In today’s low interest rate environment with $3.5 trillion dollars earning almost zero, concervative investors might want to consider investing in financially strong blue chip companies that offer the potential for stable and solid dividends. A filtered of the 200 largest U.S. stocks (by market cap), reveals the 20 highest dividend yield companies (sort by yield %).
Company, Ticker, P/E, Yield & Debt/Cash Flow
Reynolds American Inc. RAI 16 7.4% 2.3
Altria Group Inc. MO 12 7.4% 3.4
Progress Energy Inc. PGN 14 6.3% 13.6
Duke Energy Corporation DUK 17 6.2% 6.0
AT&T, Inc. T 13 6.2% 2.1
Consolidated Edison Inc. ED 16 5.9% 14.7
Lilly & Co. LLY 5.9% 1.4
Verizon Communications Inc. VZ 14 5.9% 2.3
Southern Company SO 15 5.6% 7.7
Bristol-Myers Squibb Co. BMY 8 5.6% 2.1
Lorillard, Inc. LO 13 5.5% 0.9
Spectra Energy Corp. SE 13 5.3% 5.9
Dominion Resources, Inc. D 12 5.2% 4.4
American Electric Power Co. AEP 11 5.2% 7.7
EI DuPont de Nemours & Co. DD 44 5.1% 2.9
FirstEnergy Corp. FE 10 4.9% 4.9
PPL Corporation PPL 15 4.7% 6.9
Merck & Co. Inc. MRK 11 4.7% 2.6
Philip Morris International, Inc. PM 14 4.7% 1.9
HJ Heinz Co. HNZ 13 4.4% 4.1
Out of 20, 9 of them are utilities. Keep in mind utilities traditional carry high debt loads but benefit in todays low interest rate environment.
Out of 20, 9 of them are utilities. Keep in mind utilities traditional carry high debt loads but benefit in today's low interest rate environment.
Four of them are tobacco companies. Tobacco, specifically international tobacco, (USA market has been dying for years) is proving to be exceptionally resilient to recession. However, not all of them are created equal. For example, Reynolds American and Altria Group Inc’s payout ratios are more than 100%. The best seems to be Lorillard, Inc. Its debt to operation cash flow ratio is 0.9. In other words, in theory it could pay off all its debt within 1 year.
Three of them are pharmaceutical and 2 are tech related. Mary Buffett and David Clark point out in their new book Warren Buffett And The Interpretation of Financial Statements, what seems like a long-term competitive advantage is often an advantage bestowed upon the company by a patent or some technological advancement. If the competitive advantage is created by a patent, as with the pharmaceutical companies, at some point in time that patent will expire and the company’s competitive advantage will disappear. If the competitive advantage is the result of some technological advancement, there is always the threat that newer technology will replace it. Today’s competitive advance may end up becoming tomorrow’s obsolescence. This has always been true and one must always keep in mind change is constant. Still, it's doubtful that there is anything within the next 12 months that will radically change the investment outlook for the companies above products and services demand. And even utility stocks will benefit from a improving industrial output economy.
Mutual Funds or Exchange Trade Funds (ETFs)are an even more conservative diversified investment play. The following are the top 10 dividend ETFs(by net assets)you may wish to consider:
# Fund Name & Ticker
1 iShares Dow Jones Select Dividend Index DVY
2 Vanguard Dividend Appreciation ETF VIG
3 SPDR S&P Dividend SDY
4 WisdomTree LargeCap Dividend DLN
5 Vanguard High Dividend Yield Indx ETF VYM
6 WisdomTree International SmallCap Div DLS
7 PowerShares Intl Dividend Achievers PID
8 WisdomTree Europe Total Dividend DEB
9 WisdomTree Dividend ex-Financials DTN
10 WisdomTree International Div ex-Fincls DOO
While these are all conservative alternatives it doesn't mean they can't decline in value if the market declines. Still, for those with large stock investment exposures now (or those just getting started) these stocks are worth considering now. Most of the dividend stocks listed above have barely risen in value, as investors passed up conservative stocks in favor of the most depressed stocks over the last 6 months.
Disclosuer: I hold long positions in AEP, LLY, VZ, MO
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