2 'Core' High Dividend Plays in an Increasingly Uncertain Market
Adding to these names seems a smart move amid growing uncertainty and cracks starting to develop in areas of the credit system.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Despite some weakness late last week, markets managed to end the week higher and claw back some of the deep losses from he previous Friday. However, the recent bankruptcies of First Brands and Tricolor Holdings continue to have ripple effects across the credit markets. UBS, JPMorgan Chase & Co. (JPM) and Jefferies (JEF) are among the banks now taking significant hits from those debacles.
In addition, new worries around the regional banking sector emerged last week after Zions Bancorporation (ZION) and Western Alliance Bancorporation (WAL) disclosed losses from commercial real estate loans. This is a major watch item as regional banks hold just under 45% of CRE debt and delinquency rates have become elevated for many sub-sectors of the CRE space, especially loans against multi-family and office holdings.
The cracks across the credit markets appear to be accelerating recently and this comes after a summer where the jobs markets clearly started to falter. This will put pressure on the Federal Reserve to cut rates further even as inflation remains sticky. The yield on the 10-Year Treasury has fallen to the 4% threshold after being as high as 4.8% earlier in the year. This makes solid dividend paying stocks more attractive. As such, I have added exposure to these high-yielding existing holdings in my portfolio.
Plains GP Holdings (PAGP) has seen its stock price decline lately on falling energy prices. I hold this midstream infrastructure partnership within my tax deferred accounts as that eliminates the tax complexity.
As a midstream entity, the recent decline in energy prices should have a limited impact on PAGP's profitability and the shares now yield a more-than-healthy 9%. Over the past sevearl years I have found that PAGP is a good name to accumulate in the $15 to $17 range and then lighten up a bit on when the shares move above $20 a share.
I also added to my stake in Pfizer (PFE) last week via covered call orders. Shares of the drug giant spiked to just over $27 earlier this month after it agreed to a drug pricing program with the Trump administration to lower the costs of many of its products to bring them more in line with prices in other countries. Those gains have now dissipated, and the equity is trading back under the $25 level.
As importantly, PFE stock is once again sporting a yield of 7%. This should continue to support a floor around current trading levels. I am just enhancing the yield and enabling some downside risk mitigation by using this simple option strategy.
Adding to these core dividend plays seems prudent given the growing uncertainty in the market and the cracks starting to develop in some areas of the credit system.
At the time of publication, Jensen was long PAGP and PFE.
