Enterprise Products Partners L.P. (EPD) provides services to producers and consumers of natural gas, natural gas liquids, crude oil, and petrochemicals. It’s clients are in the continental United States, Canada, and Gulf of Mexico. EPD also develops pipeline and other energy infrastructure, and it’s got a high yield and has been diversifying through acquisitions, which makes it worth looking into if you’re looking for income and growth.

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Enterprise Products Partners L.P. (EPD) Dividend History.

Here’s a look at EPD’s dividend history over the past five years:

Even though the price has risen about 15.5% over the past 6 months, it still sports an attractive 6.90% yield and has a lot of upside potential if energy demand soars again like it did in the early part of 2008. After the fall in energy prices, Enterprise Products Partners saw its share price slashed with other oil and gas stocks even though it has a fairly limited exposure to commodity price changes of the underlying energy source. It is mostly an energy product transporter and facilitator, which means its costs are relatively fixed as compared with those of energy explorers.

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With chatter about a bubble in bonds building, it may be a good time to look for alternative sources of investment income. One such source has long been dividend paying stocks, trusts and partnerships. Here are two such dividend plays – one is a Real Estate Investment Trust, and the other is an energy partnership.

Annaly Capital Management, Inc. (NLY)

Annaly Capital Management is a mortgage REIT (real estate investment trust), and as such the company is not subject to federal corporate income tax, provided it distributes at least 90% of its taxable income to its stockholders in the form of dividends. NOTE: The income generated by a REIT may be taxable at your income tax rate, and not at the capital gains rate. So check with your tax advisor if this is a point of concern.

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What makes NLY attractive.

One of the things that makes Annaly Capital attractive is its low debt level compared to other REITs and owners of Mortgage Backed Securities (MBS). For example, Commercial banks are typically leveraged 30:1; thrifts – 25:1; hedge funds – 20-30:1; and Annaly – 8-12:1, or less than half that of a typical thrift.

Another thing is that the MBS that Annaly Capital invests in are backed by agencies of the U.S. government like Ginnie Mae, Fannie Mae and Freddie Mac. While these agencies are essentially bankrupt, the government is not likely to let them fail so they have a de-facto credit rating of AAA.

NLY dividend history.

NLY has increased its dividend from about $2.20 per share in 2008 to $2.4 in 2009, while the yield has declined from 16.6% to 13.4% as the price has risen. At the time of this post, NLY was yielding 16.80%, or $3 per share annually.

How safe is NLY dividend?

At first glance, there’s a lot of scary stuff to be seen in the summary of Annaly. After all, it was imploding Mortgage Backed Securities that began the current recession and market crash of 2008-2009. And Annaly is using leverage to purchase these securities, leverage which magnifies gains AND losses alike.

But upon further inspection, the credit risk for Annaly seems low because the MBS that it invests in are backed by the U.S. government and, as mentioned above, their leverage rate is lower than the industry average.

What can affect its performance (and dividend) is a major swing in interest rates. This is largely because of its use of leverage, or borrowing, to magnify its returns. But if management can keep ahead of rate trends it can limit the squeeze that variable interest rate MBS put on Annaly’s profits.

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Target date funds have been in the news quite a lot over the past few years, though the nature of the news seems to have gone from great to bad over that time. Consider that when target date funds were first introduced they were heralded as the pinnacle in the evolution of investment vehicles. They were the ultimate in “set it and forget” investing!

These funds were so universally praised by the investment community and politicians alike that when congress passed the Pension Protection Act (PPA) allowing companies to automatically enroll employees in 401(k) accounts, it was target date funds that were chosen most often as the default fund, or “qualified default investment alternative” (QDIA) in the lingo of the PPA.

Then the crash of 2008-2009 happened.

2010 Target date funds performed horribly in that crash. This gave target date funds a lot of bad publicity. After all, the idea of a 2010 target date fund was that it would be invested in less risky assets as 2010 got closer, right?

Maybe.

See, the problem isn’t really that these funds lost as much as the average stock fund, or even that they were tilted too heavily in the direction of stocks. There are really two problems at the root of all this:

1. The crash of 2008 was not a garden variety stock market crash.
2. People’s perspectives on retirement savings is skewed.

