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 yielding stocks and consider them as alternatives to 10 year Treasury bonds. Fixed-income investors have taken advantage of the dovish environment since the Fed intervened in the global financial turmoil by its loose monetary policy. Considering the fact that the recent disinflation period doesn’t last forever, we believe that the risky times are upon fixed-income investors. We think now may be the time for investors to switch from low-yielding bonds to higher-yielding stocks with attractive prices.
Below, we prepared a list of 13 mega-cap US stocks with high dividend yields and low P/E ratios. The market data are sourced from Fidelity. All companies in this list have market capitalizations above $10 billion, annualized dividend yields of at least 2%, and current P/E ratios lower than 10. These stocks returned 32.52% (including dividends) in the same period, beating the government bonds by a large margin.
AT & T (T): AT & T is a global telecommunications company providing telephone, internet and TV services. T recently traded at $31.63 and has a 5.43% dividend yield. T gained 37.76% during the past 12 months. T also performed well this year, returning 10.79% year-to-date. The stock has a market cap of $187.61B and P/E ratio of 9.37. Phill Gross' Adage Capital holds nearly $400M of T. Cliff Asness, D.E. Shaw and Jim Simons are also among T investors. (Check out Phill Gross’ top stock picks)
JP Morgan & Chase (JPM): JP Morgan & Chase is one of the largest financial services providers in the world. JPM has raised its dividend this year and has a 2.44% annualized dividend yield. JPM gained 14.56% during the past 12 months. JPM hasn’t performed well this year, losing 2.05% year-to-date. The stock has a market cap of $165.23B and P/E ratio of 9.24. Paul Ruddock’s Lansdowne Partners holds more than $600M of JPM.
ConocoPhillips (COP): ConocoPhillips is an energy company delivering various energy products worldwide. COP recently traded at $75.85 and has a 3.48% dividend yield. COP gained 60.19% during the past 12 months. COP also performed well this year, returning 13.40% year-to-date. The stock has a market cap of $107.26B and P/E ratio of 9.14. Warren Buffett had a massive $2B worth holding in COP. (See Warren Buffett’s top stock holdings)
Eli Lilly & Co. (LLY): Eli Lilly and Co. is a large pharmaceutical company operating worldwide. LLY recently traded at $37.28 and has a 5.20% dividend yield. LLY returned 16.00% to its investors during the past 12 months. The stock has a market cap of $43.61B and P/E ratio of 8.56. Jim Simons' Renaissance Technologies had more than $200M in LLY at the end of March 2011.
Dominion Resources Inc. (D): Dominion Resources Inc. is a US utilities company supplying electricity and natural gas to North Carolina, and Virginia. D recently traded at $48.61 and has a 4.05% dividend yield. D returned 29.68% during the past 12 months. D also performed well in 2011, returning 16.24% year-to-date. The stock has a market cap of $27.99B and P/E ratio of 9.17. Steven Cohen holds the largest D position among the 300-plus funds we are tracking.
ACE Limited (ACE): ACE Limited is a global company providing insurance business and services. ACE recently traded at $65.30 and has a 2.05% dividend yield. ACE performed well and gained 32.13% during the past 12 months. The stock returned 6.02% year-to-date. ACE has a market cap of $22.03B and P/E ratio of 8.56. Eric Mindich and Steven Cohen are prominent ACE investors.
Archer Daniels Midland Company (ADM): Archer Daniels Midland Company is a US conglomerate providing agricultural commodities and products worldwide. ADM recently traded at $31.01 and has a 2.08% dividend yield. ADM returned 22.69% during the past 12 months, whereas it returned 4.06% year-to-date. ADM has a market cap of $19.78B and P/E ratio of 9.60. Peter J. Eichler Jr. and Bart Baum are among ADM investors.
The Chubb Corporation (CB): The Chubb Corporation is a large US insurance company. CB recently traded at $62.20 and has a 2.51% dividend yield. CB gained 29.81% during the past 12 months, while it returned 5.66% year-to-date. CB has a market cap of $18.20B and P/E ratio of 8.75. Both Ken Griffin and Steven Cohen hold more than $100M of CB.
SeaDrill Limited (SDRL): SeaDrill Limited a US company (with headquarters in Bermuda) operating in the oil and gas industry. SDRL recently traded at $35.81 and has an 8.38% dividend yield. SDRL performed well and almost doubled its price during the past 12 months. SDRL returned 10.38% year-to-date. The stock has a market cap of $16.71B and P/E ratio of 9.45. Bain Capital had $50M in SDRL at the end of March 2011.
Annaly Capital Management Inc. (NLY): Annaly Capital Management Inc. is a portfolio management company specializing in mortgage-backed securities. NLY recently traded at $18.26 and has a high dividend yield of 14.18%. NLY returned 20.83% during the past 12 months, while it returned 9.34% year-to-date. The stock has a market cap of $14.85B and P/E ratio of 7.94. James Melcher’s Balestra and Andy Redleaf’s Whitebox Advisors are among prominent NLY investors.
Entergy Corporation (ETR): Entergy Corporation is an energy company that produces and distributes electric power. ETR has a 4.93% dividend yield, but lost 2.44% during the past 12 months. ETR also performed negatively in 2011, returning -2.69% year-to-date. The stock has a market cap of $11.98B and P/E ratio of 9.74. Glen Russel Dublin's Highbridge Capital, Clint Carlson's Carlson Capital and Cliff Asness' AQR Capital hold the largest positions in ETR among many funds we are tracking.
KKR & Co. L.P. (KKR): KKR & Co. L.P. is an MLP that operates as a global private equity and venture capital firm. KKR recently traded at $16.03 and has a 5.24% annualized dividend yield. KKR gained 67.76% during the past 12 months. KKR also performed well this year, returning 16.16% year-to-date. The stock has a market cap of $10.95B and P/E ratio of 8.91. Lansdowne Partners and Leon Cooperman are among KKR investors.
The Gap Inc. (GPS): The Gap Inc. is a US retailer for clothing and accessories. GPS has a 2.48% dividend yield, but lost 4.18% during the past 12 months. GPS also performed worse in 2011, returning -16.61% year-to-date. The stock has a market cap of $10.00B and P/E ratio of 9.88. Edward Lampert’s ESL Investments had more than $600M of GPS at the end of March 2011.