Last week's market volatility had nothing to do with concerns about U.S. corporate profitability. In fact, since last weeks memorable roller coaster ride, a slew of retailers including Macy's (NYSE:M) and Kohl's (NYSE:KSS) reported strong results and solid outlook for the rest of the year. Sure, the economy is not growing as fast as many want it to, but corporate balance sheets and income statement are in much better shape today than they were in 2008.

TUTORIAL: Commodity Investing 101

Inverse Relationship
So, while business outlook remain unchanged, stock prices plunged last week. The rally has since pulled prices back up but many equities still trade lower today than they did a few ago. And for those companies that pay dividends, the inverse relationship between stock price and dividend yield has created some very attractive yields. With the 10-year bond now yielding 2.3%, corporate dividend yields from high quality stocks will very likely outperform U.S. Treasuries over a period of years.

Oil giant ConocoPhillips (NYSE:COP) trades for under nine-times earnings, and yields 4%. The company paid out over $3 billion in dividends in 2010 and generated over $7 billion in free cash flow. Even when oil prices were below $40 during the recession, COP still maintained its dividend. Transocean (NYSE:RIG), the largest owner of oil drilling rigs, now yields 5.5%. The company's recently announced acquisition of Aker Drilling adds to the company's fleet of ultra deepwater drilling rigs, the most highly sought after rigs today. Oil drilling isn't going away anytime soon, and neither is the company's dividend.

Yes, These Are Real
Oil and gas partnership Breitburn Energy (Nasdaq:BBEP) shares currently trade for $19 and yield 9%. As a partnership, BBEP payout most of its cash flows out to shareholders. The company hedges is oil and gas production, thereby minimizing cash flow volatility and ensuring the payout. Annaly Capital Management (NYSE:NLY) is real estate investment trust that primarily invests in mortgage backed securities. MBSs have obviously gotten a bad rap during the financial crisis, but if the mortgages underlying the MBS are of sound qualities, then they can be an attractive asset to own. Annaly seems to be doing well with its operations at the moment and shares yield 14.2%.

The Bottom Line
Today's dividend yields are offering investors excellent returns, if they are willing to be patient. Unlike earnings, dividends are immediate cash payments that can be counted and reinvested. In today's low interest environment, yields of 4% and higher should not be undervalued. (For additional reading, take a look at Dividend Tax Rates: What Investors Need To Know.)

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

Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  7. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  8. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  9. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center