So, I’ll take Bill Gross’ recommendation one step further. Forget now. Dividend-paying stocks ALWAYS deserve a place in your portfolio.

Yet, in this market, it’s increasingly difficult to find reliable dividend stocks.

“This is going to be the worst [dividend-cutting year] in 50 years,” Howard Silverblatt, Senior Index Analyst at Standard & Poor’s, predicted in January. So far he’s right with industry titans like General Electric and Dow Chemical announcing cuts.

Keep in mind, Dow Chemical maintained or increased its dividend every year since 1912. That means conditions this year are worse for the company – at least on a cash flow basis – than during the Great Depression.

Against this backdrop, it’s understandable why many investors consider no dividend safe. But that’s a mistake. Fact is, countless companies will weather this storm with their dividend intact.

To find such companies I focus on the following six criteria and I recommend you do the same:

1. Simple business. The fewer the moving parts the fewer things that can go wrong and sap cash intended for dividend payments. Focus on companies doing one or two things that you can understand, as opposed to massive corporations with dozens of operating segments.
2. Steady demand. Given the Great Recession, the first thing we need to verify is demand for a company’s products. After all, a company needs a steady stream of cash coming in to afford to pay it out to shareholders. Stick to industries or sectors with recession-proof or recession-resistant demand (food, alcohol, tobacco, health care, etc.).
3. High cash balance. Cash IS king, especially when it comes to maintaining a dividend. Consider it insurance against any unexpected slowdowns. At a minimum, insist on enough cash to cover one quarter’s worth of dividends.
4. Minimal need for credit. Securing credit in this market is extremely difficult. Accordingly, I focus on companies that do not need to raise significant amounts of capital. Remember, too, when interest rates rise, so do interest payments for companies that rely on a significant amount of debt. So it’s also important to focus on companies with reasonable or low debt balances. This insures interest payments won’t sap money intended for us.
5. Cash flow positive. If a company’s not generating cash each quarter, the only way to pay a dividend is by borrowing or tapping into cash reserves. Such practices are not sustainable over the long term. Eventually, the dividend will be cut.
6. Earnings buffer. Insist on a dividend payout ratio (annual dividends/annual net income) of 80% or less. A company paying out 100% of earnings has no wiggle room in the event of a slowdown. If business suffers, so will the dividend.

Obviously not every stable dividend-paying stock will meet all these criteria. But the more criteria a stock fits, the more stable you can consider its dividend.

I followed these six criteria to unearth all the dividend stocks I’ve previously mentioned here -TEPPCO Partners (NYSE: TPP), Lorillard (NYSE: LO) and Windstream Corp. (NYSE:WIN).

Lorillard and Windstream remain attractive at current prices.

Next week, I’ll reveal another dividend-paying stock worth your consideration. But please note, in the days ahead my dividend-sleuthing prowess will change venues.

You see, because these columns are garnering so much interest, we’ve just decided to revamp the entire mid-month issue of The Oxford Club Communiqué. Going forward, each mid-month issue will be exclusively dedicated to dividend-paying stocks and other safe ways to generate an income.

So if you want a steady stream of stable dividend-paying stocks, you’ll have to join us. Go here to sign up today.

Source: 6 Steps for High-Yield Dividends

Year-to-date, General Electric is the worst-performing stock in the Dow, down 22.3%. Meanwhile, TEPPCO is up 69%, including dividends.

(If any of you took me up on my income investment recommendation, e-mail us and let us know how you did at comments@investmentu.com.)

Of course, part of the move higher for TEPPCO can be attributed to news that Enterprise Products Partners (NYSE: EPD) is buying the company, as I predicted.

For those of you that purchased the stock, I recommend you take profits now. And whatever you do, don’t reinvest them in GE.

GE: Reasons Why It’s Not a Safe Income Investment

My reasons for disliking GE as a safe income investment remain the same.

The company defies the golden rule of income investing – go with simple businesses, because simple businesses make money and can pay dividends, consistently.

Remember, GE’s business is all over the place with sales in water, security, railroads, oil and gas, media and entertainment, lighting, health care, consumer lending, commercial lending, energy, electrical distribution, consumer electronics, aviation and finally (drum roll) appliances.

And it’s only getting more complicated. This week, the company announced it’s getting involved with embryonic stem cell research.