Problem One: The crash of 2008.

The crash of 2008 was a once in a lifetime kind of phenomenon, one in which almost every investment asset lost value. The problem for target date funds regarding this kind of crash is: where should the majority of assets held in a 2010 target date fund be allocated?

In a garden variety stock market crash, or correction of say 10-15% or even 20% loss in stocks, a hefty bond allocation is usually enough to provide proper ballast to limit the total losses for the fund. But in 2008, just about the only safe place was cash, or gold and in any normal investment environment a majority of holdings in cash or gold would be a money loser.

Problem Two: Investor perspective.

This problem affected target date funds because investors simply did not expect a 2010 fund to lose 35% -40% of its value so close to the target date. But I think this is really the result of an underlying mistake in expectation on the part of the investor.

Too many investors have it in their mind that they will be taking all their money out of the stock market when they retire.

Maybe it’s the way these funds are marketed, but I know a lot of investors think that the clock stops when they retire and that what they have in their investment account is what they have for the rest of their lives. This is simply not true. The average retiree today can expect to live another 15-20 years. The fact is that they will still need to be invested in stocks in order for their savings to last as long as they do.

Solutions.

I think just about the only solution one can have for the first problem (the unusual market crash) is to have a sizeable sum of cash saved up for immediate access if you have just retired or are about to retire when such a crash hits. Something along the 9-12 month of expenses range, maybe more if you tend to panic about finances. This ought to allow the investor to weather the crash and not have to deplete his investment account while it is suffering heavy losses.

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Apple Inc has generated a lot of buzz recently with the hype over its latest geek-chic techno status symbol – the Tablet.

But is that hype really over-hype? Is Apple, and more important for investors – apple stock, going to benefit from this new gadget?

I personally don’t think so, and neither does Jeremy Glaser at Morningstar.com.

Apple stock looks overheated. Sure the loyal Apple fans will run out and buy the tablet because their social status depends upon it, but are they likely to have more demand than that? In this greatest of recessions, are people going to not only shell out big bucks to purchase the tablet but then pay to read book and newspaper content they can currently get online for free?

This just seems like another Kindle – another attempt to produce a new piece of technology to revolutionize our lives. But the technology that truly revolutionizes how we do things is typically never planned to do so, but rather happens by serendipity.

Besides, the tablet has been hyped for so long now, it’s already priced into the stock so the upside is limited.

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According to Burton G. Malkiel, a Princeton economics professor, and Charles D. Ellis, author of ‘Winning the Loser’s Game,’ the only difference between them and Warren Buffet is that Warren Buffet hasn’t made these mistakes.

Of course, it’s more than that but since you and I (or Malkiel and Ellis for that matter) don’t have any chance of acquiring Buffet’s DNA, we’ll focus on this list – in the spirit of accepting what cannot be change, and having the courage to change the things that can be changed.

6 investing mistakes to avoid:

• Overconfidence
• Following the Herd
• Timing the Market
• Assuming More Control Than You Have
• Paying Too Much in Fees
• Trusting Stockbrokers

By way of proof of Buffet’s unique investment acumen and, more importantly, his ability to focus and remain true to his core investment philosophy, Malkiel and Ellis cite two prime cases when Buffet was tested by the markets and prevailing “common knowledge”.

Case number One was when Buffett avoided the dot com bust of 2000, simply because tech stocks fit neither his investment style, or his philosophy. But he held firm to his approach, even when it was called outdated by the rest of the investment world. As a result, his portfolio avoided much of the carnage that befell those more “enlightened” investors.

Case number two was when Buffett avoided mortgage-backed securities and derivatives in 2005-2006, because he found them too complex and “opaque”. As a result, he avoided the worst of the damage caused by the economic collapse that ensued.

In regards to the list above, you can see how Buffett’s sense of humility, and discipline have kept him from making many of the mistakes out lined in more detail in Malkiel and Ellis’ original article.

Burton G. Malkiel, Princeton economics professor and author of ‘A Random Walk Down Wall Street,’ and Charles D. Ellis, author of ‘Winning the Loser’s Game,’ have teamed up to write ‘The Elements of Investing.’

