A 700% Dividend Increase... and Good News About High-Yield Bonds

Steve McDonald
by Steve McDonald, Bond Strategist

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In focus this week; a 700% increase in a dividend payout, finally good news about corporate bonds and the sitfa

Since January of 2011 a company in the Ag business has grown it’s dividend by 700% and by all standards isn’t pushing the payout ratio reasonability scale.

Potash (NYSE: POT), by now you should be sick of hearing me talk about ag and food companies. I have been pounding the table about them for five years.

POT has a 37% payout ratio based on 2013 earnings projections, which is more than acceptable.  But, when you consider they have raised their dividend from $.03 per share to $.28 per share in a little over two years, and still aren’t over extended on the payout, that’s amazing.

POT isn’t your run of the mill fertilizer producer. They are the largest producer of potash in the world, by a large margin, increased their production in 2012 by 33%, are expected to grow production by another 26% by 2016 and are poised to capitalize on billions in development projects.

And, nitrogen fertilizer is booming worldwide!

Every country in the world must have fertilizer if it expects to grow enough food to feed its citizens. This is not an option and that makes POT one of the few businesses on this earth that literally no one can live without.

The timing couldn’t be better. POT is winding down 15 years of expansion projects and,  as less and less arable land is available for food production, worldwide demand is going through the roof, so a lot more cash will be going to the bottom line.

POT, take a look at this one.

Good News about Corporate Bonds

Corporate bonds are getting good news for a change.

There aren’t many investments that have ever taken the public relations beating bonds have been enduring since the collapse in 2008. It seems like everyone with a keyboard has been screaming about a collapse, and all of them have been wrong.

But that point aside, there’s good news for those looking for yield, and it’s coming from the high-yield bond area.

Barron’s reported this past weekend that default rates have dropped to just 3%. That may not mean much if you’re like most people and you’ve ignored the bond side of the house, but a 3% default rate means 97% of all junk bonds, or high yield, are paying exactly as promised.

97%!

The average guy still has a bad impression of high-yield bonds from the Michael Milkin, Drexel Burnham Lambert days of the 80’s. But even the vast majority of the bonds issued back then during the leveraged buyout mania paid exactly as promised.

If you’re selective, and look for bonds in out of favor industries, you can earn well above 7% and 8% annually from these forgotten step children of the markets.

There’s a First Data bond that just had its credit rating upgraded by S&P (you don’t hear that very often anymore). I recommended it last year in my Oxford Bond Advantage service and its now paying us over 13% annually.  And, it’s only a three-year maturity.

13% from a three-year maturity in a market where the 30-year treasury is only paying around 3%!

Bonds are the least understood of all investments and the one area most folks ignore. In this rate environment you can’t afford to ignore them anymore.

If you’re looking for income and even capital gains, yes, you can earn capital gains on bonds, too, take a look at corporate high yields.

(For more information on how to never lose a cent in the stock market again, click here.)

SITFA: Welcome to the New Retirement

And finally the sitfa

Here’s a slap in the face that is going to surprise a lot of folks who didn’t pay back their Federal student loans, which by the way account for 85% of all school loans. The government is now withholding a portion of social security benefits from those folks who didn’t or couldn’t pay them back.

Welcome to the new retirement.

According to MarketWatch, the really bad news is that many of the people who are seeing their pittance of a monthly check  cut by several hundred dollars aren’t necessarily the students who benefitted from the loans. A lot of them are parents and grandparents who borrowed money to help their children and grandchildren pay tuition and fees.

The amount withheld can run as high as 15% of the monthly benefit and as the huge amount of college loans continues to grow, the total owed now is in the area of $1 trillion, this problem looks to be getting even worse.

Ready for the best part?

The government’s ability to whack social security extends to disability payments, too. Disability!

The Department of Education says they are trying to work out payment plans, but if an account is overdue for two years, it goes to collection.

Ouch! This cheek smacker is really going to hurt!

That’s it…

Good Investing,

Steve

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