30 High-Dividend Services Stocks

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Includes: ABC, AZO, BBBY, BBY, CAH, CBS, CHRW, DG, DISCA, DISH, EXPD, GPS, GWW, KR, KSS, LB, LBTYA, M, MAR, NFLX, OMC, PAYX, QVCA, SPGI, SPLS, SYY, WFM, WU, WYNN
by: Insider Monkey

Recently we discussed investing in high dividend mega-cap services stocks. We showed that the risky large-cap services stocks with low dividend yields have performed much better recently. However, we believe investors should be more cautious about the upcoming inflationary environment and invest in defensive stocks with high dividend yields. Although defensive investing doesn’t always give the best returns in bull markets, it provides a better protection in down markets.

We believe similar defensive strategy can also be effective for mid-cap services stocks. We compiled a list of 30 services stocks (the sector classifications are sourced from Finviz) that have a market cap between $10B and $20B 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

Paychex Inc.

PAYX

3.9%

4.52%

14.7%

Sysco Corp.

SYY

3.2%

10.60%

14.4%

The Mc-Graw-Hill Companies

MHP

2.3%

17.49%

55.2%

Staples Inc.

SPLS

2.3%

-26.83%

-21.2%

Gap Inc.

GPS

2.2%

-14.41%

-12.7%

Best Buy Co.

BBY

1.9%

-8.56%

-22.9%

Omnicom Group Inc.

OMC

1.8%

1.87%

28.0%

Cardinal Health Inc.

CAH

1.7%

18.12%

40.2%

The Kroger Co.

KR

1.7%

9.25%

22.0%

Limited Brands Inc.

LTD

1.6%

27.05%

60.9%

W.W.Grainger Inc.

GWW

1.5%

8.43%

49.3%

CH Robinson Worldwide

CHRW

1.4%

-0.30%

41.5%

AmerisourceBergen Corp.

ABC

1.0%

22.37%

38.8%

Western Union Co.

WU

0.9%

11.13%

33.0%

Marriot International Inc.

MAR

0.8%

-11.18%

14.8%

AVERAGE

4.64%

23.73%

Click to enlarge

LOWER DIVIDEND YIELDS

Dividend Yield

YTD Return

52-week Return

Expeditors Internationals

EXPD

0.8%

-4.51%

41.2%

CBS Corp.

CBS

0.7%

38.51%

92.6%

Macy's Inc.

M

0.7%

11.96%

32.6%

Wynn Resorts Ltd.

WYNN

0.5%

38.34%

81.0%

Starwood Hotels & Resorts

HOT

0.5%

-4.75%

30.1%

Kohl's Corp.

KSS

0.5%

0.2%

7.2%

Whole Foods Market Inc.

WFM

0.3%

18.59%

52.3%

Netflix Inc.

NFLX

0.0%

47.68%

147.1%

Bed Bath & Beyond Inc.

BBBY

0.0%

10.30%

23.3%

Dish Network Corp.

DISH

0.0%

48.37%

40.1%

AutoZone Inc.

AZO

0.0%

9.31%

53.1%

Discovery Communications

DISCA

0.0%

3.91%

18.8%

Dollar General Corp.

DG

0.0%

8.12%

8.3%

Liberty Global Inc.

LBTYA

0.0%

25.07%

82.9%

Liberty Interactive Inc.

LINTA

0.0%

9.64%

39.9%

AVERAGE

17.38%

50.05%

Click to enlarge

In the last 52-week period, the average return of the high dividend yielding mid-cap services stocks was 23.73%. The second group of 15 stocks with lower dividend yields performed much better in the same period, returning 50.05% on average. Low dividend stocks also outperformed high dividend stocks since the beginning of this year. The average YTD return of the first group was 4.64% vs. 17.38% for the second group. Like the risky large-cap services stocks, the mid-cap services stocks with low dividend yields have already taken advantage of the recent uptrend so far. Since bull markets don’t last forever, it seems now may be a good time to be more defensive and rotate to high dividend yielding stocks for services sector.

Ten mid-cap services stocks with the highest dividend yields are as follows:

1. Paychex Inc. is a US company providing payroll, human resources and business outsourcing services. PAYX has a 3.9% dividend yield and returned 14.7% during the past 12 months. PAYX recently traded at $31.94 and returned 4.52% since the beginning of the year. The stock has a market cap of $11.56B and P/E ratio of 22.65. Generation Investment Management holds more than $100 Million in PAYX. Phill Gross’ Adage Capital also invested in PAYX.

