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Taking Stock

Tony Crowell

Summer’s End

Investors had a good summer in the stock market. As we approach the end of August, Federal Reserve Chairman Bernanke is expected to indicate whether the economy needs another shot of bond buying by the Fed or if the recovery has strengthened sufficiently to forego this assistance. Recent stock market advances indicate that investor attitudes have improved to the point where neither approach is viewed with a sense of gloom. This is quite an improvement from a few months ago when investors took almost any event as a sell signal.

Time is a good ally for thoughtful investors. This year, they have seen continuing record low interest rates and improving corporate earnings with accompanying dividend increases. Both Europe’s Euro Zone problems and our own “fiscal cliff” loom as unresolved issues. These are complex problems but solvable with sustained intelligent application of enlightened self-interests. Our political campaigns enlighten few and insult our intelligence but they too will pass.

With stock valuations still reasonable for the most part, market momentum will probably take it further upward. Stocks have had a good run recently and a dip would be normal over the next few weeks. Those investors who maintain perspective and coolly concentrate on the stocks of strongly financed companies with rising earnings will do well; those who try to grab short-term profits won’t. They are trying to compete against the big boys, who are also after the quick turn. Those who are more patient and let time work for them will do well.

Dividends help the time go more easily. August set an all-time S&P 500 dividend record with $34 billion paid to investors. Apple helped with its first dividend since 1995 in August but September is on track to set another dividend record, even without Apple.

American Realty Capital Trust (ARCT-$11), a recently listed REIT, pays 6% and is a new buy recommendation. Founded in 2007, it became publicly traded last March and has not yet become widely known. Its objective is to provide dependable monthly income through a strategy of buying properties and leasing them back to high quality tenants.

They focus on single tenant free-standing properties with net leases to investment grade corporations like FedEx, Walgreens, CVS and the government’s GSA. Its portfolio currently comprises 485 properties in 43 states. Occupancy is 100%, remaining average lease term 13 years and average property age 5 years.

The next monthly dividend in September will be .0596, a slight increase from the preceding six months and an annualized 6.1% yield. Its recent quarterly report forecast estimated earnings growth through 2012 and into 2013 of 13%. Management has a proven record and its forecast growth makes this little known REIT very appealing indeed.

RPM International (RPM-$27), a quintessential Ohio manufacturer, has been around longer, having increased its dividend in each of the last 38 years. It makes coatings, sealants and other specialty chemicals. Sales are $3.8 billion, two-thirds to industries worldwide and the remainder to consumers, mainly in North America. Rust-Oleum is one of its better-known brands.   Many of its products are used in construction and the nascent recovery in new home sales should help sales.

Despite a struggling economy, RPM posted record quarterly and fiscal year results for the periods ending in May. Sales were up 12% and net income 17%. The company forecast growth in fiscal 2013 in a range of 5%-10% in both sales and earnings. Even with these conservative projections, it is reasonably valued and its current 3.2% yield is attractive.

The company’s website features a photograph of its founder standing behind his Lincoln Continental displaying an Ohio license plate reading “168.” The number equals the number of hours in a week, which he felt was a reminder to use them productively. This probably has something to do with its record of increasing dividends for almost 40 years. Applications of his principles will continue to benefit RPM’s shareholders.

Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1993. [email protected] 949.494.1376/

800.697.2622 www.crowellroberts.com 

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