Call it the best of both worlds - income and growth - from the same position. Though yields and the income with which to pay dividends have both generally taken beatings thanks to the recession, there is an upside to this mess: A handful of stocks are now paying double-digit dividend yields and are likely to keep making those payouts in the future.
Best of all, several of these names also offer substantial capital appreciation. Here are five to consider.

IN PICTURES: Eight Ways To Survive A Market Downturn

Capstead Mortgage
Most sources peg the annual (last 12 months) dividend yield of Capstead Mortgage (NYSE: CMO) at around 15.3%. It's solid, and it's growing again after a string of mere 2 cents per quarter payouts in 2006.

Though the mortgage industry did change - for the worse - thanks to a massive real estate implosion, that may actually be the reason for Capstead's massive growth since the 2006 lull. You see, Capstead focuses on government-backed loans. Say what you want about Fannie Mae's and Freddie Mac's solvency, but the market knows the U.S. government isn't going to fail to back them up, making Capstead Mortgage one of the few reliable mortgage REITs.

PDL BioPharma
When's the last time you heard of a profitable biotech company, let alone one that paid dividends? PDL BioPharma (Nasdaq: PDLI) is both.

The company has actually figured out how to pick the biotech industry's low-hanging fruit. Rather than take on the burden of marketing a product and hope the competition doesn't one-up it, PDL simply licenses its drugs and collects royalties. The overwhelming majority of the company's revenue this year and last year came from royalty payments, which is generally high-margin income. In other words, the income may vary, but PDL has few expenses to chew into income.

Prospect Capital Corp.
The quarterly dividend from Prospect Capital Corp. (Nasdaq: PSEC) has plateaued at around 40 cents per share since 2007, but plateauing at a yield of 15.7% is nothing to be ashamed of.

Earnings and revenue took a few dents over the prior eight quarters, but last quarter's return to profitability and the forecast for similar profits during the current quarter suggest the dividend is protected. Moreover, with the economy on the mend (albeit a long one), venture capital and private equity firms are indeed finding viable opportunities.

Penn Virginia GP Holdings
Apparently coal and natural gas are two ideally complementary businesses to be in. Penn Virginia GP Holdings (NYSE: PVG) maintained or increased a pretty hefty dividend since May 2007; the current yield clocks in at 11.1%.

Longevity? Not a problem. Penn Virginia GP hasn't taken a loss in years. Revenues weren't even rocked that much during the recession. As natural gas and coal prices move upward again with demand, revenues and margins should only augment an already-profitable operation.

Cellcom Israel
Just like the name implies, Cellcom Israel (NYSE: CEL) provides mobile phone services in Israel. Though this one may seem the most aggressive/risky by its virtue of being a foreign investment, the company's results say Cellcom is at least as stable as any of the other dividend stocks mentioned above; the company hasn't generated a quarterly or annual loss in at least three years.

The current 9.9% dividend yield is solid, but check this out - analysts foresee the company earning $11.61 per share in 2010 (and it's on track to earn $11.09 this year). At a current share price around $31, that translates into a forward P/E of about 2.7.

The Last Word
Diversifying your dividend payers is just as important as diversifying your entire portfolio. I make that point specifically to warn you that collecting the very best dividend-paying stocks right now would concentrate you in two related areas - mortgages and oil/gas. There's nothing necessarily wrong with either, but too much of anything is still too much. That's why I presented five different industries among my top five dividend-paying picks.

Viewing the bigger picture, with yields alone on some stocks now producing greater returns than the market's average annual growth - not to mention the growth potential these stocks offer - investors are looking at a relatively rare opportunity. (To learn more, see Dividend Yield For The Downturn.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    8 Solid Utility Stocks for a Bear Market

    If you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
  2. Stock Analysis

    Why Phillips 66 (PSX) is a Solid Long-Term Bet

    Here's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
  3. Term

    What's Recapitalization?

    Recapitalization is the restructuring of a company’s debt and equity mixture.
  4. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  5. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  6. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  7. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  8. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  9. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  10. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  1. Who do hedge funds lend money to?

    Many traditional lenders and banks are failing to provide loans. In their absence, hedge funds have begun to fill the gap. ... Read Full Answer >>
  2. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!