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Here’s a list of some investing insight I’ve learned over the years that I hope will help accelerate the beginning investor’s road to wealth.

1. Don’t go all in at once.

If you have a lump sum of money to invest and you are doing so when the market is going down, don’t just use it all at once to buy shares. Instead, split that lump sum into 3rds and buy at periodic intervals as the market goes down. The idea is that you simply cannot time the market effectively, so don’t bother.

Instead, you’re dollar cost averaging on the way down and spreading your money out like scatter shot instead of a single bullet. By doing so, you will improve the chances of hitting near the lows with at least some of your purchases.

2. Don’t be paralyzed by taxes.

Often times, individual investors hold on to a winning stock because they don’t want to pay the taxes on it, only to have waited too long and find they rode the stock back down to loser territory.

It’s an understandable course of action, after all when an activity is taxed, people do that activity less than when it is not taxed. But you have to get past that and realize that even at a 42% tax rate, you still have a 58% profit.

But let’s be clear – I’m not saying you could ignore taxes, only that you shouldn’t allow their implication to paralyze you into inaction.

Taxes should be an important part of your investment planning. For example, you want to be aware of the kinds of assets you hold so you don’t keep tax free, municipal bonds in a tax deferred account.

3. Broken stocks are OK, broken companies are not.

A stock’s price is a function of the quality and value of the underlying company, over the long term. This means that if you are looking to hold onto a stock for the long term, say 5-7 years, you should avoid stocks of broken companies and instead look for stocks of good quality companies that have suffered a temporary decline in stock price. Eventually the market will recognize the superior quality of the company and reward the stock price. Conversely, stocks of broken companies become broken stocks over time. An example of this might be Johnson & Johnson in the fall of 2008. The stock price suffered because the market as a whole crashed, not because the company was in poor shape. GM stock on the other hand suffered because the company was bankrupt and has no upside potential.

4. No one ever got rich panicking.

The key to success is simple to understand, difficult to practice – have a plan. You will never be a successful investor if you “just wing it”, “play by ear” or perform in a host of similar colloquial cliches.

Instead, you need to have a plan for when to buy and when to sell each and every stock you hold. Once you have your plan, use Stop Order and Limit Order to take the emotion out of your buying and selling.

5. Diversification is essential.

There have been a lot of pundits pointing out that diversification didn’t help in the 2008-2009 crash, but that while that is true, it’s not as important as it may at first seem .

Firstly, the 2008-2009 crash is not the norm and you’re far more likely to encounter situations where diversification would protect you than you are to experience another such crash.

Secondly, the only things safe in the 2008-2009 crash were cash and (maybe) commodities. If you want to prepare for a 2008-2009 style crash you should diversify some of your holdings into these asset types. But if you held most of your portfolio in them most of the time, you would lose in the long term.

6. Buy and hold is not “set it and forget it”.

Buy and hold investing is great for retirement savings, but even then you need to pay attention. Too many people mistake “Buy and Hold” for some similar sounding marketing gimmick from Ron Popiel.

“Set it and forget it” in the investing world is simply neglect, and it will catch up with you sooner or later.

Instead, you should periodically create a list of your holdings and rank them , that way you will have a course of action and always know where your holdings stand regarding buy, sell or hold.

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Morningstar has released it’s finalists for Funds Managers of the Year. Here are the highlights.

Fixed-Income Manager of the Year

• Phil Condon and Rebecca Flinn, DWS Strategic High Yield Tax Free (SHYTX)
• Farnham, Kane, Landmann, Nucci*, Metropolitan West High Yield Bond (MWHYX)
• Dan Fuss, Kathleen Gaffney, Matthew Eagan, Elaine Stokes*, Loomis Sayles Bond (LSBRX)
• Jeffrey Gundlach and Philip Barach*, TCW Total Return Bond (TGLMX)
• Mark Notkin, Fidelity Capital & Income (FAGIX)

