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‘Holy Grail’ Dividend Stock Yielding 11%

May 04, 2011 – by Richard Band

Wall Street only toasted our Navy SEALs’ daringly brilliant operation that took out Osama Bin Laden for about one hour Monday morning. Then it was back to the usual humdrum concerns — inflation, interest rates, corporate earnings. By Tuesday’s close, stocks (as measured by the S&P 500 index) had slipped for a second session, with the most significant losses concentrated among the red-hot energy and raw materials issues that had led the market’s surge in recent weeks.

But wait a minute. What did I just say? If, in fact, it’s the “hard assets” that are now dragging the indexes lower, the market really is celebrating Bin Laden’s demise. One of the prime factors driving speculators into oil, precious metals and even grains lately has been fear of an uncontrollable blow-up in the Middle East.

Rubbing out Al Qaeda’s kingpin certainly won’t, by itself, bring peace and order to that troubled area of the world. However, America’s success in Abbottabad has made an impression on our adversaries. Their noise level has dropped a notch. And that’s what the market seems to be taking note of.

There’s a corollary to this observation. So far, most stocks (outside of energy and raw materials) are weathering the two-day pullback in fine fettle. Implication: We’re still in a rotational market, in which various stock groups come into — and go out of — favor without disturbing the overall uptrend.

Accordingly, your strategy should be to continue accumulating stocks that promise the “holy grail” of low risk and above-average projected returns. Whenever the market indexes dip, we’re likely to spot a few more of these gems.

One such stock is Israeli wireless carrier Partner Communications (NASDAQ: PTNR). The company is a neck-and-neck with rival Cellcom Israel (NYSE: CEL). Like CEL, which I’ve recommended before, PTNR maintains an unusual policy of paying out the vast majority (currently more than 80%) of its profits in the form of dividends.

I still like CEL as much as ever; however, PTNR now appears to offer a slight edge. In February, Israel promulgated new regulations that cut the maximum fees wireless carriers can charge when a subscriber switches providers.

The new rules have set off a competitive free-for-all, which should benefit PTNR more than CEL because Partner has more room to cut operating costs. Yet PTNR shares have lagged a bit behind CEL over the past three months — an anomaly.

Result: PTNR now boasts a higher yield on my latest estimate of 2011 dividends (as well as a lower forward P/E). I’m looking for $2.10 of both earnings and dividends for the year. At today’s closing price of $18.87, you’re pulling down a projected yield of 11.1%!