CHICAGO, March 30, 2011 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights
4 Stocks Yielding More Than 4%
Investors searching for yield are having a difficult time these days. The 10-year Treasury note is hovering around 3.45%, well below its 50-year average of 6.82%. Some muni bonds are carrying serious default risk, and bond prices will get crushed once longer term interest rates rise.
Meanwhile, CDs, money markets and savings accounts will continue paying paltry returns for the foreseeable future as the Fed keeps short-term rates near historic lows.
These factors have led investors to turn to an unlikely source for a decent yield: the stock market.
The Underappreciated Dividend
When most people think of generating returns from the stock market, they think of only one thing: capital appreciation. This is somewhat understandable given that the average yield on the S&P has fallen steadily over the last few decades. It currently yields just 1.7%, well below the historical average of 4.4%.
But historically, dividends have accounted for close to 40% of the total return of the S&P 500, and most of the best performing stocks over the long haul have been dividend payers. That's why it is wise for investors to consider both rising stock prices and dividends.
Of course, income investors should be aware that stock prices can swing wildly over the short term, so a long-term approach and a strong stomach are a necessity. Still, over the long run, high quality, high yielding stocks can be a low risk approach to outsized returns.
Growth & Income
There are many stocks out there that offer attractive yields but have virtually no growth prospects. That quarterly dividend check will provide little consolation if the company is heading off a cliff.
So I've compiled a list of 4 stocks with both growth and income characteristics. These companies have a yield greater than 4%, a history of raising their dividends and are expected to grow earnings in 2011 and 2012.
Here are the 4:
Lorillard, Inc. (NYSE : LO) pays a dividend that yields an impressive 5.7%.
Lorillard is the third largest cigarette maker in the United States. It is also older than the United States, having been founded in 1760. It sells cigarettes under six brands, its most popular being Newport.
Although the company faces a litany of litigation and regulatory risk, it continuously generates strong free cash flow and has been rewarding shareholders through stock buybacks and dividend increases. The company recently raised its dividend by 16% for instance, which marked the second dividend hike in three quarters.
In addition to a growing dividend, earnings per share are expected to grow 10% in 2011 and 10% in 2012 based on the Zacks Consensus Estimates. Investors don't have to pay much for the growth and income either. Shares are trading at just 12.7x forward earnings, a slight discount to the industry average. It is a Zacks #3 Rank (Hold) stock.
Digital Realty Trust (NYSE : DLR) yields a solid 4.9%. The company has paid and raised its dividend every year since going public in late 2004. Over the last 5 years, DLR has raised it at a compound annual rate of 20.7%.
Digital Realty is a real estate investment trust and the world's largest wholesale data center provider. Over the last five years, earnings have grown at an average rate of 21%. They are expected to grow 15% in 2011 and 12% in 2012, based on the Zacks Consensus Estimate.
Shares are trading at 14.4x forward earnings, in-line with the peer group. It is a Zacks #3 Rank (Hold) stock.
TELUS Corp (NYSE : TU) is a Canadian telecom that has been seeing strong growth in its wireless division, which has more than offset the steady decline of its wireline segment.
Earnings estimates have been rising steadily as the company has strung together 4 consecutive positive earnings surprises. Based on the Zacks Consensus Estimate, earnings are expected to grow 15% in 2011 and 8% in 2012.
The company also pays a dividend that yields a juicy 4.5%. Its payout ratio of 63% is within its target of 55% to 65%, so as long as the company continues to grow its earnings and produce strong cash flow, more dividend increases will be on the way.
Valuation is cheap too, with shares sporting a PEG ratio of 0.86. It is a Zacks #2 Rank (Buy) stock.
Corporate Office Properties Trust (NYSE : OFC) is currently yielding 4.7%. The company has raised its dividend every year since 1998 and at a compound annual rate of 9.6%.
OFC is a REIT that owns and manages office properties focusing on the U.S. Government and Defense Information Technology sectors and data centers serving such sectors. It is headquartered in Columbia, Maryland.
Although the Zacks Consensus Estimate is calling for just 3% growth in 2011, the 2012 consensus estimate is more bullish at 13% growth. Shares trade at 14.7x forward earnings, in-line with the peer group. It is a Zacks #3 Rank (Hold) stock.
Income investors looking for yield should consider looking to the stock market these days. Likewise, growth investors looking for total return should consider dividends along with capital appreciation, as dividends historically have made up a large chunk of overall returns.
These 4 stocks offer both growth and income and should provide strong total returns over the long haul.
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