3 Breakout Income Stocks for Primary Dividends Profits 3 Breakout Income Stocks for Primary Dividends Profits

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1 3 Breakout Income Stocks for Primary Dividends Profits 3 Breakout Income Stocks for Primary Dividends Profits A Special Research Report from 30 Day Dividends

2 3 Breakout Income Stocks for Primary Dividends Profits Introduction By Tim Plaehn Our objective with 30 Day Dividends is to provide you with stock market research and recommendations with a goal of generating short to intermediate term gains based on stock market reactions to dividend events. With this report I have focused on three themes that will play out in 2016 and I cover three stock market investments that will provide attractive, distribution driven total returns. Here are the three themes that will power the returns of the stock market investments covered in this report. Single Family Home Rental REITs come of age. Finance firms bought up tens of thousands of single family homes in 2011 through Several new Real Estate Investment Trusts have been formed to own and operate portfolios of single family homes. It has taken over a year for these new REITs to absorb the homes that were purchased, rehabilitate them, and place the homes into the rental markets will be the year when the best managed of the single family rental home REITs generate significant profit growth and start to pay higher dividends to investors. Oil has gotten cheap, with crude falling from over $90 per barrel to under $50 in less than nine months. As a result the entire energy sector has sold off. However, there are energy companies that will benefit from lower oil. Energy refiners actually see profits increase as crude oil and refined fuel products trend downwards. In this report we ll discuss a mid-cap refiner that has several ways to profit from lower crude oil prices. Turnaround plays are a good way to invest for profits, and when you combine a turnaround with a beaten down sector, the gains on recovery can be eye popping. The third investment covered here is a midstream master limited partnership (MLP) that came to market in 2014 with top tier growth projections. The fact that the company is meeting and exceeding those projections has been lost in the noise of the energy sector bear market. This company could easily produce 20% or higher returns in So let s get right to the stock research and how we re going to make money from these trades.

3 Starwood Waypoint Residential Trust (NYSE: SWAY) Starwood Waypoint Residential Trust (NYSE: SWAY) was spun-off by finance REIT Starwood Property Trust (NYSE: STWD) at the end of January During the bottom of the housing market in 2010 through 2013, Starwood Property Trust had accumulated a portfolio of single family homes and non-performing residential mortgages. As part of the spin-off, Starwood's single family real estate assets were merged into Waypoint Real Estate Group, a formerly private leading vertically integrated single-family rental operating platform. The wholesale institutional purchases of single family homes allowed companies to build large portfolios of homes, typically bought out of foreclosure. While these homes had the potential for capital appreciation as prices recovered, the challenge for the new group of institutional single family homeowners was and remains to turn those homes into rental properties generating an attractive rate of cash flow income. With five new single family rental REITs entering the market over the last two years it has become apparent that the market will not bid up the REIT share prices on the back of home price value gains. REIT investors are interested in attractive dividends. Frankly, I have been skeptical of the REIT single family rentals business model. The first REITs into the market had high expenses as the companies spent money to rehabilitate the purchased homes and net rental cash flow growth was very slow. With the spin-off, SWAY started out with a portfolio of 5,200 homes and about 1,500 nonperforming mortgages (NPLs). Once independent of Starwood Property Trust, SWAY immediately started to acquire additional homes and NPLs. The private real estate funds managed by Waypoint Real Estate Group has been a source for a significant number of home acquisitions. As of the writing of this report, SWAY had released a year and a half of quarterly earnings reports through the first half of Here are the portfolio results for those three quarters: 2014 First Quarter 1,974 homes acquired, 7,204 homes owned, and 76.6% leased (up from 46.2% at the end of 2013). 494 NPLs acquired for a total of 2,095 loans. Total NLP purchase price of $302.5 million, which is 61.6% of Broker Price Opinion BPO Second Quarter 1,943 homes acquired, 9,122 homes owned, and 77.5% leased. 494 NPLs acquired for a purchase price of $117 million, which is 68.2% of BPO Third Quarter Starwood Waypoint Residential Trust (NYSE: SWAY) Oakland, California Capitalization: $1 billion Market Sector: Financial, REIT 1,358 homes acquired, 10,428 homes owned, and 81.8% leased. Purchased four pools of NPLs for $308.7 million, valued at 71.5% of BPO and increasing the total NPL portfolio to 4,695 loans.

4 2014 Fourth Quarter 995 homes acquired, 11,417 homes owned, and 83.8% leased. Total NPL portfolio at 3,920 loans First Quarter 764 homes acquired, 12,217 homes owned, and 89.1% leased. Total NPL portfolio at 3,920 loans Second Quarter 536 homes acquired, 12,562 homes owned, and 92.2% leased. Sold 213 NPL REOs at 98.9% of BPO for net proceeds of $28.1 million, bringing cumulative NPL REOs sold to $74.1 million since Q Total NPL portfolio at 3,664 loan Turning Portfolio Assets into Free Cash Flow The challenge for the single family rental REITs has been to grow the cash flow from new rental contracts fast enough to offset management and rehabilitation costs. So far in their young lives, the REIT competitors of SWAY have not generated enough free cash flow to pay meaningful dividends. One of the most established REITs is paying just one cent ($0.01) quarterly. Others have yet to pay any dividends. In contrast to its peers, SWAY quickly moved from negative cash flow to a positive growing cash flow that can be used to pay dividends.

