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Recently, we discussed the viability of defensive investing for mega-cap Services stocks. Although high dividend yielding Services stocks have recently underperformed the risky Services stocks with no dividend yields, it seemed investors might benefit more by switching to high dividend stocks in the current monetary environment.

For different industries within the Services sector, such as Business Services, this defensive strategy can yield better results. High dividend stocks in these industries usually deliver higher current returns and can be considered as alternatives to T-bonds. As we are concerned about the upcoming inflationary environment, we believe investors should pick the stocks with higher dividend yields.

We compiled a list of 33 Business Services Stocks (the sector classifications are sourced from Finviz) by market cap (>$1B) and ranked them based on their 12-month dividend yields. The stocks with dividends and no dividends, and their 2011 performances are shown below:

STOCKS WITH DIVIDEND YIELDS

Dividend Yield

YTD Return

DONNELLEY R R & SONS CO

RRD

5.1%

19.60%

DELUXE CORP

DLX

3.6%

21.02%

HEALTHCARE SERVICES GROUP INC

HCSG

3.6%

10.08%

A B M INDUSTRIES INC

ABM

2.3%

-7.80%

CINTAS CORP

CTAS

1.5%

14.84%

TOTAL SYSTEM SERVICES INC

TSS

1.5%

23.96%

LENDER PROCESSING SERVICES INC

LPS

1.4%

0.24%

ROLLINS INC

ROL

1.3%

4.03%

MOODYS CORP

MCO

1.1%

44.25%

VISA INC

V

0.7%

13.77%

MAXIMUS INC

MMS

0.6%

28.03%

FIDELITY NATIONAL INFO SVCS INC

FIS

0.6%

17.84%

FAIR ISAAC CORP

FICO

0.3%

24.03%

MASTERCARD INC

MA

0.2%

25.09%

GLOBAL PAYMENTS INC

GPN

0.2%

13.60%

AVERAGE

16.8%

STOCKS WITH NO DIVIDEND YIELDS

Dividend Yield

YTD Return

ATHENAHEALTH INC

ATHN

0.0%

12.93%

COSTAR GROUP INC

CSGP

0.0%

24.65%

D J S P ENTERPRISES INC

OTCPK:DJSP

0.0%

-90.00%

EMDEON INC

EM

0.0%

13.44%

FISERV INC

FISV

0.0%

5.87%

FLEETCOR TECHNOLOGIES INC

FLT

0.0%

14.42%

GREEN DOT CORP

GDOT

0.0%

-29.34%

G S I COMMERCE INC

GSIC

0.0%

25.48%

H M S HOLDINGS CORP

HMSY

0.0%

19.3%

OPENTABLE INC

OPEN

0.0%

32.02%

PORTFOLIO RECOVERY ASSOCIATES IN

PRAA

0.0%

10.41%

QUAD GRAPHICS INC

QUAD

0.0%

2.11%

RPX CORPORATION

RPXC

0.0%

12.48%

SYNNEX CORP

SNX

0.0%

9.36%

SAVVIS INC

SVVS

0.0%

53.92%

TELETECH HOLDINGS INC

TTEC

0.0%

-7.24%

VERISK ANALYTICS INC

VRSK

0.0%

1.23%

WRIGHT EXPRESS CORP

WXS

0.0%

20.04%

AVERAGE

7.3%

Since the beginning of this year, the dividend yielding business services stocks have significantly over- performed the stocks with no dividend yields. The average year-to-date return of the 15 dividend yielding business services stocks was 16.8% vs. 7.3% for the second group of 18 stocks with no dividend yields. Only ABM in the first group brought negative returns to its investors, while three stocks (DJSP, GDOT, and TTEC) of the second group had a negative performance in 2011.

We prefer high dividend stocks over low dividend stocks since the former generally performs better and provide better protection in down markets. Six business services stocks with the highest dividend yields are as follows:

1. RR Donnelley & Sons Co (NASDAQ:RRD): RR Donnelly & Sons Co is a global company providing commercial publishing and pre-media services worldwide. RRD has a high dividend yield of 5.1% and returned 19.60% since the beginning of the year. RRD recently traded at $20.40. The stock has a market cap of $4.32 and P/E Ratio of 21.45. 14 hedge funds hold more than $150M of RRD. Ron Gutfleish’s Elm Ridge Capital had more than $100 Million in RRD at the end of December.

2. Deluxe Corp. (NYSE:DLX): Deluxe Corp. is a large check printer company providing customized printed products and services to financial institutions and small enterprises. DLX has a 3.6% dividend yield and returned 21.02% since the beginning of the year. DLX recently traded at $26.70. The stock has a market cap of $1.38B and P/E ratio of 9.15. Benjamin Slavet’s Ascend Capital had the largest position in DLX among the 300+ funds we are tracking.

3. Healthcare Services Group Inc. (NASDAQ:HCSG): Healthcare Services Group Inc. is a US company providing housekeeping, laundry and facility maintenance services to the Healthcare industry. HCSG has a 3.6% dividend yield and returned 10.08% since the beginning of the year. HCSG recently traded at $17.17. The stock has a market cap of $1.15B and P/E ratio of 33.42. Chuck Royce, Jim Simons, and Israel Englander had positions in HCSG at the end of December.

4. ABM Industries Inc. (NYSE:ABM): ABM Industries Inc. is a US company providing facility services and building maintenance. ABM has a 2.3% dividend yield but lost 7.80% in 2011. ABM recently traded at $23.59. The stock has a market cap of $1.26B and P/E ratio of 20.92. Ken Fisher’s Fisher Asset Management and Ranjan Tandon’s Libra Advisors are among ABM investors.

5. Cintas Corp. (NASDAQ:CTAS): Cintas Corp. is a US company that manufactures corporate identity uniforms and provides related business services. CTAS has a 1.5% dividend yield and returned 14.84% since the beginning of this year. CTAS recently traded at $31.77. The stock has a market cap of $4.64B and P/E ratio of 20.63.

6. Total System Services Inc. (NYSE:TSS): Total System Services Inc. is a US company providing electronic payment processing and related services worldwide. TSS has a 1.5% dividend yield and returned 23.96% in 2011. TSS recently traded at $18.62. The stock has a market cap of $3.65B and P/E ratio of 19.47. Steve Shapiro’s Intrepid Capital and Ray Dalio’s Bridgewater are among the TSS investors.

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

Source: Defensive Investing: 6 High Dividend Business Services Stocks