Dividend Yields That Just Got Juicer

By Sham Gad | August 18, 2011 AAA

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.

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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.)

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