Question:
Both Dominion Resources and Enterprise Products are being recommended to me. They both pay high dividends. Are these both the MLPs that you’ve warned us about? I know they’re both energy companies of some sort, but not much else.
Answer:
Dominion Resources, Inc. (NYSE: D) is a producer and transporter of energy, and operates as a regulated electric utility in Virginia. Its indicated dividend yield is 3.99%, which is reasonable for an energy company. The company has been a very stable dividend payer since the early 80s.
Enterprise Products, Partners, L.P. (NYSE: EPD) is a limited partnership that is a provider of midstream energy services to producers and consumers. While EPD pays a higher dividend yield at 4.65%, you should receive a K-1 for tax purposes. If you plan to take advantage of partnership deductions, your accountant is likely to charge you more for the filing. You would have to weigh the cost against the benefit of a higher dividend. Additionally, the “dividend” may include a return of capital, but you may be able to claim a portion of depletion of assets, depreciation and other tax advantages. EPD has likewise paid a steadily growing “partnership distribution” for more than 10 years.
Dominion meets our minimum investment criteria, while EPD does not. For ease of taxes, we prefer Dominion shares of these two companies.
Question:
I know you guys say to buy stocks that interest your kids. My son is into photography really big. I was thinking of getting him a few shares of Canon or Nikon stock, as those are the two big cameras he always mentions. Nikon appears to be a Japanese stock only. Would this be a better pick than Canon to get him some international exposure as well?
Answer:
Both are Japanese companies that do business world-wide. Canon, Inc. ADR (NYSE: CAJ) is cheaper, when looking at price-to-earnings of 14.73 versus 20.84 for Nikon Corp. ADR (PINK: NINOY). Canon is also more diversified than Nikon, in that the company has an office segment devoted to copiers, printers and digital production printers; a consumer segment that provides the camera equipment your son is familiar with, and an industrial equipment segment that provides exposure equipment used in making medical imaging and semiconductors. This diversification makes the decision relatively easy from a financial perspective.
In addition, Nikon has a bit more debt, which tends to increase return on equity, although neither company has high debt levels. Canon meets our strict investment criteria, Nikon does not.
We recommend buying shares of a stock that pertain to a child’s interests to pique the child’s interest in finance and investing. You should be OK to purchase a share or two of either company for your son to enjoy. However, we do not recommend building a portfolio around these two companies.
At Henssler Financial we believe you should Live Ready, which includes understanding your investments and how they work in your overall portfolio. If you have questions on your holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
