QUALITY STOCKS.pdf

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QUALITY STOCKS

YIELDING7%-9%7

TRIPLE YOUR INCOME


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With interest rates at rock-bottom levels and the dividend yield on

the S&P 500 around 2%, these can be tough times for income

investors. Reaching for additional yield can often bring with it too much risk,

but there are still numerous opportunities to lock in fat yields in fundamen-

tally sound businesses.

In this special report, we highlight seven timely buys in dividend-paying

stocks, master limited partnerships and real estate investment trusts that

sport yields of at least 7%. That's triple the yield you'd get on the 10-year

Treasury note or the S&P 500 index. In each case, the juicy yields are backed

up by healthy levels of growth and cash flow at prices that represent

discounted valuations from historical averages.
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A C O U R I E R C O R P. ( C R R C )

Yield: 7.1% Annual div. per share: $0.84

Market cap: $139 million P/E: Not meaningful

1-year total return: 3.8%

Founded in 1824, North Chelmsford, Mass.-based Courier is the third largest book manufacturer in the

United States, providing prepress, production, warehousing and distribution services. Courier's two biggest cus-

tomers are the U.K.'s Pearson, accounting for about 30% of sales, and The Gideons International, which ac-

counted for 25% of revenue in the most recent year ended September 30, 2012. The Gideons, of course, place its

eponymous Bibles in hotels and motels, and Pearson is a big name in textbooks formed from the combination

of Simon & Schuster's education division with Addison-Wesley.

By sticking to areas like textbooks, Bibles and sheet music where paper is still the preferred medium, Courier

has been able to keep sales steady and even growing a bit over the past three years. Revenue was up 0.8% in the

12 months ending December 2012 to $263.0 million. Latest 12 months earnings are $.088. Although that looks

like a close shave for covering the $0.84 dividend, Courier generated $3.58 per share in cash from operations

over the past 12 months, good for a cash payout ratio just shy of 23%.

Courier has a long track record of paying dividends every quarter, and raising them significantly over time,

from $0.01975 per quarter in 1990, to the current quarterly rate of $0.21, which it has paid since November

2008. With the reliable dividend, this stock looks like a great bargain with a market value below both its annual

sales and book value.
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P D L B I O P H A R M A (P D L I )


Market cap: $960 million P/E: 4.3


Founded in 1986 as Protein Design Labs, this Incline Village, Nev., company pioneered the humanization ofmonoclonal antibodies, which has succeeded in producing several new drugs to treat cancer, multiple sclerosis

and other conditions. PDL receives royalty payments from drug makers like Genentech, Elan, Biogen Idec and

Novartis for drugs that use its proprietary antibody humanization technology. Well-known drugs for which

PDL is paid include Avastin, Herceptin and Tysabri.

Analysts expect earnings this year to be up 20%. PDL began paying $0.15 per quarter in March 2011, with its

latest dividend paid December 14, 2012. The $0.60 in annual payouts are comfortably covered by earnings, as

well as by $1.45 per share in operating cash flow over the past 12 months.

The yield is fat and the growth picture looks good. Nonetheless, it's worthy of note that the chief financial

officer left in December after less than one year on the job, and PDL has very high short interest. Use a trailingstop loss of 10% on this and all recommended buys. The high short interest could throw additional fuel on a

rally, but be covered if the shorts are right.



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A L L I A N C E B E R N S T E I N H O L D I N G L . P. ( A B )


Market cap: $2.2 billion P/E: 14.5


AllianceBernstein is an investment management business structured as a limited partnership with units that

trade on the New York Stock Exchange. The partnership makes quarterly distributions that vary with net income

and each unitholder's pro rata share of AllianceBernsteins taxable income is reported on a Schedule K-1. Not all

of the distribution is taxable income; some is a return of capital that reduces cost basis in the units.

The core business of AllianceBernstein is investment management for both institutions and high-net worth

individuals. Its current incarnation dates to the acquisition in 2000 of Sanford C. Bernstein by Alliance Capital,

which was itself the result of a 1971 tie-up between the investment-management department of Donaldson,

Lufkin & Jenrette with the investment-advisory business of Moody's Investor Services.

Like all financial firms, it took its lumps during the financial crisis but income is on the rebound, expected to

grow 6% in 2012 to $1.21 per unit, even as revenue dips 1.0%. For 2013, the forecast is for 54% growth in net

income. Given the long history of paying distributions, its modest valuation and track record for navigating

though economic cycles, Bernstein is worth a buy for yield and gains.



