Seeking Alpha
Alternative energy, solar, utilities, quantitative analysis
Profile| Send Message| ()  

Many investors recognize that Electric Utilities and Tobacco tend to be good places to look for solid companies with strong dividend yields. However, there are some other promising industries for dividend investors as well. While knowing the top yielding stock in a given industry is an interesting starting point, it is probably more valuable to know which industries have significant numbers of dividend paying companies and also which industries tend to provide above average dividend yields. This article will try to answer those questions.

The methodology for this analysis was to pull all dividend yielding stocks using data from Zacks.com. Unfortunately, Zacks.com provides a dividend yield based upon the most recent quarterly dividend payment annualized. Yahoo!Finance also uses this approach which is at odds with dividend yields from Google.com and Bloomberg, both of which pull a dividend yield based upon a trailing twelve months dividend. The differences are most pronounced with stocks that pay irregular dividends. This is especially common for ADRs for foreign companies, including the Southern Peru Copper Corporation (NYSE: SCCO). However, it is also true for some U.S. companies, including Cal-Maine Foods, Inc. (NASDAQ: CALM).

Companies were segmented into industries using Edgar Online's classification, which might cause some disputes. For example, I don’t think I would classify Wal-Mart Stores, Inc. (NYSE: WMT) as a department store; however, Discount Store is not a designation used by Edgar though it is used by other classification systems. Furthermore, World Wrestling Entertainment, Inc. (NYSE: WWE) is listed under motion pictures and happens to have the highest dividend yield in that group. Unfortunately, this is the only reasonable approach since its not feasible to check all ~2500 stocks.
The following table shows each industry, the weighted average dividend yield, and percentage of companies that pay a dividend. The weighting for the industry dividend yield was based on market capitalization for the companies and not just a straight average. For example, Semiconductors had an industry dividend yield of 2.0% despite only 14% of the companies paying a dividend. This is due to Intel Corp. (NASDAQ: INTC) paying a dividend around 3.2% with a market capitalization representing about 20% of the semiconductor market capitalization. So 0.6% of the 2.0% industry dividend yield is from just one of the 220 Semiconductor companies.