Another problem? GE will always be fighting the law of large numbers. At a market cap of $125 billion, it takes an awful lot of growth to move the earnings needle and in turn, share prices.

Right now, that’s not happening.

Income Investing: The Smart Way to Pick Dividend Stocks

Again, it’s not fair of me to bash GE without offering up an alternative. So here it is: Windstream Corp. (NYSE: WIN).

The company is the country’s largest rural wireline telecommunications company. It was formed in mid-2006 through the combination of ALLTEL’s wireline business with VALOR Communications Group.

It operates in 16 states… in the sticks! Off-the-beaten-path markets, where big carriers like AT&T and Verizon don’t focus because the upfront costs are too high. Just to give you an idea, in most suburban and urban markets the number of access lines per square mile are over 110. In most of Windstream’s markets it’s below 20.

Obviously, this lack of competition confers notable advantages on Windstream. Namely, high and steady profit margins. Even in this declining market, Windstream’s been able to maintain its operating margin of 35%.

Even better, at current prices, the stock yields 12%. (In comparison, GE currently yields 3.4%).

Here are the four main reasons I believe this dividend is safe:

• Wide Economic Moat. Many carriers are losing traditional phone customers to cable phone services. However, Windstream is partially insulated from this trend. About 30% of its customers don’t even have the option to get cable modem services. The cable companies just don’t serve those markets. At the same time, the severities of this recession are forcing many larger carriers to cutback or suspend expansion efforts into Windstream’s territories. The delay only allows the company to solidify its competitive position and minimize the impact of new entrants over the long term.

• It’s Growing for Free. The big old honking stimulus bill included $7.2 billion in funds for Internet expansion. Windstream qualifies for the grants and can use the “free” money to expand its footprint in rural markets.

• Solid Cash Flow. In the last year, cash flow improved 14% to $763 million thanks to lower capital expenditures and cost cutting efforts. In 2009 we can expect the same, as management doesn’t anticipate the need to increase capital expenditures.

• Credit is No Concern. Windstream’s got a sizable $5.4 billion debt balance, but it’s reasonable relative to cash flows (interest expense should consume less than 28% of cash flow), lower than the industry average leverage and there’s no immediate need for refinancing. The earliest debt maturity is in 2011 for $457 million. If necessary, the company could pay off the balance from current cash flows and the money in the bank. After that, the next significant debt maturity doesn’t come until 2013.

Like TEPPCO, Windstream comes with a kicker – it’s also a takeover target.

In the last five years we’ve seen larger carriers, eager to juice growth, acquire rural carriers with high margins for a hefty premium. Windstream possesses the same qualities of past takeover targets, so a deal is certainly possible in the next six to nine months. A cheap valuation, at just 9.5 times forward earnings, increases the odds.

Bottom line, Windstream provides reliable income and the potential for significant capital appreciation like we witnessed with TEPPCO. Sadly, we can’t say the same about GE. So dump it if you own it! And Buy Windstream instead.

Good investing,

Lou Basenese

Source: Need an Income Investment? Keep Dumping GE and Buy this Stock Instead

• A federal judge gave no leniency to convicted Ponzi schemer Bernie Madoff yesterday (Monday), sentencing him to 150 years in prison. U.S. District Judge Denny Chin described Madoff’s crime as “extraordinarily evil” and said that it was “not merely a bloodless crime that takes place on paper but one that takes a staggering human toll.” As a part of his sentence, the 71-year-old Madoff was ordered to forfeit a total of $170.8 billion which represents the total proceeds of and property involved in certain of his crimes.

• Pipeline operator Enterprise Products Partners L.P. (NYSE: EPD) will buy Teppco Partners L.P. (NYSE: TPP) for $3.3 billion, forming the biggest U.S. energy partnership, Bloomberg News reported. Teppco shareholders will get 1.24 units of Enterprise for each one they own, making the deal worth 15% more than when the initial offer was made in March. Enterprise will see the benefits of the takeover starting next year and will net a minimum of $20 million in cost savings, according to Enterprise Chief Executive Officer Michael Creel.

