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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 during that period. In another article, we compiled a list of top 30 S&P 500 Financial Stocks and showed that high dividend yielding financial stocks performed better than low dividend yielding ones since the beginning of this year.

We prefer high dividend stocks since they generally perform better and usually increase dividend payments over the succeeding 5-10 years. In addition, we are concerned about the Fed’s loose monetary policy and want to protect ourselves against inflation. One of the best ways to play defense in an inflationary environment is by investing in high dividend yielding stocks.

We compiled a list of the top 30 S&P 500 Consumer Goods Stocks (The sector classifications are sourced from Finviz and the market data are sourced from Fidelity) by market cap and ranked them based on their annualized dividend yields. The top and bottom halves and their performances are shown below.

HIGHER DIVIDEND YIELDS

Dividend Yield

YTD Return

Reynolds American Inc.

RAI

6.09%

9.94%

Altria Group Inc.

MO

5.77%

10.25%

Lorillard Inc.

LO

4.86%

34.06%

Kimberly-Clark Corp.

KMB

4.34%

4.62%

HJ Heinz Co.

HNZ

3.72%

6.44%

International Paper Co.

IP

3.70%

5.70%

Philip Morris International

PM

3.67%

21.88%

Avon Products Inc.

AVP

3.66%

-14.02%

Campbell Soup Co.

CPB

3.52%

-3.54%

Procter & Gamble

PG

3.45%

-3.33%

Kraft Foods Inc.

KFT

3.38%

10.79%

General Mills Inc.

GIS

3.34%

5.61%

Pepsico Inc.

PEP

3.19%

0.19%

Kellogg Company

K

3.16%

7.99%

The Coca-Cola Company

KO

2.80%

5.51%

AVERAGE

6.81%

LOWER DIVIDEND YIELDS

Dividend Yield

YTD Return

Colgate-Palmolive Co.

CL

2.75%

7.09%

Hershey Co.

HSY

2.42%

22.60%

Sara Lee Corp.

SLE

2.41%

10.12%

Archer Daniels Midland Company

ADM

2.24%

-0.54%

V.F. Corp.

VFC

2.20%

34.75%

Xerox Corp.

XRX

1.91%

-22.07%

PACCAR Inc.

PCAR

1.80%

-29.75%

Johnson Controls Inc.

JCI

1.78%

-4.09%

Mead Johnson Nutrition Co.

MJN

1.48%

14.16%

Coach Inc.

COH

1.47%

12.66%

Nike Inc.

NKE

1.42%

2.69%

Ecolab Inc.

ECL

1.41%

-1.10%

Estee Lauder Companies

EL

0.74%

24.82%

Polo Ralph Lauren Corp.

RL

0.63%

17.14%

Ford Motor Co.

F

0.00%

-30.61%

AVERAGE

3.86%

Since the beginning of this year, the top 30 S&P 500 consumer goods stocks gained 5.33% vs. 0.21% for the SPY. During this period, higher dividend yielding consumer goods stocks performed much better than lower dividend yielding ones. The average return of the 15 high dividend yielding S&P 500 consumer goods stocks was 6.81%, outperforming the average return of the 15 lower yielding consumer good stocks by almost 3 percentage points.

We prefer high dividend stocks over low dividend stocks since the former generally deliver higher returns. Ten S&P 500 consumer stocks with the highest dividend yields are as follows:

1. Reynolds American Inc. (NYSE:RAI): Reynolds American Inc. is a large U.S. tobacco company operating worldwide. RAI has a 6.09% dividend yield and returned 9.94% since the beginning of this year. The stock has a market cap of $20.23B and P/E Ratio of 15.09. Jim Simons, David Winters and Cliff Asness are prominent RAI investors.

2. Altria Group Inc. (NYSE:MO): Altria Group Inc., formerly known as Philip Morris Companies Inc., is the parent company of five tobacco corporations. MO has a 5.77% dividend yield and returned 10.25% since the beginning of this year. The stock has a market cap of $54.60B and P/E Ratio of 16.07. Tom Russo had more than $150 Million in MO at the end of March 2011. (See Tom Russo's favorite stocks)

3. Lorillard Inc. (NYSE:LO): Lorillard Inc. is the third largest tobacco company in the United States. LO has a 4.86% dividend yield and gained 34.06% since the beginning of this year. The stock has a market cap of $14.81B and P/E Ratio of 14.63. Both Jim Simons' Renaissance Technologies and Jean-Marie Eveillard's First Eagle hold more than $200 Million of LO. (Check out Jim Simons’ other bullish stocks here)

4. Kimberly-Clark Corp. (NYSE:KMB): Kimberly-Clark Corp. is an American company producing paper-based personal care products. KMB has a 4.34% dividend yield and returned 4.62% since the beginning of this year. The stock has a market cap of $25.36B and P/E Ratio of 15.26. Ric Dillon’s Diamond Hill had the largest position in KMB among the 300+ funds we are tracking.

5. HJ Heinz Co. (NYSE:HNZ): H.J. Heinz Co. is an American company providing food products worldwide. HNZ has a 3.72% dividend yield and gained 6.44% since the beginning of this year. The stock has a market cap of $16.64B and P/E Ratio of 16.90. Nelson Peltz’s Trian Partners had nearly $100 Million in HNZ. Robert J.Caruso’s Select Equity and Jim Simons’ Renaissance Technologies are also among HNZ investors.

6. International Paper Co. (NYSE:IP): International Paper Co. is a global corporation providing pulp and paper products worldwide. IP has a 3.70% dividend yield and returned 5.70% since the beginning of this year. The stock has a market cap of $12.41B and P/E Ratio of 10.03. John Paulson holds the largest IP position among the 300-plus funds we are tracking.

7. Philip Morris International (NYSE:PM): Philip Morris International is a multinational tobacco company that produces and sells cigarettes worldwide. PM has a 3.67% dividend yield and gained 21.88% since the beginning of this year. The stock has a market cap of $124.42B and P/E Ratio of 16.05. Tom Russo had more than $500 Million in PM at the end of March. Phill Gross, D.E. Shaw, Michael Lowenstein and Jim Simons are also among PM investors.

8. Avon Products Inc. (NYSE:AVP): Avon Products Inc. is a global company providing beauty products, cosmetics and toys worldwide. AVP has a 3.66% dividend yield but lost -14.02% since the beginning of this year. The stock has a market cap of $10.60B and P/E Ratio of 14.56. Jim Simons’ Renaissance Technologies and Phill Gross’ Adage Capital are prominent AVP investors.

9. Campbell Soup Co. (NYSE:CPB): Campbell Soup Co. is a US company that produces and sells canned soups and related products worldwide. CPB has a 3.52% dividend yield but lost -3.54% since the beginning of this year. The stock has a market cap of $10.58B and P/E Ratio of 13.56. Mason Hawkins’ Southeastern Asset Management holds more than $600M of CPB.

10. Procter & Gamble (NYSE:PG): Procter & Gamble is a global company that provides a wide range of consumer packaged goods. PG has a 3.45% dividend yield but lost -3.33% since the beginning of this year. The stock has a market cap of $169.52B and P/E Ratio of 16.60. Warren Buffett has a massive $4.5 Billion in PG. Phill Gross and Ken Fisher are other prominent PG investors.

Source: 30 Dividend Paying Consumer Stocks for Defensive Investing