Domestic-Stock Manager of the Year

• Bruce Berkowitz, Fairholme (FAIRX)
• Staley Cates and Mason Hawkins*, Longleaf Partners (LLPFX)
• Jeff Cardon, Wasatch Small Cap Growth (WAAEX)
• Dennis Delafield and Vincent Sellecchia, Delafield Fund (DEFIX)
• Bill Nygren*, Oakmark Select (OAKLX) and Oakmark (OAKMX)

International-Stock Manager of the Year

• Hakan Castegren and Northern Cross Team*, Harbor International (HAINX)
• David Herro*, Oakmark International (OAKIX) and Oakmark International Small Cap (OAKEX)
• Lee, Grace, Bepler, Denning, Lovelace, Kawaja*, American Funds EuroPacific Growth (AEPGX)
• Brent Lynn, Janus Overseas (JAOSX)
• Magiera, Tommasi, Coons, Andreach, Donlon, Gambill, Herrmann, Lester, Trotter, Manning & Napier World Opportunities (EXWAX)

* = Past winner.

Winners will be announced January 5th, 2010.

Read the full story and get a glimpse into why each manager is being considered here.

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There’s a lot of uncertainty in the air over policies being proposed in Washington D.C. these days, and one of those policies with huge potential to affect business (and hence stocks) is the so called Health Care reform bill.

While it’s impossible to say for sure what the exact effect of a government take over of the health care industry would be, SmartMoney suggests that these 3 stocks are at least worth considering since they are more dependent upon larger health care trends than what Washington decides.

McKesson Corporation (MCK)

McKesson Corporation provides supply, information, and care management products and services for the healthcare industry. The corporation encompasses two divisions – Distribution Solutions and Technology Solutions. The Distribution segment distributes proprietary drugs, surgical supplies and equipment, and health and beauty care products to North America as well as providing consulting and outsourcing services for biotech and pharmaceutical manufacturers.

The Technology Solutions segment provides software solutions for clinical, patient care, financial, supply chain, and strategic management. It also provides software for pharmacy automation for hospitals as well as clinical auditing, and compliance management software.

McKesson is headquartered in San Francisco, but serves home care providers, physicians, hospitals, and retail pharmacies in North America, the U. K. and other European countries, and Asia.

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Teva Pharmaceutical Industries (TEVA)

Headquartered in Israel, Teva Pharmaceutical Industries develops and produces generic and branded pharmaceuticals, active pharmaceutical ingredients and biogenerics worldwide. R&D efforts are focused on therapies for diseases like multiple sclerosis, cancer, Parkinson’s and autoimmune diseases. Teva’s product list includes Copaxone and Azilect for treating MS and Parkinson’s disease. Through its acquisition of Barr Pharmaceuticals Inc., Teva added pharmaceutical products for women’s health to its list.

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Rehabcare Group Inc. (RHB)

RehabCare Group is headquartered in Missouri and provides rehabilitation program management for hospitals, outpatient facilities and skilled nursing facilities in the United States. These program management services are specialized for rehabilitation from strokes, orthopedic conditions, and head injuries,cancer, heart failure, burns, and wounds. Rehabcare Group owns and operates five long-term acute care hospitals and six rehabilitation hospitals.

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These stocks provide a nice diversification into the medical supply side, pharmaceuticals and long term care. Each of these healthcare segments is poised to experience signifiant growth as boomers continue to age.

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Best Buy (BBY) should be a slam dunk buy right now, right? When you consider that many of their competitors, like Circuit City, have been sent to bankruptcy when the economy tanked, their strong brand identity and Geek Squad service you’d think they’d be sitting in the center of pretty big economic moat. But that may not be the case any more.

As this article from Morningstar shows, there may be more dark clouds than silver linings on the horizon for Best Buy.

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4 threats to Best Buy’s economic moat.

Here is a brief outline of the 4 threats as presented in the article. If you find any of this interesting, I suggest that you read the full article.

The Looming Threat of Competition

As mentioned previously, one would think that competition wouldn’t be a threat with the demise of Circuit City, but as the article explains, the constant technological innovation and rapid product commoditization means that the defining differential between products is price. Furthermore, consumers have more brand loyalty than channel or store loyalty. All this means that consumers are free to shop around for the best deal on their preferred brand of consumer electronic. This has led to the emergence of new competition from the likes of Wal-Mart, Target, Costco and Amazon; retailers not often thought of as electronics stores.