Industries Ranked by Aggregate Dividend Yield

Industry
Blended Yield
No. of Co.
%of Companies Paying Dividends
Aggregate Market Cap ($ Billions)
Ticker
Industry Leader
Tobacco
4.5%
9
78%
199
Altria Group
Natural Gas
4.2%
54
89%
315
Niska Gas Storage Partners LLC
Electric Utilities
4.1%
81
78%
524
Atlantic Power Corporation
Communications Services
4.0%
155
35%
1,150
Portugal Telecom SGPS, S.A .
Major Drugs
3.7%
17
35%
780
GlaxoSmithKline PLC
Fish & Livestock
3.6%
5
40%
1
Cal-Maine Foods, Inc.
Real Estate Operations
3.3%
183
70%
419
Armour Residential R
Water Transportation
3.2%
50
40%
32
Navios Maritime Partners LP
Water Utilites
3.0%
17
71%
11
California Water Service Group Holding
Integrated Oil
2.9%
24
79%
1,419
BreitBurn Energy Partners, L.P.
Printing
2.7%
12
33%
9
R.R. Donnelley & Sons Company
Personal & Household Products
2.7%
45
49%
357
Kimberly-Clark Corporation
Non-alcoholic Beverages
2.5%
20
35%
347
Dr Pepper Snapple Group, Inc
Computer Peripherals
2.5%
35
9%
72
Canon, Inc.
Forestry & Wood Products
2.5%
5
80%
14
Weyerhaeuser Company
Office Supplies
2.4%
9
67%
16
Deluxe Corporation
Airlines
2.3%
23
30%
61
Ryanair Holdings plc
Retail (Grocery)
2.3%
29
62%
103
SuperValu Inc.
Retail (Furnishings)
2.3%
8
50%
95
Home Depot, Inc. (The)
Retail (Department)
2.3%
16
56%
296
Wal-Mart Stores, Inc.
Security Services and Products
2.2%
25
16%
7
Diebold, Incorporated
Aerospace & Defense
2.1%
66
32%
370
Lockheed Martin Corporation
Waste Management Services
2.1%
33
12%
47
Waste Management, Inc.
Appliance & Tools
2.1%
18
39%
47
Elextrolux
Air Courriers
2.1%
8
50%
108
United Parcel Service, Inc.
Insurance (Property)
2.1%
95
62%
252
OneBeacon Insurance Group, Ltd.
Semiconductors
2.0%
220
14%
593
Taiwan Semiconductor Manufacturing Company Limited
Consumer Financial Services
2.0%
34
21%
348
General Electric Company
Insurance (Life)
2.0%
35
71%
303
Sun Life Financial Incorporated
Chemical Manufacturing
2.0%
106
44%
454
Terra Nitrogen Company, L.P.
Restaurants
2.0%
66
27%
199
McDonald's Corporation
Miscellaneous Financial Services
1.9%
46
28%
12
San Juan Basin Royalty Trust
Insurance (Miscellaneous)
1.9%
15
47%
55
Arthur J. Gallagher & Co.
Food Manufacturing
1.9%
86
37%
244
B&G Foods Holdings Corp.
Containers & Packaging
1.9%
32
41%
72
International Paper Company
Biotechnology & Drugs
1.9%
385
5%
873
Astrazeneca PLC
Iron & Steel
1.9%
27
63%
149
Ternium S.A.
Publishing
1.9%
36
36%
95
Thomson Reuters Corp
Railroads
1.8%
11
64%
125
Guangshen Railway Company Limited
Alcoholic Beverages
1.8%
15
47%
230
Molson Coors Brewing Company
Recreational Activities
1.8%
23
30%
46
Speedway Motorsports, Inc.
Construction - Supplies & Fixtures
1.8%
45
29%
118
Masco Corporation
Furniture & Fixtures
1.7%
29
41%
18
Leggett & Platt, Incorporated
Paper and Pulp
1.7%
22
50%
32
STORA ENSO CORP
Oil Production
1.7%
192
32%
1,192
Encore Energy Partners LP
Recreational Products
1.7%
38
26%
44
Mattel, Inc.
Coal Mining
1.7%
22
50%
93
Penn Virginia Resource Partners LP
Product Fabrication
1.7%
57
49%
95
National Steel Corporation
Miscellaneous Transportation
1.6%
22
36%
38
Grupo Aeroportuario Del Pacifico, S.A. de C.V.
Conglomerate
1.6%
6
50%
32
Tyco International, Ltd. (Switzerland)
Audio Video Equipment
1.5%
25
24%
92
Koninklijke Philips Electronics, N.V.
Electronic Instruments & Control
1.5%
153
22%
413
Molex Incorporated
Communications Equipment
1.5%
134
14%
400
Nokia Corporation
Personal Services
1.5%
27
44%
33
StoneMor Partners L.P.
Investment Services
1.4%
27
56%
57
Administradora de Fondos de Pensiones-Provida, S.A.
Broadcasting & Cable TV
1.4%
57
23%
335
Shaw Communications Inc.
Retail (Technology)
1.4%
8
25%
19
Best Buy Co., Inc.
Retail (Apparel)
1.4%
52
35%
112
American Eagle Outfitters, Inc.
Construction & Agricultural Equipment
1.4%
24
58%
183
Deere & Company
Construction - Raw Materials
1.4%
17
47%
41
Vulcan Materials Company
Business Services
1.3%
181
18%
219
Compass Diversified Holdings
Oil Well Services & Equipment
1.2%
83
31%
441
Transmontaigne Partners L.P.
Office Equipment
1.2%
10
20%
19
Xerox Corporation
Insurance (Accident & Health)
1.2%
21
43%
195
Aflac Incorporated
Rental & Leasing
1.2%
23
48%
35
TAL International Group, Inc.
Miscellaneous Capital Goods
1.2%
103
36%
220
Watsco, Inc.
Retail (Drug Stores)
1.2%
14
29%
114
Walgreen Company
Advertising
1.2%
32
19%
38
Harte-Hanks, Inc.
Agriculture Crops
1.1%
14
29%
6
Cosan Limited
Auto & Truck Parts
1.1%
47
26%
94
Genuine Parts Company
Fabricated: Plastics & Rubber
1.1%
15
27%
9
Carlisle Companies Incorporated
Chemicals: Plastics & Rubber
1.1%
11
64%
21
A. Schulman, Inc.
Footware
1.1%
18
39%
58
Nike, Inc.
Metals
1.1%
33
39%
365
Southern Peru Copper Corporation
Campers & RV Vehicles
1.1%
8
25%
2
Thor Industries, Inc.
Health Equipment
1.0%
209
13%
386
Meridian Bioscience Inc.
Software & Programming
0.9%
301
9%
889
Microsoft Corporation
Auto & Truck Manufacturing
0.9%
27
26%
415
Volvo
Hotels & Motels
0.8%
20
25%
53
Intercontinental Hotels Group
Scientific Instruments
0.8%
86
21%
159
Landauer, Inc.
Gold and Silver Mining
0.8%
47
38%
261
Newmont Mining Corporation (Holding Company)
Apparel
0.7%
49
22%
63
V.F. Corporation
Computer Services
0.7%
175
9%
612
EarthLink, Inc.
Retail (Specialty)
0.6%
69
25%
167
United Online, Inc.
Motion Pictures
0.6%
21
19%
22
World Wrestling Entertainment, Inc.
Trucking
0.6%
29
28%
23
Knight Transportation, Inc.
Construction Services
0.5%
78
24%
83
M.D.C. Holdings, Inc.
Non-metallic mining
0.5%
7
43%
73
Compass Minerals Intl Inc
Tires
0.5%
3
33%
5
Cooper Tire & Rubber Company
Schools
0.4%
48
13%
37
Strayer Education, Inc.
Computer Storage Devices
0.3%
23
9%
109
Seagate Technology.
Healthcare Facilities
0.2%
90
12%
132
National HealthCare Corporation
Computer Networking Equipment
0.2%
22
9%
17
Jack Henry & Associates, Inc.
Computer Hardware
0.2%
24
4%
440
Hewlett-Packard Company
Casino & Gaming
0.2%
36
14%
87
Ameristar Casinos, Inc.
Photography
0.2%
7
14%
4
CPI Corp.
Textiles - non apparel
0.1%
8
13%
6
IFSIA
Interface, Inc.
Jewelry
0.0%
11
9%
8
None
NA
Retail (Catalogue & Mail Order)
0.0%
24
8%
144
None
NA

