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