February 26, 2015 Private Wealth Management Equity Strategy Quality Yield Screen A search for equities with strong financial positions that support the sustainability of the distribution Please refer to Appendix Important Disclosures BOTTOM LINE: High-quality dividend-paying equities can offer attractive relative yields in the current low interest rate environment. We ran a screen to find stocks and REITs with above-average yields and strong financial positions, increasing the likelihood that the current distribution is sustainable. The equity markets continued the path north last week with most of the popular averages hitting new highs. The consensus view has been that the Fed would raise interest rates in June. The outlook as to when the Fed may begin normalizing interest rates has now been pushed back to sometime later in the year. Stretched valuations and a lack of investor liquidity do increase the risk of a stock market correction, but with recession risk in the U.S. low any such pullback would probably best be viewed as an opportunity within an improving secular environment. The weight of the evidence will continue to be our guide for managing risk, and right now it tilts bullish. We continue to view positively the defensive nature of dividend paying equities as a way to put money into work with the market near its highs and as a way to achieve income outside of the fixed-income market. While rising rates can have a negative impact on the multiples of defensive yielding sectors including REITs, Utilities, and Consumer Staples, our screen includes names in both defensive and cyclical sectors 3.2 3 2.8 2.6 2.4 2.2 2 1.8 1.6 1.4 1.2 Yield of the S&P 500 and 10 Year Treasury US Treasury Constant Maturity - 10 Year - Yield S&P 500 - Dividend Yield 4/12 7/12 10/12 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14 1/15 We screened the S&P 1500, REIT and ADR indices for stocks that met both qualitative and quantitative criteria. Research reports on the companies identified in this report are provided by Robert W. Baird & Co. Incorporated, Credit Suisse, and/or S&P, and are available to clients through their Baird Financial Advisor. This report does not provide recipients with information or advice that is sufficient on which to base an investment decision. This report does not take into account the specific investment objectives, financial situation, or need of any particular client and may not be suitable for all types of investors. Recipients should consider the contents of this report as a single factor in making an investment decision. Additional fundamental and other analyses would be required to make an investment decision about any individual security identified in this report. Kathy Blake Carey, CFA Ron Freisleben Katie Schoen, CFA, CAIA Kimberly Stulo, CFA Senior Vice President First Vice President Vice President Senior Vice President kbcarey@rwbaird.com rfreisleben@rwbaird.com kschoen@rwbaird.com kstulo@rwbaird.com 414.298.2313 414.289.7637 414.298.1701 414.765.3895 Robert W. Baird & Co.
Quality Dividend Yield Screen 2/24/15 Current Indicated Divs 2015 2016LT Debt Moody's LT Closing Market Div Per Mean Mean % Total Issuer Baird S&P CSFB S&P Symbol Company Name Price Value Yld % Share EPS EPS Capital Beta Rating Rtg Stars Rtg Sector HAS Hasbro, Inc. 62.5 7,799 2.97 1.72 3.32 3.96 48 1.1 Baa2 4 Consumer Discretionary KRFT Kraft Foods Group, Inc. 64.0 37,678 3.43 2.15 3.25 3.48 60 0.9 Baa2 4 Consumer Staples WNR Western Refining, Inc. 43.5 4,252 2.78 0.64 4.45 3.50 55 1.3 O Energy HFC HollyFrontier Corporation 42.1 7,990 3.14 1.20 2.93 2.81 14 1.2 4 N Energy VLO Valero Energy Corporation 61.1 32,109 2.60 1.05 5.64 6.01 21 1.7 Baa2 4 Energy JPM JPMorgan Chase & Co. 61.1 225,934 2.63 1.58 5.76 6.43 38 1.9 A3 O 4 Financials BBT BB&T Corporation 38.3 27,545 2.51 0.95 2.94 3.38 45 1.0 A2 N 4 O Financials PFG Principal Financial Group, Inc. 51.9 15,270 2.77 1.28 4.38 4.77 20 2.0 A3 4 N Financials CS Credit Suisse Group AG Sponsored ADR 25.1 39,812 3.16 0.79 2.59 na 59 1.8 4 Financials FULT Fulton Financial Corporation 12.2 2,188 2.62 0.32 0.86 0.95 33 1.2 Baa1 4 Financials MET MetLife, Inc. 51.2 58,168 2.72 1.33 5.86 6.29 25 1.9 A3 4 Financials PRU Prudential Financial, Inc. 81.0 37,015 2.85 2.17 9.72 10.32 30 1.9 Baa1 4 Financials TRMK Trustmark Corporation 23.3 1,578 3.93 0.92 1.66 1.70 5 1.4 4 Financials MSA MSA