Source: Data provided byZacks.com services and downloaded on July 6, 2011. Industry classifications provided by EDGAR Online’s I-Metrix Professional, XBRL-enabled application

In comparison, SPDR S&P 500 Trust (SPY) provides a dividend yield of 1.85% based on trailing twelve months of dividends and July 11th's closing price. As expected, the leading industries for dividends include Tobacco (#1), Electric Utilities (#3) and Communication Services (#4).

Perhaps not expected was the presence of Major Drugs (#5); however, it might be surprising to see that industry ahead of Integrated Oil (#10). Thirty-eight of the ninety-nine industries provided a blended dividend yield higher than SPY. So two interesting places to look would be Communications Services and Major Drugs. These two industries caught my eye since they have a high blended average dividend yield, yet fewer that half the companies in the industry pay dividends at all. The following table lists the top five dividend stocks in both companies that had at least $110 million in market capitalization.

Major Drug Dividend Stocks

Ticker Name Market Capitalization ($ Billion) Dividend Yield
GSK GlaxoSmithKline PLC $ 112 4.9%
MRK Merck & Company, Inc. $ 110 4.3%
PFE Pfizer, Inc. $ 164 3.9%
JNJ Johnson & Johnson $ 185 3.4%
NVS Novartis AG $ 141 3.3%

Source: Data provided byZacks.com services and downloaded on July 6, 2011

This list clearly excludes the biotechnology companies. In reviewing the list, it should be noted that both NVS and GSK pay more irregular dividends with NVS paying only once a year. As noted earlier, this means the trailing twelve month dividend yield for GSK may be different than its most recent dividend annualized which gave the 4.9% yield. The TTM dividend yield would be the same since the last four quarterly dividends have been $0.526, $0.615, $0.507 and $0.457, sum to $2.105 which is almost identical to 4 x $0.526 = $2.104. The second grouping is the Communications Services:

Communications Services Dividend Stocks

Ticker Name Market Cap $B Dividend Yield*
PT Portugal Telecom SGPS, S.A . $ 8.5 17.7%
CEL Cellcom Israel, Ltd. $ 2.8 11.9%
PTNR Partner Communications Company Ltd. $ 2.4 10.0%
FTR Frontier Communications Company $ 8.1 9.3%
WIN Windstream Corporation $ 6.7 7.6%
CTL CenturyLink, Inc. $ 24.6 7.1%
TSP Telecomunicacoes de Sao Paulo S.A. $ 9.9 6.8%
TLK P.T. Telekomunikasi Indonesia, Tbk. $ 17.1 4.5%
TEF Telefonica SA $ 109.9 8.8%
TEO Telecom Argentina Stet - France Telecom S.A. $ 5.2 5.9%
T AT&T Inc. $ 187.3 5.4%
BCE BCE, Inc. $ 30.8 5.2%
VZ Verizon Communications Inc. $ 107.0 5.2%
TMX Telefonos de Mexico $ 7.9 5.2%

Source: Data provided byZacks.com services and downloaded on July 6, 2011

*TMX, TLK, and TEF dividends were recalculated with Yahoo!Finance data using the TTM method. Yahoo!Finance simply uses twice it most recent semi-annual dividend of $1.082 on its quote page. PT, PTNR, CEL, TLK, TSP, TMX, TEO, TEF,BCE, all pay irregular dividends and hence these yields may differ, even substantially, from data sources that calculate dividend yields on a trailing twelve month basis.

I was somewhat surprised by the size of this group and listed all the companies with market capitalizations above $1 billion and dividend yields above 5%. There were another 15 stocks with yields from 3-5%. This list, with a large number of foreign companies, also raises the issue of irregular dividends.

PT gets close scrutiny for this and not just because it serves Portugal. A quick look at its dividend history shows that the dividends are irregular and only paid annually. PT's last dividend was $1.868 which is substantially higher than any dividend in the three preceding years. The previous dividend was $0.77 which is substantially lower but would still give a yield of 8.8%. The next issue is that the stock is down around its 52-week. With the troubles in Portugal is it at risk? Only additional analysis will help, but it seems to deserve some additional review.

CEL also pays irregular dividends on an approximate quarterly basis. FTR has paid regular dividends until recently when it cut the quarterly dividend from $0.25 to $0.188. CTL pays a robust dividend, but its quarterly dividend is 10x what it was just a few years ago.

Some other stocks show substantial differences in reported yield from one source to the next, making it necessary to look at the data itself. Both TMX and TEF face this issue and TEF only pays dividends twice annually. TEO probably should not be on the list since it has only paid 3 dividends in the last 10 years according to Yahoo!Finance.

So while there is clearly some need for significant additional work, this is still an interesting set of opportunities. PTNR pays irregular dividends, but wound up with its Zacks.com dividend yield being below its twelve month trailing dividend yield. Its most recent quarterly dividend was $0.382 which annualized would be $1.53 giving around a 10% yield, but the last four dividends sum to $1.94 giving a yield around 13% which seems a little too good.

However, some Communications Service companies are struggling as their wireline and long distance franchises become gutted by wireless and internet technologies. Others have substantial debt burdens.

Furthermore, one shouldn't be too excited by the high dividend yields since this is the entire return one should expect from many of these companies. A 7% dividend is nice, but if your total return is 5% it means your capital is dwindling away. For those who subscribe to modern portfolio theory and the capital asset pricing model, investors in many of these companies should anticipate capital depreciation given the high dividend yields and modest betas. Also, as with the Major Drug companies, it is important to consider the impact of foreign taxation issues on the effective dividend yield.

Conclusions

A systematic review of the dividend stock universe shows some industries are quite promising while others might just have one or two interesting stocks. I will be digging further into the Communication Services companies to find some opportunities. The expected dividend hunting grounds showed up, but there were also some new areas including Water Transport and Water Utilities as I noted in an earlier article.

Disclaimer: This article is for informational and educational purposes only and shall not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security.

Source: In Search of High Dividend Yields (An Industry by Industry Survey)