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In a previous study, we showed that the average return of high dividend yielding stocks was 13.04% between 1927 and 2009. Dividend stocks beat the overall market by an average of 1.36% per year in that period.

We like high dividend stocks and consider them as alternatives to 10-year Treasury bonds. High dividend stocks deliver higher current yields and usually increase dividend payments over the next 5-10 years. Like Jim Rogers and Ray Dalio, we are concerned about the Fed’s inflationary monetary policy and want to protect ourselves against inflation. One of the ways of doing this without assuming significant risks is investing in high dividend stocks.

In order to demonstrate the effectiveness of this strategy we compiled a list of top 30 U.S. Financial Stocks (the sector classifications are sourced from Finviz) by market cap and ranked them based on their 12-month dividend yields. The top and bottom halves and their performances are shown below.

HIGHER DIVIDEND YIELDS

Dividend Yield

YTD Return

52-week Return

The Blackstone Group

BX

3.2%

39.0%

34.75%

Public Storage

PSA

2.8%

11.5%

22.85%

Equity Residential

EQR

2.6%

11.7%

38.34%

Simon Property Group

SPG

2.5%

11.9%

30.70%

The Chubb Corp.

CB

2.4%

3.9%

20.78%

BB & T Corp.

BBT

2.4%

0.0%

-24.21%

The Travelers Companies

TRV

2.3%

10.7%

19.37%

BlackRock Inc.

BLK

2.2%

5.1%

1.47%

AFLAC Inc.

AFL

2.2%

-4.4%

0.26%

Prudential Financial

PRU

1.9%

5.1%

-2.76%

MetLife Inc.

MET

1.7%

-0.1%

-2.44%

CME Group Inc.

CME

1.6%

-3.3%

-2.35%

American Express

AXP

1.5%

10.7%

4.23%

Charles Schwab Corp.

SCHW

1.3%

9.6%

-2.71%

Bank of New York

BK

1.3%

-5.7%

-10.72%

AVERAGE

7.05%

8.50%


LOWER DIVIDEND YIELDS

Dividend Yield

YTD Return

52-week Return

Aon Corp.

AON

1.1%

13.8%

20.0%

U.S.Bancorp

USB

1.1%

-6.3%

-9.01%

PNC Financial Services

PNC

1.1%

2.2%

-4.61%

Goldman Sachs

GS

0.9%

-8.5%

-2.50%

JP Morgan

JPM

0.9%

6.0%

-0.56%

Morgan Stanley

MS

0.8%

-2.5%

-15.80%

Franklin Resources

BEN

0.7%

13.5%

7.72%

Wells Fargo

WFC

0.7%

-7.8%

-12.96%

Loews Corp.

L

0.6%

11.4%

12.97%

State Street Corp.

STT

0.5%

0.4%

6.58%

Capital One Financial

COF

0.4%

25.3%

19.60%

Bank of America

BAC

0.3%

-7.7%

-32.44%

Berkshire Hathaway

BRK.A

0.0%

2.7%

4.57%

Citigroup

C

0.0%

-3.8%

-7.71%

AIG

AIG

0.0%

-33.4%

-6.16%

AVERAGE

0.35%

-1.35%

In the last 52-week period, the average return of the high dividend yielding financial stocks was 8.5%. The second group of 15 stocks with lower dividend yields had a negative performance in the same period, returning -1.35% on average. The performance of the first group was still better since the beginning of the year. The average Year-To-Date return of the first group is 7.05%, outperforming the low dividend stocks by more than 6 percentage points.

We prefer high dividend stocks over low dividend stocks since the former generally performs better than the latter. Four financial stocks with the highest dividend yields, which are also the top performing stocks of the last 52-week period, are as follows:

1. The Blackstone Group (NYSE:BX): The Blackstone Group LP is an asset management company specializes in private equity, real estate and other alternative investment strategies. BX recently traded at $19.06 and it has a 3.2% dividend yield. BX has the highest dividend yield among the top financial stocks and it returned 34.75% during the past 12 months. BX is also one of the top 30 dividend stocks that hedge funds love, and it returned 39% year-to-date. The stock has a market cap of $22.6B and P/E Ratio of 9.48.

2. Public Storage (NYSE:PSA): Public Storage is a large self-storage company and a real estate investment trust (REIT). PSA has a high dividend yield of 2.8% and returned 22.85% to its investors during the past 12 months. The stock has also performed well since the beginning of 2011, returning 11.5%. The stock recently traded at $113.88. It has a market cap of $19.41B and P/E ratio of 44.96.

3. Equity Residential (NYSE:EQR): Equity Residential is another publicly traded real estate investment trust (REIT). EQR recently traded at $58.31 and has a high dividend yield of 2.6%. EQR also performed well this year and returned 11.7% year-to-date. The stock has a market cap of $17.14B and P/E ratio of 61.25.

4. Simon Property Group (NYSE:SPG): Simon Property Group is a leading U.S. real-estate company that operates from various retail real-estate platforms. SPG recently traded at $111.73 and has a 2.5% dividend yield. SPG is another high dividend yielding stock and returned 11.9% in 2011. SPG also had high performance during the past 12 months, and returned 30.7% to its investors. The stock is among D.E. Shaw’s long term stock picks. Ray Dalio also added SPG to his portfolio at the end of 2010. The stock has a market cap of $33.18B and P/E ratio of 53.33.

We believe investors should pick stocks with higher dividend yields in order to protect themselves against inflation. Billionaire hedge fund manager John Paulson recommended high dividend stocks as an alternative to long-term Treasuries as well.



Disclosure: I am long MS, C.

Source: Investing in High Dividend Financial Stocks