Safety, Inc. 49.2 1,851 2.51 1.23 2.70 3.15 31 1.5 O Industrials ETN Eaton Corp. Plc 71.1 34,038 2.73 1.96 4.90 5.40 32 1.3 O 3 O Industrials FAST Fastenal Company 42.1 12,457 2.66 1.00 1.90 2.17 0 1.2 O 3 N Industrials EMR Emerson Electric Co. 57.9 40,119 3.21 1.76 3.80 4.02 21 1.2 A2 N 3 O Industrials LXK Lexmark International, Inc. Class A 42.4 2,696 3.30 1.38 3.66 3.90 36 1.8 Baa3 5 U Information Technology CSCO Cisco Systems, Inc. 29.3 151,253 2.83 0.74 2.16 2.26 26 1.4 A1 O 4 Information Technology INTC Intel Corporation 34.1 162,966 2.79 0.90 2.38 2.60 17 1.0 A1 N 4 Information Technology MCHP Microchip Technology Incorporated 51.3 10,381 2.77 1.42 2.66 2.98 29 1.1 4 O Information Technology XLNX Xilinx, Inc. 42.1 11,106 2.73 1.12 2.36 2.27 23 1.5 A3 O 3 N Information Technology ADI Analog Devices, Inc. 59.1 18,576 2.68 1.45 2.91 3.21 16 1.2 A3 O 2 O Information Technology NOK Nokia Oyj Sponsored ADR 8.1 28,686 2.70 0.11 0.36 0.42 23 1.9 2 O Information Technology NUE Nucor Corporation 48.2 15,519 3.06 1.48 2.71 3.47 35 1.3 Baa1 5 N Materials RS Reliance Steel & Aluminum Co. 57.6 4,503 2.75 1.40 4.70 5.61 35 1.5 Baa3 5 N Materials DOW Dow Chemical Company 49.7 57,665 3.37 1.53 2.91 3.58 45 0.7 Baa2 4 O Materials WOR Worthington Industries, Inc. 26.3 1,809 2.71 0.66 2.42 2.69 36 2.2 Baa3 4 N Materials AVY Avery Dennison Corporation 54.7 4,978 2.56 1.34 3.30 3.77 43 1.0 Baa2 O 3 N Materials ALE ALLETE, Inc. 55.3 2,578 3.60 1.96 3.21 3.47 44 1.0 Baa1 O Utilities VVC Vectren Corporation 45.3 3,762 3.34 1.46 2.48 2.63 42 0.8 O Utilities LG Laclede Group, Inc. 52.5 2,277 3.49 1.78 3.16 3.35 51 0.6 Baa2 O Utilities SJI South Jersey Industries, Inc. 56.7 1,912 3.54 1.80 3.39 3.47 35 1.1 5 Utilities EXC Exelon Corporation 34.7 29,914 3.56 1.24 2.43 2.47 44 0.5 Baa2 4 O Utilities PPL PPL Corporation 34.7 23,444 4.23 1.49 2.29 2.30 53 0.5 Baa3 4 N Utilities DTE DTE Energy Company 83.2 14,923 3.28 2.69 4.62 4.92 48 0.4 A3 3 O Utilities PCG PG&E Corporation 54.5 26,273 3.30 1.82 3.48 3.66 48 0.4 Baa1 3 O Utilities D Dominion Resources, Inc. 73.3 43,244 3.50 2.40 3.72 3.90 58 0.4 Baa2 1 O Utilities
Quality Dividend Yield Screen - REITs Price 2013 2014 LT 2/24/15 Current / CashFl CashFl Debt% Closing Market Div Cash fr Op fr Op Total Baird S&P CSFB S&P Symbol Company Name Price Value Yld Flow Per Sh Per Sh Capital BETA Rtg Stars Rtg Sector IRET Investors Real Estate Trust 7.7 918 6.82 10.30 0.68 0.73 61.0 0.8 O REIT FSP Franklin Street Properties Corp. 12.9 1,272 5.98 11.27 0.98 1.03 47.5 0.7 O REIT LAMR Lamar Advertising Company Class A 58.6 5,569 5.76 13.08 4.01 4.17 65.5 1.8 4 REIT DFT DuPont Fabros Technology, Inc. 32.0 2,110 5.26 8.89 2.96 3.70 45.1 0.3 O REIT GTY Getty Realty Corp. 18.2 603 4.88 22.17 0.48 1.31 29.1 0.5 REIT CHSP Chesapeake Lodging Trust 36.0 1,973 3.89 15.94 2.11 2.35 33.8 0.9 O REIT LHO LaSalle Hotel Properties 39.1 4,365 3.88 14.13 2.52 2.72 23.3 1.2 N 3 O REIT RLJ RLJ Lodging Trust 32.0 4,192 3.78 13.56 1.67 2.12 34.2 1.1 O O REIT CCI Crown Castle International Corp 87.8 28,982 3.78 18.64 4.14 5.00 63.4 0.2 4 REIT OFC Corporate Office Properties Trust 30.0 2,786 3.69 14.62 1.86 2.18 56.9 0.7 O U REIT INN Summit Hotel Properties, Inc., 13.8 1,173 3.45 13.12 1.03 1.04 29.7 0.5 O REIT VTR Ventas, Inc. 75.1 24,659 3.11 17.55 4.05 4.23 55.7-0.1 4 REIT Fiscal 2015 and 2016 earnings estimates are First Call consensus estimates. na = not available. Dividend yield equals indicated annual dividend (most recently paid common dividend annualized for the next 12 months) divided by current stock price. Market Cap is in millions of dollars. LTM is last 12 months, LTD is long term debt. Indicated dividends per share is most recently paid common dividend annualized for the next 12 months. Beta measures the volatility, or systematic risk, of a security in comparison to the market index. CashFl fr OP per Sh is cash flow from operations per share which is the net cash from from operations from operating activities divided by common shares, and is used as an alternative for EPS for REITs. Distributions from ADRs may not be considered qualified dividends, may be more variable in payment, and can be subject to fluctuations with currency. REIT distributions are not considered qualified dividends. All data taken from Factset Research Systems on 2/25/15. Ratings are as of 2/23/15. Please see the disclosure page for additional information.
