Good Bang for the Buck

Income investors note: S&P's new screen finds 20 companies that offer attractive yield -- and promise to outperform the market

By Numer de Guia, CFA

Even though the Federal Reserve has seen fit to hike interest rates and is expected to continue on that path, rates remain near multidecade lows. That makes for a challenging environment for income investors in search of a decent yield.

We set out to see if we could find some attractive equity issues with dividend yields not only above the average on the Standard & Poor's 500-stock index of 1.7% but also greater than that of a traditional benchmark for income investors: the 30-year Treasury bond. (The Treasury ceased issuing new bonds in 2001, but they still trade.) We looked for issues in our database with dividend yields above the 30-year's recent level of 5.23%.

But while an attractive yield is nice, investors may want something more -- like the potential for capital appreciation. So from that list, we sifted for those issues ranked 4 STARS (accumulate) or 5 STARS (buy) by analysts at Standard & Poor's Equity Research Services. Stocks with those designation are expected to outperform the overall market in the next 6 to 12 months.

These 20 names made the cut. Note the prevalence of two classic cash-generating industries on the list: tobacco companies and real estate investment trusts:

Company/ticker S&P STARS Rank
Altria Group (MO ) 4
American Capital Strategies (ACAS ) 4
Annaly Mortage (NLY ) 5
Capital Automotive REIT (CARS ) 4
Colonial Properties Trust (CLP ) 4
Eastgroup Properties (EGP ) 4
First Industrial Realty Trust (FR ) 4
Glimcher Realty Trust (GRT ) 4
Health Care REIT (HCN ) 4
Hospitality Properties Trust (HPT ) 4
HRPT Properties Trust (HRP ) 4
Loews - Carolina Group (CG ) 4
Magellan Midstream Partners (MMP ) 4
Nationwide Health Properties (NHP ) 4
New York Community Bancorp (NYB ) 4
Reckson Associates Realty (RA ) 4
RJ Reynolds Tobacco (RJR ) 4
Thornburg Mortgage (TMA ) 4
UST (UST ) 4
Weingarten Realty (WRI ) 4

De Guia is an analyst for Standard & Poor's Portfolio Services

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