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

“There has been a lot of talk recently about Embarq wanting to be acquired,” Kagan told MarketWatch.com. “However, the financial crisis that is on the front page every day made finding a partner difficult. That may have lowered the price Embarq hoped to get. CenturyTel saw an opportunity and jumped in to acquire Embarq. Timing was on CenturyTel’s side in this deal.”

The all-stock deal – announced yesterday (Monday) – calls for CenturyTel to pay $5.8 billion for Embarq, and to assume $5.8 billion of that company’s debt, Network World reported.  The buyout will knit together two phone companies with a local/regional focus that cater chiefly to customers in less-populated parts of the country, MarketWatch reported. The new combined venture will have operations in 33 states and combined revenue of more than $8.8 billion.

The acquisition “makes great strategic sense,” Glen F. Post III, the chairman and chief executive officer of CenturyTel, who will assume the CEO’s mantle with the merged company, said during a conference call yesterday. “It diversifies our revenue and provides us with expanded networks, expertise and financial resources to build long-term shareholder value.”

U.S. telecom carriers have spent at least $150 billion on acquisitions during the past three years as they bulk up to slash operating expenses – and to match up better against new rivals emerging from such businesses as cable TV and wireless communications. Already this year, Verizon Communications Inc. (VZ) agreed to buy Alltel Corp. for $5.9 billion in cash and $22.2 billion in debt, a move that makes it the largest U.S. phone company, Bloomberg News said.

Verizon reported its third-quarter earnings yesterday. [For additional details, check out Money Morning’s Global Investing (News) Roundups, elsewhere in this issue.]

CenturyTel rebuffed a $9.2 billion offer from Alltel in 2001, selling the phone-service operator its wireless assets instead.

Analysts expect the deals to continue – and probably to accelerate. Indeed, Credit Suisse Group AG (ADR: CS) analyst Chris Larsen wrote in a research note that the CenturyTel/Embarq merger would likely serve as the catalyst for the long-expected wave of consolidation deals between rural telecom carriers. Those deals could well include a move by Windstream Corp. (WIN) – the second-biggest rural carrier – to buy out the much-smaller Frontier Communications Corp. (FTR).

“We think a Windstream/Frontier transaction is the next most logical [deal],” Larsen wrote.

Consolidated Communications Holdings Inc. (CNSL) is also viewed as a potential buyout target, Reuters reported.

CenturyTel may also look at doing more deals within in a year, if there are more buyout opportunities that match up well, Post, the CEO, said.

Embarq solicited offers earlier this year, but the company’s plans to auction itself off to the highest bidder were shelved by the global credit crisis, which made it tough for potential suitors to line up financing for any deal. In early October, however, news reports surfaced that Embarq had hired JPMorgan Chase & Co. (JPM) to look for buyers for the company.

The Overland Park, Kan.-based Embarq is the local phone company created by the 2006 spin-off from Sprint Nextel Corp. (S), and its service area covers 18 states. It provides local and long-distance communications services to both consumer and business customers. This includes voice, data, high-speed Internet, satellite video and wireless services, sold both on a wholesale level and through third parties.

CenturyTel also provides local and long-distance voice, Internet, broadband and television services in 25 states. As of Dec. 31, its local exchange telephone services unit operated 2.1 million telephone access lines in 24 states, of which about 70% were concentrated in Alabama, Arkansas, Missouri, Wisconsin and Washington.

The buyout price of $40.42 per share for Embarq represents a 36% premium over the company’s closing share price from Friday.  Since Embarq is twice as big as CenturyTel, Embarq shareholders will own about 66% of the combined company after the deal closes.

Although Embarq is the larger of the two companies, it faces greater competition from cable operators and other telecom-service providers because it operates in some urban and suburban markets. The Monroe, La.-based CenturyTel operates almost entirely in rural areas where competition is less intense.

But the newly merged venture should be much more competitive overall, since it could realize annual savings of about $400 million within three years, executives with both CenturyTel and Embarq said on yesterday’s conference call.

While Post remains as CEO of the merged company, Embarq CEO Thomas A. Gerke will stay on to serve as executive vice-chairman.

CenturyTel yesterday reported operating revenue of $650 million for the third quarter of 2008, down more than 8% from the same quarter in 2007. Net income was $82.8 million, down more than 23% from a year ago.

Embarq yesterday reported operating revenue of $1.5 billion for the third quarter of 2008, down about 4% from the third quarter of 2007. Net income was up nearly 2%, to $160 million. Through the first three quarters of the year, the company’s operating revenue was $4.6 billion, down from $4.8 billion for the first nine months of 2007.

Once the deal is finished, the newly combined company will have about 8 million telephone customers, 2 million broadband customers, and 400,000 video customers.

The purchase is CenturyTel’s largest since selling shares to the public in 1968, and may pose a challenge – in part because it will bolster the company’s subscriber ranks in such economically hard-hit regions as Nevada and Florida, where foreclosure rates have jumped, Bloomberg said.

“This increases CenturyTel’s exposure to some difficult economic environments like Las Vegas and Florida, markets that have been a little more hard hit than they’re used to serving,” Stifel Nicolaus & Co. Inc. (SF) analyst Chris King told Bloomberg. King rates CenturyTel shares as a “Buy.”

Before the deal can close, stockholders from both companies will have to provide their approval. The merger will also have to pass muster with state and federal regulators. The companies hope to close the deal in the second quarter.

Source: CenturyTel’s Buyout Bid for Embarq Will Likely Jump-Start a Wave of Mergers Among Rural Telecom Players