The Baird Rating System Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months. Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Not Rated (NR) The Credit Suisse Rating System Outperform (O): The stock s total return is expected to outperform the relevant benchmark* by at least 10-15% or more, (depending on perceived risk) over the next 12 months. Neutral (N): The stock s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. Underperform (U): The stock s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. *Relevant benchmark: Ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. The S&P STARS Rating System 5* -- A Buy rating, meaning that the stock is expected to outperform the S&P 500 by a very wide margin and is expected to be among the best performers. 4* -- An Accumulate rating, meaning that the stock is expected to outperform the S&P 500 and be an above-average performer. 3* -- A Hold rating, meaning that the stock is expected to rise in tandem with the S&P 500, and be an average performer. 2* -- An Avoid rating, meaning that the stock is expected to underperform the S&P 500 and is likely to be a below average performer. 1* -- A Sell rating, meaning the stock is expected to underperform the S&P 500 by a wide margin and is expected to be among the worst performers. The Moody s Rating System Aaa -- Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk. Aa -- Obligations rated Aa are judged to be of high quality and are subject to very low credit risk. A -- Obligations rated A are considered upper-medium grade and are subject to low credit risk. Baa -- Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics. Ba -- Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk. B -- Obligations rated B are considered speculative and are subject to high credit risk. Caa -- Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk. Ca -- Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. C -- Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest.
Appendix Important Disclosures Disclaimers This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Important Considerations when Investing in Real Estate Investment Trusts (REITs) A REIT has two unique features: its primary business is managing groups of income-producing properties and it must distribute most of its profits as dividends, making the distributions from REITs more sensitive to business risk. At least one of the analysts involved in the preparation of these materials has an ownership stake in the following companies: MCHP, VTR. ADDITIONAL INFORMATION ON COMPANIES MENTIONED HEREIN IS AVAILABLE UPON REQUEST The S&P 1500 and ADR indices are unmanaged common stock indices used to measure and report performance of various sectors of the stock market; direct investment in indices is not available. Baird is exempt from the requirement to hold an Australian financial services license. Baird is regulated by the United States Securities and Exchange Commission, FINRA, and various other self-regulatory organizations and those laws and regulations may differ from Australian laws. This report has been prepared in accordance with the laws and regulations governing United States broker-dealers and not Australian laws. Copyright 2015 Robert W. Baird & Co. Incorporated Other Disclosures UK disclosure requirements for the purpose of distributing this research into the UK and other countries for which Robert W. Baird Limited holds an ISD passport. This report is for distribution into the United Kingdom only to persons who fall within Article 19 or Article 49(2) of the Financial Services and Markets Act 2000 (financial promotion) order 2001 being persons who are investment professionals and may not be distributed to private clients. Issued in the United Kingdom by Robert W. Baird Limited, which has an office at Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB, and is a company authorized and regulated by the Financial Conduct Authority. For the purposes of the Financial Conduct Authority requirements, this investment research report is classified as objective. Robert W. Baird Limited ("RWBL") is exempt from the requirement to hold an Australian financial services license. RWBL is regulated by the Financial Conduct Authority ("FCA") under UK laws and those laws may differ from Australian laws. This document has been prepared in accordance with FCA requirements and not Australian laws. Applicable disclosures regarding the equities discussed can be accessed at http://www.rwbaird.com/research-insights/research/coverage/third-party-research-disclosures.aspx.