The financial news outlets put out a lot of information every day. Yet for individual stocks, there actual, real news comes out just a few times a year. The most important of this news is the quarterly earnings reports and management explanations. Sometimes these reports result in big stock price declines. Sometimes the market is wrong to sell off these stocks. Dividend focused investors can find value in the earnings-related carnage.
It is hard to predict share prices. My strategies involve buying stocks that pay attractive dividends and to build a portfolio for income instead of trying to time share price changes. With this approach, stocks and companies are analyzed for cash flow sustainability and cash flow growth, which will lead to steady and growing dividend payments. The dividend focused approach leads to long-term investment periods. The market is focused on shorter term quarterly results. Sometimes a good company can have a bad quarter or just the perception of bad quarter. The stock price goes down and the dividend investor considers buying shares on the cheap to boost that dividend income. It takes fortitude to invest this way, but history shows that the share prices of dividend paying stocks do recover.
Today I’ll share with you three income stocks where some quarterly earnings news has hurt current share prices but long-term prospects remain strong.
Uniti Group Inc. (Nasdaq: UNIT) is a real estate investment trust (REIT) that owns telecommunication infrastructure assets such as fiber lines and cell towers. In April 2015, UNIT was spun off by Windstream Holdings, Inc. (Nasdaq: WIN). UNIT took Windstream’s fiber and copper landline network and leased it back to Windstream. At that time, Windstream provided 100% of UNIT’s revenues. The company has made acquisitions, and currently the Windstream payments are 70% of UNIT’s revenues.
For the 2017 second quarter, WIN announced it was suspending dividend payments. The WIN share price dropped by 35% and in sympathy UNIT declined by 8% to a new low for the year. At this point the dividend suspension by WIN was probably a good move. The company will be more secure to continue to make the rental payments to UNIT. Windstream cannot continue to exist without access to UNITs network. At the current 10.4%, UNIT has a great yield, with significant upside on the share price.
NGL Energy Partners LP (NYSE: NGL) operates a diversified mix of energy services and assets. The company business segments include crude oil logistics, water solutions, liquids, retail propane, refined products and renewables. Coming out of the energy sector bear market, NGL was a top performing MLP in 2016, returning over 80% to investors. In 2017 a couple of the segments have not met expectations and NGL has not increased its distributions to investors as it forecast early in the year. The second quarter results were, to be frank, ugly. Summer is a bad season for a couple of the segments and results were further hurt by timing issues that pushed a significant about of EBITDA into the third quarter. The second quarter should represent a bottom for the year. There is potential for NGL to double from less than $10 to $20 over the next six to nine months. This is a very speculative trade, supported by the current 16% yield.
EPR Properties (NYSE: EPR) is a REIT that owns a portfolio of three specialty commercial property types: multi-plex movie theaters, charter and private schools, and recreational properties for golf, water sports and skiing. EPR’s largest client, AMC Entertainment Holdings Inc (NYSE:AMC) reported disappointing second quarter earnings, and the AMC share price dropped by 25%. The AMC troubles caused EPR to drop by 5%. First, I looked at the AMC results and they weren’t that bad. Second, EPR is a net lease REIT so its revenues are secure. As a result, the shares of a very high-quality REIT are on sale. EPR yields 5.9% and the dividend will grow by 6% to 8% per year. And, EPR is a monthly dividend payer.