• Apple Inc. (Nasdaq: AAPL) Chief Executive Officer Steve Jobs returned to work as promised following a near six-month leave of absence in which he received a liver transplant. Initially, Jobs will spend a few days a week at Apple’s Cupertino, Calif. Headquarters and work the other days from home. Investors will be reassured that Jobs is back, Collins Steward Ashok Kumar told Reuters. “In many ways he’s irreplaceable,” Kumar said. “Having him back brings the halo back to the company.” Apple shares closed at $141.97 yesterday (Monday), down 0.33%.

• General Motors Corp. (OTC: GMGMQ) cut its ties to a northern California auto plant it operated with Toyota Motor Corp. (NYSE ADR: TM) since 1983, Reuters reported. The move puts into question the fate of more than 4,000 jobs at the plant that was once seen as a ground-breaking experiment in bringing production efficiencies pioneered in Japan to a U.S. workforce. “While we respect this decision by GM, the economic and business environment surrounding Toyota is also extremely severe, and so this decision by GM makes the situation even more difficult for Toyota,” Toyota said in a statement. The soon-to-be defunct Pontiac Vibe, Toyota Corolla and Matrix are manufactured at the facility.

• The U.S. Interior Department yesterday (Monday) designated roughly 670,000 acres of land as potential areas for solar energy production with the hope it will speed up the development of renewable energy resources on federal lands. “This environmentally sensitive plan will identify appropriate Interior-managed lands that have excellent solar energy potential and limited conflicts with wildlife, other natural resources or land users,” Interior Secretary Ken Salazar said in a statement. The 24 areas on the land could generate nearly 100,000 megawatts of solar electricity, the DOI said. President Barack Obama has allocated $150 billion to renewable energy investment over the next 10 years.

• Oil for August delivery rose to $2.33 to settle at $71.49 a barrel after China said it would increase oil reserves and Nigerian militants partly shut down an offshore oil platform that belongs toRoyal Dutch Shell plc (ADR NYSE: RDS.A, RDS.B), The Associated Press reports. China plans on increasing its strategic crude oil reserves by 60%, providing the market with some long-term support according to Alaron Trading Corp. analyst Phil Flynn.

• The Chinese government has stopped its metal stockpiling program, a top official told state-run Caijing Magazine. China has so far amassed 590,000 metric tons of aluminum, 159,000 tons of zinc and 235,000 tons of copper. The news could push down prices of metal in the near-term, though a stimulus-driven revival in demand could limit the fall, the report said.

Source: Investment News Briefs Tuesday, June 30, 2009

This from Investment U:

We’ve endured three consecutive weeks of losses for the S&P 500 (.INX). Never fun. But if you’re an income investor, ala Charles Dickens, the worst of times is creating the best of times…

Dividend yields now rest close to 15-year highs. Plus, the premiums from writing covered calls (the only safe options strategy) are significantly higher thanks to the extreme market volatility.

As far as I’m concerned, that’s an attractive one-two income-earning punch we shouldn’t ignore.

So how do we play it?

Not with the usual suspects…

Income Investors: GE Is A Dog at Any Price

There’s something about an adolescent stock price on General Electric (NYSE: GE) that turns most income investors rabid. Much like they were last summer for Bank of America (NYSE: BAC). But I continue to get in arguments with friends and colleagues about this.

I don’t care if GE trades below $20 per share, $15 per share, even $10 per share. It’s a terrible stock to own right now.

I know in some circles, such an utterance is blasphemous. Before you conclude the same, at least hear me out…

First things first…

• Simple businesses make money.
• Investors can understand simple businesses.
• And therefore, stocks of simple businesses tend to perform best (consult Warren Buffett’s track record should you disagree).

But – you guessed it – GE doesn’t pass the simple test.

Its business is all over the place. Last quarter, it logged sales in the following segments: water, security, railroads, oil and gas, media and entertainment, lighting, health care, consumer lending, commercial lending, energy, electrical distribution, consumer electronics, aviation and finally (drum roll) appliances.

Try coming up with an elevator pitch for Jeff Immelt for that mess. Jack of all trades, master of none, perhaps?

To be fair, GE does provide exposure to compelling sectors and trends – like energy and infrastructure, water, and green technologies. But it only accounts for a small portion of the revenue pie. And meaningful growth in these segments will always be overshadowed by declines elsewhere.

Case in point, in the fourth quarter, GE’s energy business increased profits by 27%. A homerun by any measure. Too bad the rest of the team struck out – weakness in other segments caused GE’s overall profit to drop 44%.

