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Appetizing Yields for Hungry Investors


By Michael Kaye, CFA How low can interest rates go? While their sharp decline to historic depths has been a boon for business and consumer borrowers, it has been a thorn in the side of fixed-income investors. They've watched yields plummet on things like certificates of deposits and Treasury issues -- and their income from those instruments shrink accordingly.

But yield-hungry investors have alternatives -- namely, quality stocks with above-market

dividend yields. Dividend-paying stocks are much more attractive to investors since the enactment of the Bush Administration's economic stimulus package in May, which included a reduction in the tax rate on payouts to shareholders.

SOLID GROWTH. We set out to find some attractive examples in this week's screen. We looked for stocks with a current dividend yield of over 4% -- well above the average yield of 1.6% on the Standard & Poor's 500-stock index. And to make sure that we uncovered outfits with a solid history of dividend growth, we sifted for those that have increased their dividend payouts in each of the past five years.

While a healthy yield is nice, we wanted something more: The potential for capital appreciation. So for our final filter, we searched for stocks that S&P analysts rank 4 STARS (accumulate) or 5 STARS (strong buy). That means they're expected to outperform the overall market over the next 6 to 12 months.

These eight stocks made the cut:

High STARS Rank, Above-Average Yield

Company/Ticker

S&P STARS Rank

Altria Group (MO)

4

AmSouth Bancorp (ASO)

5

Chelsea Property Group (CPG)

4

Federal Signal (FSS)

4

Hospitality Properties Trust (HPT)

4

Progress Energy (PGN)

4

Vornado Realty Trust (VNO)

5

Weingarten Realty (WRI)

4

Kaye is a portfolio services analyst for Standard & Poor's


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