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
S&P STARS Rank
Altria Group (MO)
AmSouth Bancorp (ASO)
Chelsea Property Group (CPG)
Federal Signal (FSS)
Hospitality Properties Trust (HPT)
Progress Energy (PGN)
Vornado Realty Trust (VNO)
Weingarten Realty (WRI)
Kaye is a portfolio services analyst for Standard & Poor's