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Portfolio Update

Q4’s Last Reporters: A Special Group of Stocks

By Roger S. Conrad, on Mar. 20, 2017

The last five Lifelong Income Portfolio companies reported fourth-quarter 2016 results. We highlight the numbers and updated guidance for these five portfolio members:

  • AES Corp (NYSE: AES)—Buy<15;
  • Artis REIT (TSX: AX-U, OTC: ARESF)—Buy<15;
  • Hannon Armstrong Sustainable Infrastructure Capital (NYSE: HASI)—Buy<20;
  • Landmark Infrastructure Partners LP (NSDQ: LMRK)—Buy<17; and
  • WP Carey (NYSE: WPC)—Buy<70.

There are two reasons why these earnings, despite being so late, are meaningful.

First, the numbers and guidance, along with a series of other historical qualitative and quantitative factors, provide insight into the health of the company’s underlying business and its growth prospects. In the case of dividend-paying companies, this information also helps us to evaluate whether the dividend growth rate is sustainable.

Second, delivering quarterly numbers relatively late provides management teams with more time to scope out the year ahead.

In my Feb. 26 article, Key Takeaways and More Fourth Quarter Numbers, I highlighted a handful of trends from the quarterly reports of our Lifelong Income Portfolio holdings.

The Federal Reserve’s recent rate increase doesn’t change our view that efforts to normalize monetary policy don’t spell doom for our picks. With few exceptions, the majority of our Lifelong Income Portfolio holdings appeared on track for dividend growth in 2017–a critical upside catalyst.

All our buy-rated picks remain good buys for anyone that’s light on these positions. With many income-oriented stocks trading at nosebleed valuations, this assessment doesn’t come lightly.

Momentum may carry them higher a bit longer. But market history has plenty of brutal examples of what happens to people who chase dividend-paying stocks at these levels of yields (low), price-to-earnings (high) and price-to-book value ratios (high).

Lifelong Income Portfolio members are the exceptions. Because they trade at such wide discounts to their peers, all they have to do to generate solid returns this year is continue to strengthen their underlying businesses.

They may get knocked around with everything else if there’s a vicious market correction. But even in that case, business recovery will ensure share price recovery. They’re unique values in a market largely devoid of them.

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