4 high-yield stocks that can survive the fiscal cliff
Even with the prospect of dividend taxes going up, my sense is that income-generating stocks will remain in favor going forward.
By Patrick Hobein, Stock Traders Daily
While investors and traders are beginning to feel increasingly confident that Congress will avert disaster and devise a compromise and plan to avoid going over the so-called fiscal cliff, there is still much uncertainty in regards to what the plan will ultimately include.
What is almost a certainly, though, is that capital gains and dividend taxes will be going up. This certainly played a role in the stock market’s sell-off immediately following the election results. At the moment, dividends are taxed at 15%, but that rate may be pushed to the ordinary income rate of 39.6% for the wealthiest investors.
The hike in taxes is a notable headwind for high-yield dividend stocks, but my sense is that income-generating stocks will remain in favor going forward. My thesis is simply based on the idea that the global conditions for growth stocks will remain very challenging, investors will continue to have a defensive posture and that bonds and treasuries will continue to offer yields below inflation.
With that in mind, here are a few high-quality stocks currently offering attractive yields that also have cheap valuations:
Pharmaceutical giant Eli Lilly & Co. (LLY) is coming off a disappointing third-quarter report on Oct. 24 in which it missed on both the top and bottom lines and saw revenue fall by 12% year over year. The miss sent the stock tumbling lower after a three-month rally, bu the decline in stock price has also created a healthy 4.3% dividend yield.
This, combined with its low price-to-earnings ratio of about 13, should lend some support for shares. Furthermore, according to our real-time trading reports, LLY just touched its longer-term support levels at around $45.60 and has subsequently rebounded higher off that area.
CVR Partners LP (UAN) is one of the more intriguing high-yield plays that I am aware of. The company -- a recent spin-off and IPO from April 2011 -- owns and operates a fertilizer business, selling urea ammonium nitrate and nitrogen fertilizer. This makes the company an agriculture play, an industry that is poised for solid growth ahead due to rising food prices and food shortages. In order to meet this expected increase in demand, UAN has expanded its production capacity by expanding its plant output by about 400K tons. So, not only does UAN have compelling growth prospects (analysts projecting EPS growth of 15% in the 2013 fiscal year), but it also pays a hefty yield of 8.3%.
From a technical perspective, its recent slide did take it under its 200-day moving average and its recent recovery now has the stock attempting to re-take its 200 day.
There is also a pair of interesting, but beaten-down, tech names that popped up on my screen. The woes facing Intel (INTC), most notably including a global slowdown in PC sales & high chip inventories, are well-known. The stock has been punished as a result of its poor growth prospects, but INTC is now looking more like a high-yield utility stock than a tech stock with a yield of 4.5%. Additionally, according to our real-time trading reports, further downside should be limited as its long-term support lies just beneath current trading levels, at $19.75.
Finally, Garmin Ltd. (GRMN), the GPS product provider, pays a healthy dividend yielding 4.8% while sporting a cheap P/E of less than 13x. The stock has also recently tested and bounced off a clear support level at $36.
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Stocks drift lower and bonds are hit as investors await the Fed. Prepare for higher volatility this week.
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