Even though volatility has been near record highs over the last 10 weeks, the stock market is at the same level now as it was in early August. During that time, a number of stocks have skyrocketed as others have hit new lows. If you are lucky enough to keep pace with the overall market, your portfolio is likely flat.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

This is just one reason investors are on the hunt for stocks that pay above-average dividends to help inflate the return of their portfolio. The payment of a dividend does not necessarily suggest the stock will have less volatility, but it does give investors a reason to be okay with a flat market.

To lower the volatility even more investors could turn on an exchange-traded fund (ETF) that is composed of a basket of individual stocks. This will eliminate the company-specific risk associated with buying a stock. (For related reading, see Using ETFs To Build A Cost-Effective Portfolio.)

The iShares High Dividend Equity ETF (NYSE:HDV) is composed of 76 stocks that pay a relatively high dividend yield on a consistent basis. The stocks come from the Morningstar U.S. Market Index, which encompasses 97% of the market capitalization of the U.S. market.

The ETF charges an expense ratio of 0.4%, and trades with a price-earnings ratio of 14.5. The current 30-day Securities and Exchange Commission yield is 4.0%, a decent dividend considering the rates available in the fixed income arena.

Four stocks that are included in the top 10 holdings of HDV are candidates to consider, if the individual stock route is chosen. The top holding is telecom giant AT&T (NYSE:T). The stock makes up 10% of HDV and currently pays a dividend of 5.9%. Year-to-date the stock has a small loss, but as long as AT&T holds above long-term support at the $27 area, it will make investors happy with the large dividend yield.

Health Care
The number two and number four holdings of HDV are Pfizer (NYSE:PFE) and Johnson & Johnson (NYSE:JNJ). The two health care companies, and its peers, make up the sector with the largest exposure in the ETF, accounting for 26 percent of the allocation.

Pfizer currently pays a 4.2% dividend and is having a decent 2011, gaining over 8% so far this year. After struggling for 10 years, the stock began the most recent uptrend in 2009, and it continues to look like a stock that has more upside, especially considering the attractive dividend.

JNJ has not performed as well as Pfizer this year, up only 1%, but it has outpaced the overall market. The dividend yield currently stands at 3.5%. The most recent earnings report from JNJ showed that profit fell by 6%, in the quarter, as sales increased. An increase in foreign sales could not offset the rise in foreign competition, and the cost of an acquisition. The day of the earnings report, the stock rose 1%. (Find out which companies collapsed after merging. For more, see Biggest Merger and Acquisition Disasters.)

Consumer Staples
The one company that can likely brag that it has a product in your home somewhere, at all times, is Proctor & Gamble (NYSE:PG). The brands made by the company include Gillette, Crest, Pringles, Bounty, Pampers, etc. Their products are sold in approximately 180 countries worldwide. The stock is up less than 1% on the year, and has a dividend yield of 3.2%. A breakout above the $68 area would trigger a new buying signal for potential buyers.

The Bottom Line
The stocks mentioned above are not the next big growth stories in the market. However, they do provide stability and have large market shares. The dividends are above average because of the steady cash flow the company generates due to the lack of growth prospects that cash is paid to investors via dividends. There is a place for both growth and income stocks in most investors' portfolios. This list accounts for the steady income-producing portion of the portfolio.

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

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  5. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
  6. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  7. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  8. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  9. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  10. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
Trading Center