Dividends Not To Be Dismissed

By Sham Gad | June 21, 2011 AAA

While most investors are familiar with the decent dividends available from many blue-chip stocks, some dividend yields available today should not be overlooked. Any dividend is only as good as the company's ability to pay it. More so, a great dividend accompanied by a declining stock price is no reason to chase the dividend.

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The Best of Both

Master limited partnership Breitburn Energy (Nasdaq:BBEP) currently trades at $19 and boasts a yield of nearly 9%. This yield is more than twice that of major oil company ConocoPhillips (NYSE:COP) and nearly triple the yield of Chevron (NYSE:CVX). Breitburn operates differently from exploration and production companies like COP and CVX. As an energy partnership, BBEP invests in mature, already-producing property. The company supports its yield by hedging its oil and properties, thereby providing more consistent cash flows. So when energy prices are rising, BBEP might not benefit from the upside due to this hedging, but the pain from falling energy prices is not as severe.

Yet shares in BBEP also look attractive. As the company continues to pay a yield, more income-seeking investors should take notice of the shares. In addition, BBEP has quality reserves in relation to the stock price. During the financial crisis, BBEP cleaned up its balance sheet and quickly resumed making dividend payments.

Yes, These are Real Yields

Annaly Capital Management (NYSE:NLY) is a real estate investment trust (REIT) that invests in mortgage-backed securites (MBS). The shares currently yield 13.5%. Unless credit markets make a dramatic turn for the worse, Annaly's investments should continue to perform adequately and provide a solid yield to investors. While shares trade for a P/E ratio of 7.4, capital appreciation is slow since the majority of earnings are paid out to investors.

Invesco Mortgage Capital (NYSE:IVR) is another company that invests in MBS. Shares yield over 18%. Several years from now the yield may not be as high, but as long as the opportunity to invest in MBS remains attractive, investors should benefit from a solid payout.

Patience Pays

The value of dividends is not realized over short-term periods. Only when choosing attractive investments that pay dividends, and holding those investments until the price suggests a time to sell, will the dividend pay off. And only when the underlying stock is a good value should any investment be made - never on dividend yield alone. (Find out how the PPI can be used to gauge the overall health of the economy. Check out Predict Inflation With The Producer Price Index.)

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