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).
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 | ELUXY | 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 | SEOAY | 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 | VOLVY | 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.
Disclosure: I am long GSK, SPY