Potential Shift in Electronics Distribution

In response to the dwindling channel loyalty, Morningstar sees an increase in manufacturer retail channels, like that of Apple. By having their own retail outlet, consumer electronics manufacturers can showcase their products without competition, which should in turn lead to greater brand loyalty. Moves like this essentially cut out the middle men, like Best Buy.

Threat of Digital Distribution

Best Buy has formed a partnership with digital distribution providers in the hopes of capitalizing on the digital delivery trend, but the folks at Morningstar are not sold that this will be enough to compete with established players like Netflix and Apple iTunes.

Services Provide Advantage but Can Be Replicated

Although Best Buy’s Geek Squad is a good brand, consumer electronics are more and more commoditized, making customers less loyal and less concerned with servicing. Once a consumer electronic becomes cheap enough, it’s easier and more cost effective to buy a replacement than pay to have it serviced.

Conclusion.

Don’t Be Fooled by Short-Term Improvements

Morningstar sees Best Buy as having much to recommend it for the short term, but sees those benefits diminishing as time progresses. But, much is unknown owing to the ever evolving nature of technology, so it is perhaps best to keep on eye on Best Buy. Also, stay abreast of possible silver linings like Best Buy’s international growth prospects and its partnership with Carphone Warehouse.

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I came across a quote by Jim Rogers in SmartMoney magazine yesterday that almost made me blow my chocolate milk out my nose when I read it. In this interview, Mr Rogers says:

“Diversification is something that stock brokers came up with to protect themselves, so they wouldn’t get sued. Henry Ford never diversified, Bill Gates didn’t diversify. The way to get rich is to put your eggs in one basket, but watch that basket very carefully. And make sure you have the right basket. You can go broke diversifying. Ask anyone who’s diversified in the last three years. They’ve lost money.”

I couldn’t believe that SmartMoney printed this quote without clarifying the dangerous implication therein.

Specifically, that more people have lost more money by not diversifying. Just ask yourself, who is engaging in the riskier behavior: The individual investor who’s put most of his money into 5 stocks, or the one who’s invested his money in 5 broad-based mutual funds? Both investors have full time careers that are not related to finance and take up too much of their time to allow them to become stock picking pros.

Clearly, there is a higher likelihood that the investor who’s chosen 5 stocks will lose more of his money that the investor who’d diversified.

The problem with all of this is that Jim Rogers is right.

Bill Gates and Henry Ford are bad examples, because the basket that they put all their money in was their business, and we’re talking about investing not being an entrepreneur.

But if you substitute someone like Warren Buffet in place of Gates, then you have a solid point. Warren Buffet does not diversify. He’s famous for concentrating his assets into relatively few holdings. But here’s where the analogy or the process breaks down – Warren Buffet knows what he’s doing. Warren Buffet makes investing his life. Warren Buffett knows how to fairly value a company and its stock, and he knows how to profit on the difference between the fair market value of a company and the current market value of its stock. Most individual investors are nowhere near Warren Buffet’s level of business and investing acumen. Many don’t even want to put the kind of effort in that is required to reach his level of expertise. And that’s fine – provided they don’t think they can still invest like him.

And that brings us full circle to the problem of SmartMoney not calling Jim Rogers on his quote.

The way to get rich is to put your eggs in one basket, but watch that basket very carefully. And make sure you have the right basket.

Most individual investors simply don’t know how to “make sure” they have the right basket over the long term.

I’m sure Rogers said it to get noticed, generate some buzz about himself and garner scandalous attention. That’s fine. But where is SmartMoney, or Business Week? Both publications interviewed him and neither felt the need to comment on his statement about diversification.

It’s a shame really, because the quote is only part of a much larger interview at BusinessWeek. I recommend reading the entire interview because he has some very interesting points to make about commodities and the Chinese and US economies.

I just wish the magazines would have provided some cautionary counterpoint to the controversial diversification quote.

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