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. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  2. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  3. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  4. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  9. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  10. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  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 >>

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!