Over the past weeks, as the Federal Reserve has continued its policy to end quantitative easing, bond yields have spiked significantly from their multi year lows. This large move in rates has affected many parts of the market that were previously used as safety plays. One of these main sectors has been high yielding stocks that offer a superior return to the 10-Year Treasury. As bond yields continue to grow, and as dividend stocks continue to face competition with these less risky bonds, investors looking for yield have to be more cautious than ever to find stocks that can outperform in this area. Despite the recent volatility, investors can still find companies that are committed to above average shareholder return and that offer yields superior to most other investment vehicles. The list below includes names that can fill any part of a portfolio, and offer varying levels of risk and return over different time periods:
|Name||Yield %||PE Ratio||Payout Ratio|
|New York Community Bancorp (NYCB)||6.9%||12.7||88|
|B&G Foods (BGS)||3.4||27.9||91|
|LinnCo LLC (LNCO)||11.6%||-||-|
|Lockheed Martin (LMT)||4.2%||12.5||50|
New York Community Bancorp
NYCB is a regional bank that operates a majority of branches in the northeastern part of the United States, mainly in metro New York. With assets of over $44 billion, NYCB is the 20th largest bank in the nation. The company focuses its loan activity mainly on multi-family loans in apartment complexes with below-market rent levels, which differentiates it from other banks of its kind. NYCB has succeeded in the past by focusing on acquisitions to grow their assets and loan power. With interest rates on the rise, the company's spread on its loans is set to increase and provide a boost to its bottom line. NYCB's real value lies in its yield, which stands at close to 7% currently, along with a steady track record of payouts. The company has paid out 25 cents per share in dividends every quarter since 2004, including the financial crisis of 2008-2009. In the future, NYCB is set to benefit from a rise in rates and a better loan environment, which will help it finance more acquisitions to grow its business and hopefully its dividend as well.
BGS is a company that owns a large variety of shelf stable food brands such as Cream of Wheat, Ortega, and Emeril's, as well as others. The company is known for acquiring brands that have declined in popularity and bringing them back to prominence. This strategy was reiterated on June 10th, when B&G announced their acquisition of Robert's American Gourmet Food. This gives the company a jump into the snack food industry, which is a smart addition to the brand portfolio. These acquisitions are able to drive both the growth in the company's earnings and dividend payout. BGS' current yield comes in at 3.4%, with strong growth of the payout over the past three years. In the future, look for B&G to increase that payout with more acquisitions, potentially from companies like Unilever that are looking to shed products to focus on their core business.
Despite the massive buzz around this stock over the past few weeks, LinnCo has shown strong enough past performance in order to warrant a look at owning the name for a bountiful yield and potential for growth. LinnCo's primary goal is to act as a holding company for the master limited partnership, or MLP, called Linn Energy (LINE). Keep in mind that the company is currently under investigation by the SEC into its accounting practices and ways it protects its assets by hedging. Linn is involved in the natural gas and oil industry, with operations mainly in Oklahoma and Texas, as well as other states such as North Dakota and California. Linn Energy looks for stable basins and resource reserves to expand its oil and natural gas assets and revenues. The company is currently involved in the acquisition of Berry Petroleum (BRY), which will allow Linn to expand into basins in Utah and Colorado, as well as strengthen its position in California and Texas. This addition to Linn's portfolio of operations will increase production by 30%. This should help Linn Energy continue to provide growth and distributions to its shareholders. The question that has everyone on edge, however, is whether or not the Berry deal will get done. The price action since July 1st, with the stock down over 29% since then, would lead to the assumption that a delay or cancellation of the deal is already somewhat priced into the stock. If the stock can stabilize and get back to a level Berry shareholders would be satisfied with, then I think the deal will go through.
With regards to the SEC investigation, I believe the inquiry won't find anything damaging to Linn's business. This is because on June 19th, Leon Cooperman appeared on CNBC and told traders that Linn Energy was a safe, solid investment that had strong accounting practices that satisfied Berry enough to warrant a deal between the two. Leon Cooperman is a highly respected fund manager of Omega Advisors, and is looked to by many people on the street as a great stock picker and money manager. Before his current position, Cooperman was chairman and chief executive officer of Goldman Sachs Asset Management division, which shows his extensive experience and expertise in analyzing and selecting outperforming names. Leon Cooperman said that his firm had "done their homework" and talked with both Berry Petroleum and Linn to find out the situation with their relationship and financial structure. His research showed that both companies are comfortable with their financial situation and are willing to move forward. For Cooperman to go on television and make the claims about Linn Energy that he did means he is very confident in the company's outlook and structure. Omega Advisors currently has over 4% of its portfolio invested in Linn Energy, with over 7 million shares owned since their last quarterly filing. This firm could very well be described as the "smart money", and a company of this magnitude putting their money into Linn Energy means the future looks much less dire than the current price would suggest.
Lockheed Martin is an industrial manufacturer of military products for United States defense groups as well as other allies around the world. The company operates in five distinct segments: Aeronautics, Information Systems, Missiles/Fire Control, Mission Systems/Training, and Space Systems. Lockheed's main customer is the United States Defense Department, which may raise a red flag to some investors who want more diversification. Another warning the company possesses is its large levels of debt, with a debt/equity ratio of over 20. Despite these downsides, the company has been able to succeed by increasing its research into new products and services to benefit from multiple areas of the defense market. A main potential research benefit for the company is its development of liquefied natural gas (LNG) tanks for transportation and storage. With the massive amount of natural gas discovered over the recent years, the need for storage and movement of this resource makes these tanks very valuable in the future. Demand for LNG is rising, with other energy companies researching to take advantage of the abundant natural resource. Lockheed Martin is moving to gain share in this emerging business, which should add significant income over time as the natural gas market matures into more businesses and into more regions around the world.
What's more, Lockheed Martin's stock sports a 4.3% yield at current levels, and can support that yield with a safe payout of around 50% of its earnings being devoted to its dividend. The amount of research this company does, combined with the healthy yield, can be counted on to show outsized gains in the coming months and years as the energy and aerospace market continue to expand.
In spite of the market turmoil surrounding rising bond yields and interest rates, investors searching for yield can still have a satisfactory return if they pay closer attention to the fundamentals and the future of the company they are looking at. The names above can fit a portfolio looking for a diverse amount of exposure, from the financial and banking sector to the energy market to the defense space. If a portfolio of these names was built with an even amount in each stock, the average yield of the portfolio would amount to an impressive 6.6%. What's more, each company on this list has proven its track record for superior growth and a superior yield. Investors looking for varying amounts of risk can be happy here too, with more safe names like NYCB and BGS balancing out the risk involved with LNCO and LMT. No matter what situation comes along, I believe these stocks can help investors secure both capital appreciation with continued growth and capital preservation with a sustainable dividend.