Appetizing Yields for Hungry Investors

Given ultralow fixed-income returns, S&P finds some attractive alternatives in highly regarded stocks offering above-market dividends

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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