revamping its portfolio in recent years, selling assets and concentrating its portfolio on 20 key urban areas across the country. 

I’d be a buyer at the current price and dividend yield levels.

In fairness, at last week’s stock price ($17.75 Friday afternoon) was just above the average of analysts’ 12-month price target. So the dividend yield is the main incentive on this choice. In the near term, dividends will fuel the total return on Kimco holdings.