Amazingly, the S&P 500 closed out the year at the same level it began. This will lead more investors to seek out investments that pay above average dividend yields. Here are four income plays that I believe will yield impressive dividends for 2012. (For more, see Earning Forecasts: A Primer.)
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Healthcare Services Group (Nasdaq:HCSG) is a play on both the healthcare and service industries. The company provides housekeeping, maintenance and dietary services to health facilities in the U.S. The stock pays a dividend yield of 3.6% and has a market capitalization of $1.2 billion. With a forward P/E of 25.9 and a PEG ratio of 1.9 the stock is not a value play. After hitting an all-time high in early December, the stock is now down 5% and sitting on its 50-day moving average near the $17.50 area. The one major concern is the heavy-volume selling that occurred in December, and therefore HCSG is considered aggressive.
Williams Partners (NYSE:WPZ) is a natural gas company that owns nearly 14,000 miles worth of pipelines that transport petroleum products. The stock pays a 5% dividend and has a market cap of $18 billion. A forward P/E of 16.5 and a PEG ratio of 3.0 do not make much sense to most investors; however, this is due to below average growth projections for the company. This has not slowed money from going into the stock as it sits near an all-time high after gaining 30% in 2011. I look for more buying in the coming 12 months.
Targa Resource Partners (NYSE:NGLS) provides midstream natural gas and natural gas liquid (NGL) services in the U.S. The majority of its operations are based in the Southwest, including the Barnett Shale. The dividend is 6.3% and the company has a market cap of $3.26 billion. The forward P/E is 20.0 and the PEG ratio is 1.4, both decent numbers. After pulling back to support at the $37 area, the stock has begun its uptrend again and I think it looks to be heading for a new all-time high in the $40s during the coming months.
Plum Creek Timber (NYSE:PCL) is a real estate investment trust (REIT) that owns and manages timberlands in the U.S. The stock struggled in 2011, lagging the market even though it offers a dividend yield of 4.6%. The timberland sector will usually outperform when inflation is relevant, which is not the case at this time. But it could be back by the end of the year and PCL would be well-positioned. The forward P/E ratio is 27.4, a little high for my liking. The $5.9 billion market cap company does have strong support in the low $30s, and this is where the stock becomes an attractive buying opportunity
The Bottom Line
Make sure when buying a stock or ETF that you don't concentrate simply on the dividend yield. A 6% yield is great, but if the stock falls 25% during the year, the end result is still ugly. Look for strong stocks and ETFs that also offer dividends as a bonus to potential capital appreciation. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)
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At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.