With the S&P 500 (NYSEARCA:SPY) yielding a paltry 2.09%, I looked to the proverbial dividend gods to see what value plays could boost portfolio yield.
Below are the 5 stocks I found:
American Capital Agency Corp (NASDAQ:AGNC)
American Capital Agency Corp is a REIT that invests in securities whose payments (interest and principal) are guaranteed by either US government agency or US government sponsored entity. AGNC is currently offering hefty risk adjusted 19.60% dividend yield to its investors as compared to US 10 year treasuries bond yield of 2.13%.
The company has paid $1.40 in dividend in its last quarter and maintaining its high payout ratio despite of the decline in EPS for the past three quarters. This also indicates the consistent payout strategy by the management and comfortable cash position of the company. AGNC net earnings posted a handsome quarter over quarter growth of 33.00% during the second quarter of FY 11 and the earnings were recorded at $177.80 million or $0.44 per share compared to $133.50 million or $0.42 per share in the first quarter.
The stable interest rates in the future until mid of 2013 as indicated by the Federal Reserve will be helpful to the mREITs, as it will ensure reduced pressure on borrowing rates for the next few years. REITs are expected to provide healthy dividend yields to the investors as the steep yield curve will result in low short term rates. In addition to that, high down payment requirements coupled with low conforming loan limits will reduce the prepayment risk inherent in mortgages.
The stock was closed at $27.76 as on 25 August, 2011. The major risk concerning the company is a further slump in housing prices, increase in inflation or overall decrease in paying capacity of borrowers due to the economic crisis. However at current levels AGNC is a very good buy for value investors who like to enjoy very high dividend yield along with capital gain potential.
Southern Company (NYSE:SO)
Southern Company is one of the largest electricity generators in the industry operating in the southeastern United States with installed capacity of more than 42,000 megawatts. SO is in a defensive industry that is relatively immune to the current financial crisis as the company produces a necessity rather than a luxury product. SO reported earnings of $ 603.30 million or $0.71 per share for the second quarter ending June 30, 2011 compared to $510.20 billion or $0.62 per share during the same period last year.
The regulatory actions at Georgia Power resulted in the savings of approximately $300 million and thus impacted the earnings positively. A dividend of $0.47 per share was announced by SO for the second quarter registering a growth of 3.96% over the previous quarter, taking its payout ratio to 79.00% in FY10.
The 5 year historical dividend growth rate of SO is 4.10%. The stock traded at $ 41.23 as on August 24, 2011 with trading volume of 7.93 million shares and day range of $40.61-$41.20. In summary, the company is ready to take future growth through a large diversified network with a projected EPS of $2.54 during FY 11 compare to $2.37 during FY 10. The stock is suitable for value investors looking for stable dividend earnings in defensive industry.
Vodafone Group Plc (NASDAQ:VOD)
Vodafone Group Plc provides mobile communication services all over the globe to more than 340 million mobile customers and is operating 7600 stores and 2100 service centre’s worldwide. VOD incurred heavy capital expenditures in order to further refine its network systems which hammered its payout capacity and the payout ratio stood at 54.00% during the last quarter.
VOD has declared interim dividend of $0.98 per share for 1st quarter of 2011. VOD reported a free cash flow of $2.04 billion or 0.40 per share for the first quarter ended June 30, 2011 compare to $2.93 billion or 0.57 per share during the same period last year. This sharp reduction of 30.3% in cash was due to higher capital expenditure and the result of cuts in mobile termination rates across southern Europe.
VOD is actively pursuing to balance its revenue streams through emerging markets while the European market segment is expected to take a dip. As a result, a well balanced flow of revenue is expected for the next years with an expected sales growth of 26.60% for FY12. The closing price of the stock as of August 25, 2011 is $26.53.
It has traded in the range of $23.06 – $29.75 in last 52-weeks. The market consensus estimated fair value of the company is $33.30. VOD is offering total return of 32.5% in a one year to its investors. The stock seems to be a buy for investors seeking a positive return in anticipation of high growth phase.
Kimco Reality Corporation (NYSE:KIM)
Kimco Reality Corporation is a publicly owned REIT that invests in real estate markets across the globe with a focus on North America. Net income available to common share holders reported during the last quarter was $23.9 million or 0.064 per diluted share for the second quarter of 2011 compared to $12.8 million or 0.03 per diluted share in the same period last year.
The dividends for the second quarter remained unchanged at $0.18 per share maintaining the same average over the past few quarters and a high payout ratio. After the blow of FY08, KIM focused on improving the income and subsequent dividend income for its shareholders as evident from the swelling trend witnessed in the dividend stream on a yearly basis. The positive spread between borrowing and lending costs coupled with all time low treasury yields in the near future due to slow economic recovery are helping commercial property incomes to climb up.
The consensus one year target price estimate of KIM is $19.41. At the current price KIM is providing 4.30% dividend yield and 18% upside potential to in its investors, taking total return in one year time to 22.30%. Considering the current scenario, the stock seems to be a buy.
Waste Management Inc (NYSE:WM)
Waste Management Inc provides waste management services to residential, industrial and commercial customers in North America. The stock traded at $32.48 on August 25, 2011 with a trading volume of 8.28 million shares. The dividends have had an uptrend for the past 5 years with stable growth rate and the last interim dividend declared was $0.34 with a payout ratio of 66%.
The annual dividend yield of the company is 4.10%, offering much better risk adjusted return on investment when compared to US treasuries. The company enjoys a commanding position in the industry through its massive size and development network with a projected growth rate of 10.30% for the next five years. Over the years, WM has shifted its focus to environment friendly activities, thus gaining more support from environmental activists.
In addition to that, the company has remained successful in aligning the strategic decisions with the revenue figures which is evident from the revenue of $12.52 billion during FY10 registering a growth of 6.1% over the previous year. In the slow growing economy, the stock seems to be a good buy for investors seeking stable dividend income in a relatively less volatile industry shared with duopoly Republic Services (NYSE:RSG).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.