2. Sysco Corp. is a US company distributing foods and related products in the North America. SYY has a 3.2% dividend yield and returned 14.4% during the past 12 months. SYY recently traded at $31.99 and gained 10.60% in 2011. The stock has a market cap of $18.67B and P/E ratio of 16.31. Jean-Marie Eveillard’s First Eagle has the largest position in SYY, holding more than $400M of the stock. Ric Dillon’s Diamond Hill and Generation Investment Management also have large positions in SYY.

3. The McGraw-Hill Companies is a US company providing publishing, broadcasting and related services worldwide. MHP has a 2.3% dividend yield and returned 55.2% during the past 12 months. The stock also performed well since the beginning of the year, gaining 17.49%. MHP recently traded at $42.20. The stock has a market cap of $12.86B and P/E ratio of 15.53. Barry Rosenstein’s Jana Partners invested more than $100M in MHP.

4. Staples Inc. is a large retail company providing office products worldwide. SPLS has a 2.3% dividend yield but lost 21.2% during the past 12 months. The stock also performed negatively since the beginning of the year, returning -26.83%. SPLS recently traded at $16.56. The stock has a market cap of $11.81B and P/E ratio of 13.45. Jim Simons’ Renaissance Technologies has the largest position in SPLS among 300+ funds we are tracking. David Gallo and Jonathon Jacobson are also among SPLS investors.

5. Gap Inc. is a retail company providing apparel and accessories worldwide. GPS recently traded at $19.20 and has a 2.2% dividend yield. The stock lost 12.7% during the past 12 months, while it returned -14.41%. GPS has a market cap of $11.19B and P/E ratio of 10.46. Edward Lampert’s Esl Investments holds more than $600 Million in GPS, being the biggest investor among many funds.

6. Best Buy Co. is a large retail company providing consumer electronics, entertainment products and appliances worldwide. BBY has a 1.9% dividend yield but lost 22.9% during the past 12 months. The stock also performed negatively in 2011, returning -8.56%. BBY recently traded at $31.59. The stock has a market cap of $12.30B and P/E ratio of 10.26. David Einhorn’s Greenlight Capital has nearly $175M in BBY. Bill Miller’s Legg Mason Capital also holds more than $100M in BBY.

7. Omnicom Group Inc. is an advertising company providing advertising, marketing and communications services worldwide. OMC has a 1.8% dividend yield and returned 28.0% during the past 12 months. OMC recently traded at $46.64 and gained 1.87% in 2011. The stock has a market cap of $13.11B and P/E ratio of 16.22. Jean-Marie Eveillard’s First Eagle has more than $300 Million in OMC. Harris Associates, John W. Rogers and Phill Gross are also among OMC investors.

8. Cardinal Health Inc. is a US company providing healthcare solutions and related services in the United States. CAH has a 1.7% dividend yield and returned 40.2% during the past 12 months. The stock also performed well since the beginning of the year, gaining 18.12%. CAH recently traded at $45.35. The stock has a market cap of $15.90B and P/E ratio of 16.42. Greenlight Capital has more than $250M in CAH. Larry Robbins’ Glenview Capital, Andreas Halvorsen’s Viking Global and D.E. Shaw also hold CAH positions.

9. The Kroger Co. is one of the largest grocery store chains in the United States. KR has a 1.7% dividend yield and returned 22.0% during the past 12 months. KR recently traded at $24.72 and returned 9.25% since the beginning of the year. The stock has a market cap of $14.99B and P/E ratio of 14.21. Jonathan Jacobson’s Highfields Capital, David Gallo’s Valinor Management and Ken Griffin’s Citadel Investment are prominent investors of KR.

10. Limited Brands Inc. is a US retailer company providing women clothing and personal care products. LTD has a 1.6% dividend yield and returned 60.9% during the past 12 months. The stock also performed well since the beginning of the year, gaining 27.05%. LTD has a market cap of $12.63B and P/E ratio of 15.29. Jeffrey Vinik’s Vinik Asset Management, David Keidan’s Buckingham Capital and Doug Silverman’s Senator Investment hold the largest positions in LTD among many funds.

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