Bottom line, even after a 60% stock decline in the last year, GE is still a $137 billion behemoth. Moving that earnings needle, and in turn the stock price, requires over a dozen business segments to be firing on all cylinders, simultaneously. That’s not happening. Not now or anytime in the near future.

But How Can We Turn Down a 9% Dividend Yield?

After considering the above, most GE defenders shove their security blanket – the hefty dividend yield – in my face, saying, “At least I get paid 9% to wait for the stock to turnaround.”

True.

But it could take years for the underlying businesses to turnaround. Moreover, as Bank of America proved, no dividend is immune to a cut.

Last summer CEO Ken Lewis said it was safe. Then in October, he ended the streak of 30 years of increases. And he cut it.

The same fate appears likely for Dow Chemical (NYSE: DOW). Last month CEO Andrew Liveris declared a dividend cut wouldn’t happen on his watch. Fast forward to this week, and he concedes a cut is now possible. Keep in mind, Dow Chemical’s dividend has never been cut since it was first instituted in 1912.

By now, Yogi Berra should come to mind, “It’s like déjà-vu, all over again,” because GE’s Immelt continues to deny the possibility of a dividend cut. He also wants to maintain the company’s coveted AAA rating. Yet, if current conditions persist, and management is desperate for cash, trust me, the dividend will get the ax.

For Income Investors – A Better Alternative Income Investment to GE

It wouldn’t be fair for me to bash GE as an income investment and not offer up a better alternative. So here it is – TEPPCO Partners (NYSE: TPP).

It’s one of the oldest publicly traded energy master limited partnerships (MLPs), with over 12,500 miles of pipeline. (For a thorough overview of MLPs, I recommend this MLP primer.) And it currently yields 11%.

Here are the five main reasons I believe the dividend is safe -

• Its business is simple. It gets paid to transport fossil fuels, based on total volumes, not the price of the underlying commodity. While the price of crude might be off significantly, I guarantee you worldwide demand, and the volumes to be transported, is not. Such a simple business makes it easy to spot breakdowns, and in turn, recognize when the dividend is truly in jeopardy.

• The revenue stream is highly reliable. We’re addicted to oil. And no matter how green the world gets, we’ll still consume plenty of it. That means the registers will keep ringing for TEPPCO, and there will always be cash in the till to pay out dividends.

• Management believes in conservative growth. Overdosing on debt to fund expansion is a recipe for disaster. If borrowing costs increase (like now), more cash needs to be set aside to make interest payments. If they jump too high, too fast, something has to give. And most times, it’s the dividend. Thankfully, TEPPCO believes in conservatism. For the past five years, it’s financed 75% of its growth through asset sales and equity contributions. In other words, interest payments won’t threaten the dividend one bit.

• Insiders keep buying. Insiders know best and Dan Duncan, the CEO of the general partner that controls TEPPCO, plunked down $7 million last September, at much higher prices. If the dividend was in jeopardy, he certainly wouldn’t be buying.

• Credit is not a concern. In these distressed markets, we can’t overlook this factor. If a business relies heavily on credit, and is having trouble getting it, look out. No worries for TEPPCO, though. It’s sitting on $600 million in liquidity, enough to fund almost all of its proposed capital expenditures for 2009.

Truth be told, I recommended TEPPCO to subscribers a month ago when it traded around $18. Now we’re up 48%. And we haven’t even received our first dividend payment, yet.

Even after such an impressive move, though, I estimate at least another 36% upside remains.

Here’s why…

• The company sports strong fundamentals: earnings, distributions and its operations are all growing.
• It owns prime assets. Namely, the only pipeline transporting liquefied petroleum gases from the Texas Gulf Coast to the Northeast and the sixth-largest U.S. inland barge operations.

Both make it a prime acquisition candidate.

And history dictates MLPs should only average a 7.83% yield, based on the Alerian MLP Index. To bring its yield back inline with the historical mean, TEPPCO’s stock needs to rally another 36%.

Add it all up and it’s a no brainer. If you want high and reliable income, with the potential for capital appreciation, too, forget GE and buy TEPPCO. Or at the very least, ensure any high dividend-paying stocks you’re considering boast the five qualities above.

Source: Income Investors: Dump GE & Buy This Safer Income Investment Instead