We are getting close to the upcoming end of QE2 (not to sound like a broken record). In addition, the economy is dealing with rising gas prices that are closing in on $4/gallon and some other very worrying inflation signs. This combined with the continued European Debt troubles and unfolding Middle Eastern turmoil could make for a very turbulent summer. I continue to believe it pays to be safe here. Any new stock purchases should be targeted to safe, boring blue chips with high dividend yields and reasonable valuations in my opinion. Here are four stocks yielding over 4% that should be considered:
American Electric Power Company (AEP) - American Electric Power Company, Inc. engages in the generation, transmission, and distribution of electric power. It generates electricity using coal and lignite, natural gas, nuclear and hydroelectric energy. AEP is selling at less than 12 times this year’s earnings and less than 11 times consensus earnings for 2012. It yields 5.2%. It has a strong balance sheet and it did not have to reduce its dividend during the financial crisis. It just raised its dividend payout 9%. It also successfully negotiated rate increases for both 2010 and 2011.
Merck (MRK) - Merck & Co., Inc., a global health care company, discovers, develops, manufactures, and markets medicines, vaccines, biologic therapies, and consumer and animal products. It is trading at less than 10 times this year’s and next year’s expected earnings. It also yields a solid 4.5%. It has consistently beat earnings estimates over the last four quarters. Several of its key drugs lose patent protection in 2012 and 2013. However, I believe that is priced into the stock and offset by its solid pipeline that has approximately 20 drugs in late stage development. It also should continue to wring benefits and cost savings from its Schering – Plough acquisition. It is a solid and safe play in this environment with a significant dividend yield.
People’s United Financial (PBCT) – People’s United Financial, Inc. operates as the bank holding company for People’s United Bank that provides commercial banking, retail and small business banking, and wealth management services to individual, corporate, and municipal customers. The company operates in three segments: Commercial Banking, Retail Banking, and Small Business and Wealth Management. It has taken advantage of the financial meltdown to make acquisitions that increased its market share in the Northeast. Balance sheet is solid with 3B in cash and 1.2B in debt. It yields 4.9% and sells at approximately 18 times this year’s earnings but only around 15 times next year’s consensus. It also should also have double digit gains in revenue growth for both 2011, and 2012. It also reported last week that it beat earnings by three cents a share, will up its dividend by a penny a share, and expects et interest margin to stay above 4% for 2011.
Sovran Self Storage (SSS) - Sovran Self Storage, Inc. operates as a real estate investment trust (REIT). It engages in the acquisition, ownership and management of self-storage properties in the United States. The company’s self-storage properties offer storage space to residential and commercial users, as well as offer outside storage for automobiles, recreational vehicles, and boats. It sells for a little over 15 times this year’s earnings, and less than 15 times 2012’s consensus. It yields 4.5%. Ongoing consolidation in the industry should benefit larger players like SSS. A safe, if boring yield play in a recovering industry.