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The High Yield Buy List
Company Close 12/4
Kinder Morgan Ptrs 51.41 51-58
Plains All American 51.57 51-58
Penn
Buckeye Pipeline 48.08 47-52
While we have tried to keep our distance from the financial stocks, US Bancorp has been a profitable holding for the High Yield Portfolio. Given its financial strength and large fee based revenue stream (50% of total revenue), this bank is uniquely positioned to avoid the sub prime problems.
US Bancorp is one of the country’s top 10 financial holding companies. This institution offers a wide array of financial services through four divisions:
(1) consumer banking (41% of revenues) offers banking services to individuals and small businesses,
(2) wholesale banking (21%) extends traditional banking services to mid size and larger corporations
(3) payment services (24%) provides services to credit/debit cards, merchant processing and customized technologically advanced products to consumers, merchants, institutions and affinity partners,
(4) wealth management (14%) includes private banking, trust, custody, investment management and related financial advisory services.
USB has grown profits and dividends at a 12-15% rate over the last 10 years, earning an impressive 20%+ return on equity. The bank should continue to grow at an above average pace over the next five years as a result of:
(1) its strong retail banking franchise and prominent payment processing capability which should continue to create growth opportunities,
(2) its aggressive acquisition program which has recently included United Financial Corp (parent of Heritage Bank), the municipal bond trustee business of LaSalle Bank, Vail Banks (parent of Westar Bank), AIMS Logistics, top provider of freight audit and payment services in the US and Europe, the municipal and corporate bond trustee business of SunTrust Banks and Schneider Payment Services, a provider of freight payments,
(3) the relocation of its wholesale foreign exchange desk and rebranding of its wealth management division as well as continued aggressive cost control measures,
(4) significant share repurchases-the company has bought back 150 million shares since August 2006.
Combining an expected dividend growth rate of 8%+ over the next two years with a current yield of approximately 5% provides an attractive total return to the shareholder.
EPS: 2006 $2.61, 2007 $2.60, 2008 $2.80; DVD: $1.62 YLD 5.0%
http://finance.yahoo.com/q?s=USB
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