Seeking Alpha
Contrarian, macro, hedge fund manager, Emerging Markets
Profile| Send Message|
( followers)  

With interest rates near zero percent, buying bonds is not the best way for income investors to preserve or even enhance capital. Sure you may be guaranteed a payment, but inflation may erode the real value of that payment or when interest rates rise, the bond's price could crash.

An alternative to locking capital in a bond is to buy quality high dividend yielding stocks. Good dividend stocks pay a consistent yield that can grow with their success. They also have the potential for capital gains with the growth of the company, the economy as a whole, or as a hedge against inflation. Finally, stocks have much more liquidity than bonds and losses can be limited by stop loss orders or protective puts.

Before just buying the stock with the highest listed dividend yield, investors need to be assured that a company pays out their dividend due to strong profitability, not because of the deteriorating share price of a weakening company.

Some great dividends stocks and funds such as the Aberdeen Chile Fund (NYSEMKT:CH) and Collectors Universe (NASDAQ:CLCT) I have mentioned in previous articles so I will not cover them here. However, I have listed four other top companies that pay out some of the highest dividend yields on the market. Fortunately, these stocks also have the strong fundamentals to back the income up.

Administradora de Pensiones Providias (NYSE:PVD)- With a 6.68% yield, PVD is has the highest yield of any emerging markets country that pays a reliable dividend. The company's economic moat is that it is one of the few mutual funds that Chilean citizens can invest in as part of the country's privatized social security program. With an 18% annual growth rate, no debt, and 29% ROIC, the company have been well run and should continue to grow with the Chilean economy.

Petrochina (NYSE:PTR)- Petrochina pays a 3.82% yield and is the dominant oil producing company in a country that has transitioned from bicycles to cars as its main means of transportation. A forward P/E ratio of 9 and a low debt level of 0.11 debt/equity for an oil company indicated that the company is still reasonably valued. However, wait for the current crude oil margin call to finish before buying this stock.

Paychex (NASDAQ:PAYX)- Paychex may not be the most exciting company, but employers will always need to make payroll. With unemployment in the US and Germany starting to decline, Paychex should benefit from additional services needed for each new worker. Paychex helps small to mid size businesses in these countries outsource their payroll and human resources divisions, so that these companies can focus on their core competencies. The company's revenues will grow with employment and the company pays a solid 3.82% dividend yield.

Eli Lilly (NYSE:LLY)- Despite the recent run-up in price in this stock, Eli Lilly still pays out a 5.03% yield. Its leading drugs include Zyprexa (psychological disorders), Cialis, Humalog (diabetes), and Evista (osteoporosis). Eli Lilly is a solid pharmaceutical company in the long term, but currently I would stay away from buying this now. Zyprexa's patent expires this year and the stock is technically overbought and is due for a pullback after its current 15% run-up in price. The volatility and regulatory risk of pharmaceuticals also keeps me skeptical about investing in big pharma.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 4 Great Companies With Reliably High Dividends