5 For the 2014 first quarter (the first as a public company) SWAY reported core funds from operations FFO of minus $0.14 per share. In the second quarter, core FFO turned positive at $0.08 per share and for the third quarter FFO of $0.16 per share. A $0.14 dividend per share was paid for the third quarter. This free cash flow growth trajectory can propel a growing dividend stream. For the 2015 second quarter, the dividend was increased by 36% to $0.19 per share. Projected full year 2015 guidance of $1.65 to $1.80 per share will be a 325% increase over the cash flow generated in SWAY has combined the real estate management experience of Waypoint Real Estate Group with the financial smarts of The Starwood Group to produce a growing income stream from single family real estate assets. The 36% dividend increase announced in mid-2015 was just a fraction of the actual cash flow per share growth generated by the company. With 3,600 NBLs in the bank the REIT can convert those loans to cash or owned rental properties and sustain the cash flow growth. Additional home purchases will just add to the growth rate. This dividend rate should be increased by an even greater percentage in The 2015 market correction in the REIT sector has kept the SWAY share price in the low $20's. Cash flow and dividend growth will pull up the share price to the low $30's, which would put the yield at the end of 2016 at about 4%. The result is a conservatively estimated 30% total return for the year

6 Western Refining, Inc. (NYSE: WNR) In the energy sector, 2015 was a great year for refiner profits. Share prices did not benefit much due to the overall energy sector bear market. Refining profits should extend into 2016, so there is still time to get in on the potential profits. El Paso, Texas based Western Refining, Inc. (NYSE: WNR) has put together a multi-faceted business that will generate significant profits and large dividends to investors in the coming year. When the price of crude declines, refiners are the one part of the energy sector that can experience increased profits. Even though the wholesale prices for gasoline, diesel and other fuels will drop as crude declines, the reductions in fuels prices have lagged the drop in crude which allowed a refiner profit margins to widen. Also, as prices fall demand for fuels will pick up and often refiners can hold the line at some level on fuels prices even as crude continues lower. Over the last couple of years Western Refining has been nicely profitable and has rewarded investors with a growing dividend stream in climbing share price. The company's recent efforts to improve shareholder values and the increasing profit margins from the drop in crude will make WNR an outstanding investment for 2016 and beyond. Overview of Assets and Operations Western Refining, Inc. (NYSE: WNR) El Paso, Texas Capitalization: $3.6 billion Market Sector: Materials, Oil & Gas Western Refining owns and operates two refineries. The El Paso, Texas refinery has capacity to process 128,000 barrels of oil per day. The company's Gallup, New Mexico refinery has a 23,000 bpd capacity. Crude oil is sourced from the Permian basin in West Texas and the San Juan basin in the Four Corners area adjacent to Gallup. Western markets its refined fuels into Arizona, Colorado, Nevada, New Mexico and Texas. The company owns 229 retail stores where is sells its fuels branded as Shell, Chevron, Conoco, and Giant. The retail chain provides a guaranteed market for most of Western's gasoline production. Western also sells through a wholesale distribution network, where fuels, lubricants and other petroleum products are delivered directly to end users such as trucking companies, mining companies and railroads. This distribution channel is not typically used by refiners. Western Refining owns the general partner interest and 66% of the limited partner units of Western Refining Logistics LP (NYSE: WNRL). WNRL is a midstream master limited partnership (MLP) that owns crude oil gathering and pipeline systems, refined product pipelines, crude and refined storage facilities, and product terminals. WNR spun-off WNRL with an October 2013 IPO.

7 Putting its midstream assets into an MLP accomplishes several things for Western Refining. WNRL allows Western to gather and bring in the lowest cost and best quality crudes from its supplier basin. The MLP allows WNR to monetize midstream assets and its majority ownership in the partnership means that the majority of WNRL's distributions come right back to Western refining. The WNRL holdings of Western Refining generate a cash flow that can increase by 5% or more every quarter. In November 2013, Western Refining acquired the general partner and 39% of the limited partner interest in Northern Tier Energy LP (NYSE: NTI). NTI is a variable distribution MLP that owns and operates a 95,000 bpd refinery in St. Paul Park, Minnesota. Northern Tier also owns a 240 store chain of retail fuel outlets. The Minnesota refinery sources crude oil from North Dakota's Bakken play and Western Canada. The refinery has the flexibility to run several grades of oil, allowing it to optimize costs by selecting the best crude values from the various regions. NTI pays out all of its free cash flow as distributions each quarter. When refining margins are high these distributions can be very large. So far, WNR has earned 25% annual returns in its investment in NTI. Although it is not a large company, the Western Refining trio of companies is positioned to generate above average returns in the refining sector. The refiners are positioned to acquire crude at below market rates and sell refined fuels into captive and underserved markets. WNRL and NTI declare distributions based on their free cash flow which goes to WNR, boosting the total cash flow for the corporation.

