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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 stocks and consider them as alternatives to 10-year Treasury bonds. High dividend stocks generally perform well and usually increase dividend payments over the succeeding five to 10 years. Like Ray Dalio, we are concerned about the Fed’s inflationary monetary policy and want to protect ourselves against inflation. One of the ways of doing this without assuming significant risks is investing in high dividend stocks.

Below, we provide a list of top 40 S&P500 stocks by market cap and ranked them based on their annualized dividend yields (The sector classifications are sourced from Finviz and the market data are sourced from Fidelity).The stocks with higher and lower dividends, and their performances are shown below:

HIGHER DIVIDEND YIELDS

Dividend Yield

YTD Return

AT&T

T

5.74%

6.39%

Verizon Communications

VZ

5.37%

5.20%

Merck & Co Inc.

MRK

4.25%

-0.14%

Pfizer Inc.

PFE

4.08%

12.47%

Abbott Laboratories

ABT

3.68%

11.22%

Intel Corporation

INTC

3.67%

8.89%

ConocoPhilips

COP

3.59%

10.30%

Philip Morris International

PM

3.56%

25.03%

Johnson & Johnson

JNJ

3.46%

7.34%

Procter & Gamble Inc.

PG

3.33%

-0.99%

General Electric Co.

GE

3.23%

0.50%

Pepsico Inc.

PEP

3.22%

-0.78%

United Parcel Service

UPS

2.91%

-1.90%

Chevron Corp.

CVX

2.90%

17.54%

McDonald's Corp.

MCD

2.77%

15.24%

Wal-Mart Stores Inc.

WMT

2.72%

0.09%

The Coca-Cola Company

KO

2.72%

5.95%

3M Co.

MMM

2.45%

3.28%

JPMorgan Chase

JPM

2.41%

-2.91%

Microsoft Corp.

MSFT

2.28%

-0.87%

AVERAGE

6.09%

LOWER DIVIDEND YIELDS

Dividend Yield

YTD Return

Exxon Mobil Corp.

XOM

2.23%

15.18%

United Technologies

UTX

2.23%

7.50%

Comcast Corp.

CMCSA

1.78%

13.75%

Occidental Petreleum Corp.

OXY

1.76%

4.30%

Caterpillar Inc.

CAT

1.75%

9.63%

Wells Fargo & Company

WFC

1.66%

-7.27%

IBM

IBM

1.64%

24.61%

QUALCOMM Inc.

QCOM

1.52%

11.09%

Cisco Systems

CSCO

1.47%

-21.86%

Hewlett-Packard Co.

HPQ

1.28%

-12.13%

Schlumberger Limited

SLB

1.06%

10.43%

Goldman Sachs Group

GS

1.02%

-19.51%

Walt Disney Co.

DIS

0.99%

5.36%

Oracle Corp.

ORCL

0.75%

-1.38%

Visa Inc.

V

0.67%

25.16%

Bank of America

BAC

0.40%

-27.53%

Citigroup Inc.

C

0.10%

-19.07%

Apple Inc.

AAPL

0.00%

21.71%

Google Inc.

GOOG

0.00%

2.23%

Amazon.com Inc.

AMZN

0.00%

23.62%

AVERAGE

3.29%

SPY

3.76%

Since the beginning of this year, the average return of the 20 high dividend yielding S&P500 stocks was 6.09%, beating the SPY by 2.33%. The second group of 20 stocks with lower dividend yields returned 3.29% on average, underperforming both the stocks in the first group and the SPY.

We prefer high dividend stocks over low dividend stocks since the former generally performs better than the latter. Here are the top 10 mega-cap S&P500 stocks with the highest dividend yields:

AT & T is a leading telephone and television services provider. T has a 5.74% dividend yield and returned 6.39% since the beginning of this year. The stock has a market cap of $177.42B and P/E Ratio of 9.08. Phil Gross holds nearly $400M of T. Cliff Asness, George Soros, D.E. Shaw and Jim Simons are also among T investors.

Verizon Communications is a multinational telecommunications company. VZ has a 5.37% dividend yield and returned 5.20% to its investors in 2011. The stock has a market cap of $102.64B and P/E ratio of 19.20. Gross' Adage Capital had nearly $150 Million of VZ at the end of March 2011.

Merck & Co Inc. is a large pharmaceutical company operating worldwide. MRK has a 4.25% dividend yield but lost 0.14% since the beginning of this year. The stock has a market cap of $110.47B and P/E ratio of 68.83. Ric Dillon holds the largest MRK position among the 300+ funds we are tracking.

Pfizer Inc. is one of the leading pharmaceutical companies in the world. PFE has a 4.08% dividend yield and gained 12.47% since the beginning of this year. The stock has a market cap of $152.49B and P/E ratio of 18.21. David Einhorn’s Greenlight Capital holds more than $500 Million of PFE. Ken Fisher, Lee Ainslie, David Tepper and Gross are also among PFE investors.

Abbott Laboratories is another multinational pharmaceutical company on our list. ABT has a 3.68% dividend yield and gained 11.22% since the beginning of this year. The stock has a market cap of $81.10B and P/E ratio of 15.96. Fisher had more than $400 million in ABT at the end of March.

Intel Corp. is a leading technology company providing microprocessor products worldwide. INTC has a 3.67% dividend yield and returned 8.89% year-to-date. The stock has a market cap of $119.45B and P/E ratio of 10.19. Fisher, Paul Ruddock, Simons and Gross are prominent INTC investors.

ConocoPhilips is a global corporation delivering various energy products worldwide. COP has a 3.59% dividend yield and returned 10.30% since the beginning of this year. The stock has a market cap of $103.37B and P/E ratio of 9.21. Warren Buffett had a massive $2B worth holding in COP.

Philip Morris International is a multinational tobacco company that produces and sells cigarettes worldwide. PM has a 3.56% dividend yield and returned 25.03% year-to-date. The stock has a market cap of $127.64B and P/E ratio of 16.46. Tom Russo had more than $500 Million in PM at the end of March. Gross, D.E. Shaw, Michael Lowenstein and Simons are also among PM investors.

Johnson & Johnson is a global company that provides consumer healthcare and pharmaceutical products. JNJ has a 3.46% dividend yield and returned 7.34% in 2011. The stock has a market cap of $178.80B and P/E ratio of 15.61. Buffett holds a massive $2.5 Billion of JNJ.

Procter & Gamble Co. is a multinational company that provides a wide range of consumer packaged goods. PG has a 3.33% dividend yield but lost 0.99% since the beginning of this year. The stock has a market cap of $173.62B and P/E ratio of 16.37. Buffett had a massive $4.7B worth holding in PG. Gross, Fisher, Brett Barakett, Dillon and D.E. Shaw are other prominent PG investors.

Source: A List of High Dividend S&P500 Mega-Caps