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T H L C R E D I T ( T CR D )


Market cap: $391 million P/E: 10.4


Like venture firms in Silicon Valley, you have to evaluate business development companies on track record.Bostonbased THL Credit manages a $2.8 billion portfolio of investments in companies with annual revenues

between $25 million and $500 million and with an EBITA of at least $5 million. It provides mezzanine financ-

ing for companies going through buyouts and recapitalizations, often in the form of loans and private invest-

ments in public equity (PIPES).

Since becoming a public company in 2010, the value of shares has fluctuated between $11 and $14 in an

economy that has not been booming. If current improving trends in jobs and manufacturing continue, it bodes

well for the vitality of companies in THL's targeted market. Its investments tend to be in consumer discre-

tionary, retail or technology areas, which tend to excel in an accelerating economy.

Dividends rose every quarter in 2011from from $0.23 to $0.28and again in the first quarter of 2012 to$0.34. The rate dropped a penny in the last quarter of 2012 but the company also paid an additional dividend

of $0.05 in December. The $0.33 rate annualizes to an 8.9% yield, which also reflects the relatively conservative

nature of THL's business. Earnings are forecasted to come in at $1.30 per share in 2012, and $1.43 in 2013, giv-

ing THL room to keep hiking the payout down the road.


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O M E G A H E A LT H CA R E I N V E S T OR S ( O H I )




Yields from real estate investment trusts have come down steadily since 2009, as prices have recovered sub-

stantially, making the dividends look less meaty on a higher share price. Still offering fatter yields are owners of

long-term care facilities like nursing homes and assisted living properties. Hunt Valley, Md.-based Omega Health-

care sports a 7.1% yield and a low valuation for its growth rate, making it a good looking candidate for income

and appreciation.

Omega owns 432 skilled nursing and assisted living facilities in 35 states. In total, it has just over 50,000 beds

in these properties managed by 51 third-party health care operators. Revenues in 2012 are expected to climb

18.6% to $347 million, and earnings are forecasted to grow 12.7% to $2.13 per share. Trading for just 12.1 times

expected earnings, Omega appears to offer a chance to buy growth at a discount.

As a REIT, Omega pays out 90% of its net income to shareholders as dividends to avoid taxation at the corpo-

rate level. It currently pays out $0.45 per quarterup one penny from the fourth quarter of 2012for an annua

dividend of $1.80. Earnings and funds from operations easily cover that payout.


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E N E R GY T R A N S F E R PA R T N E R S L P ( E T P)




This Irving, Tex., MLP is already one of the biggest names in midstream natural gas partnerships, operatingnearly 20,000 miles of pipelines for gathering and transporting natural gas from the Permian Basin in Texas

to the Marcellus Shale in Pennsylvania. ETP also owns facilities for treating, storing and conditioning gas.

Last October, ETP got into the crude oil and gasoline business with its $5.5 billion acquisition of Sunoco to

tap into a pipeline network that can move crude oil and refined products between the Northeast and refiners

on the Gulf Coast.

ETP offers one of the highest yields of all MLPs, but ETP is not financially stressed with income covering

interest by a 4.1-to-1 ratio.

Revenue this year is expected to rise 62.8% to $11.5 billion. Net income, aided by the Sunoco acquisition, will

rocket from $1.10 per unit to $4.20. Cash generation looks to be just fine, with ETP producing $4.16 per shareover the past 12 months.


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SOUTHERN COPPER (SCCO)




Based in Phoenix, Ariz., Southern Copper mines, produces, smelts and refines copper and other minerals inPeru, Mexico and Chile. The trend in copper prices, which closely tracks global economic growth, bottomed at

$3.30 per pound last June and gained better than 10% over the following six months.

Southern Copper's earnings for 2013 are expected to increase 16% to $2.66 per share, on a 4% rise in revenue

to $6.9 billion. Those earnings, plus $2.36 in cash from operations over the past 12 months easily cover the com-

panys regular annual dividends of $0.96 per share, and make room for another bigger dividend for the Decem-

ber quarter. In December 2012, Southern Copper paid out a $2.75 dividend, bringing last years total payout to

$3.70 per share. That rate is good for a 9.5% yield at current prices.

If the world economy continues to recover, copper prices should remain in an uptrend, benefitting Southern

Copper. Central banks are expected to remain active in keeping monetary policy loose in the coming year. WhenFederal Reserve Chairman Ben Bernanke announced the Feds second round of quantitative easing in the fall of

2010, the price of copper gained nearly 40% in six months. So far this time the gain is about 12%.

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This diverse group of stocksspanning sectors from health care to financials to energyoffers you the besof both worlds, delivering fat dividends AND growth. Safe, high-yielding stocks like these can be the work-horses of your portfolio, dispensing a steady stream of income month after month, quarter after quarter, while

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