8 Growing and Special Dividend Payments Western Refining has used its cash flow generation machine to return that cash to shareholders. Since the start of 2012 through the 2015 second quarter, $1.4 billion has been returned through share buybacks, regular dividends and special dividends. The rate of cash payouts is accelerating. Over that two-year time frame the regular quarterly dividend has grown from $0.04 per share to $0.34 per share. A $1.50 per share special dividend was paid at the end of 2012 and investors earned a $2.00 special dividend in December In 2016, if energy prices remain on their current trajectory, WNR investors will earn 10% or more in regular and special dividends. The high level of profitability in the refining sector should drive the share price up by 20% or more, generating a 30%+ total return for the year.

9 Cone Midstream Partners LP (NYSE: CNNX) CONE Midstream Partners is a natural gas gathering focused MLP formed by CONSOL Energy and Noble Energy and launched with a September 2014 IPO. The market has not seen any value in the MLP and along with the general energy sector sell-off, the CNNX unit price is now 65% below the IPO value. The company's sponsors, CONSOL and Nobel have committed the assets to produce mid-teens or higher annual distribution growth. Business Operations CONE Midstream Partners was formed in 2014 out of the natural gas midstream assets of CONSOL Energy Inc. (NYSE:CNX) a $3 billion market cap company and Noble Energy, Inc.(NYSE:NBL) a $14 billion market cap company. The two companies combined have the sixth largest amount of dedicated natural gas production acreage in the Marcellus play. In 2011, CNX and NBL formed a 50/50 midstream joint venture, CONE Gathering LLC, to service their rapidly growing production in the Marcellus Shale. The two companies initially dedicated 500,000 acres to the venture for a 20-year term. The assets in CONE Gathering were divided into three separate development companies: The Anchor Systems hold the gathering assets that currently collect the majority of the two companies' production volumes. The majority of current midstream cash flow comes from the Anchor Systems.

10 Growth Systems include the areas where wells are currently being drilled and natural gas production is increasing, requiring a growing amount of gathering services. The majority of near term CONE Gathering cash flow growth will come out of these systems. Additional Systems are other assets that currently produce a modest amount of cash flow and have the potential to be developed for additional cash flow growth. At its IPO, CONE Midstream Partners received a 75% share of the Anchor Systems and 5% each of the Growth and Additional Systems. With this arrangement, the sponsor companies will pay up to 95% of the capex required to increase gathering volumes and cash flow in the growth focused systems. As cash flow ramps up, portions of the systems can be transferred to CNNX using the typical MLP drop-down mechanism. The structure of CONE Gathering provided CONE Midstream Partners with a initial stable amount of revenue and good visibility to hit the growth targets set in the IPO road show. The 2015 second quarter was the third full quarter for CNNX as a public MLP. Quarterly results included gathering volume up 11% compared to Q1. EBITDA and distributable cash flow were both up 5% over the first quarter results. The company announced its first distribution increase, a 3.5% bump over the minimum rate paid the first two quarters. During the second quarter conference call, management pointed out that both distribution cash flow and DCF coverage were well above the guidance provided at the time of the IPO. Growth Prospects In my mind CONE Midstream Partners is a very misunderstood MLP. At a current $10.75 per unit, CNNX is down 65% from the closing price on its IPO date in September. The units were initially priced to yield 2.8%, which was typical for high distribution growth rate MLPs at that time. Management started the valuation problems early in 2015 by refusing to define their understanding of "top tier" distribution growth. The Wall Street analysts were looking for 20%+ growth rate, and CNNX management wouldn't touch that discussion. A quarter later, they committed to mid to high teens distribution growth, but by then the sell-off of the MLP units was well under way. For 2015, the energy bear market has taken down all energy companies as

11 crude oil prices have declined. It did not matter that an MLP like CNNX had nothing to do with crude and was operating in the stable and natural gas production growth Marcellus Shale. The MLP's sponsor share prices have also crashed, probably adding to selling pressure on CNNX. The MLP's unit price has recovered for a while after last two good quarterly earnings reports, but then the general energy bear market pushes the unit value even further down. After another good earnings for the second quarter 2015 and the very nice distribution increase, the market showed no interest and the value kept falling. With its lack of exposure to crude prices and unique holding company structure to generate growth, CNNX "should" be priced to yield less than 5%, even in this market. That yield points to a $17.50 unit price, instead of the current $10.75 and an 8% yield. It seems that the bears have their teeth in CNNX and are not about to let go. In any rational market an 8% yield on a midstream MLP with high visibility on 15% or greater annual distribution growth would be a nobrainer. A combination of continued 3% to 4% distribution increases every quarter and a general recovery in the energy sector will bring the CNNX unit price back up into the high teens in A 30% to 50% total return for this MLP is highly probable for the next 12 months Investors Alley Corp. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Investors Alley Corp., 41 Madison Avenue, 31st Floor, New York, NY or All data, including equity prices and yields current as of when this report was published. For complete terms and conditions governing the use of this publication please visit