10 Dividend Plays That Trample 10-Year Treasury Yields

by: Tactical Investor

No man was ever wise by chance. --Seneca

With all this market volatility, some traders might be inclined to look for some sort of safety. Diving into Treasuries simply makes no sense. This Tuesday yields on 10-year Treasuries dipped down to 1.97%. When adjusted for inflation, the rate of return is negative. Commodities, which have been very good investments for the past few years, have experienced a strong run up and still need to let out some steam before they become attractive again, especially the precious metals sector. Given that the economy is still very weak and unemployment is destined to remain high for years to come, a high dividend is something to consider for investors looking for some sort of predictability. These yields can supercharge a portfolio over time; the key to such an approach is to reinvest the dividends and to take a long-term view. This sort of investment is generally not for investors seeking short-term, rapid-fire gains.

Before we list the top players, we'll provide some background information on the relevant companies.

iShares iBoxx $ High-Yield Corporate Bond ETF (NYSEARCA:HYG)

The fund seeks results that correspond generally to the price and yield performance, before fees and expenses, of the iBoxx $ Liquid High Yield Index. The fund invests at least 90% of assets in securities the index comprises. However, it may invest up to 20% of assets in certain futures, options and swap contracts, cash and cash equivalents, and in bonds not included within the index, but which the adviser believes will help the fund track the underlying index. The index is a rules-based index consisting of the most liquid and tradable U.S. dollar-denominated, high-yield corporate bonds for sale in the U.S. The fund is non-diversified. (More details)

iShares S&P U.S. Preferred Stock Index ETF (NYSEARCA:PFF)

The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P U.S. Preferred Stock Index. The fund generally invests at least 90% of its assets in securities of the index and in depositary receipts representing securities of the index. The index measures the performance of a select group of preferred stocks listed on the New York Stock Exchange, NYSE Arca, Inc., NYSE Amex, Nasdaq Global Select Market, Nasdaq Select Market or Nasdaq Capital Market. The fund is non-diversified. (More details)

iShares MSCI Brazil Index ETF (NYSEARCA:EWZ)

iShares MSCI Brazil Index Fund seeks to provide investment results that correspond to the price and yield performance, before fees and expenses, of publicly traded securities in the aggregate in the Brazilian market, as measured by the MSCI Brazil Index. The fund invests in a sample of securities included in the Index that collectively has an investment profile similar to the Index. As at August 31, 2009, the Fund’s investment portfolio includes basic materials, energy, financial, consumer non-cyclical, utilities, communications, diversified, industrial, consumer cyclical, and short-term and other net assets. The investment advisor of the fund is BlackRock Fund Advisors. (More details)

Spectra Energy Partners, LP (NYSE:SEP)

Spectra Energy Partners, LP (Spectra Energy Partners), through its subsidiaries, is engaged in the transportation and gathering of natural gas through interstate pipeline systems. Spectra Energy Partners has over 3,100 miles of pipelines that serve the southeastern quadrant of the United States and the storage of natural gas in underground facilities with aggregate working gas storage capacity of approximately 49 billion cubic feet located in southeast Texas, south central Louisiana and southwest Virginia. The company’s operations and activities are managed by its general partner, Spectra Energy Partners DE GP, LP, which in turn is managed by its general partner, Spectra Energy Partners GP, LLC. During the year ended December 31, 2010, it acquired an additional 24.5% interest in Gulfstream Natural Gas System, L.L.C. from a wholly owned subsidiary of Spectra Energy. (More details)

Annaly Capital Management (NYSE:NLY)

Annaly Capital Management, Inc. owns, manages and finances a portfolio of real estate related investments, including mortgage pass-through certificates, collateralized mortgage obligations, agency callable debentures, and other securities representing interests in the obligations backed by pools of mortgage loans. The company also invests in Federal Home Loan Bank , Freddie Mac and Fannie Mae debentures. The company’s wholly owned subsidiaries offer diversified real estate, asset management and other financial services. It is self-advised and self-managed. Fixed Income Discount Advisory Company and Merganser Capital Management, Inc. manage a number of investment vehicles and separate accounts, for which they earn fee income. RCap Securities Inc. is its wholly owned broker-dealer taxable real estate investment trust (REIT) subsidiary, which generates fee income. The company also owns an investment fund. (More details)

Veolia Environnement (VE)

Veolia Environnement is a France-based company which provides environmental management services. It provides environmental services through four divisions: water, environmental services, energy services and transportation. It has operations in Europe, Asia and the United States. Waste water services include management of water and services for municipal and industrial clients; Environmental services include recycling and recovery of waste and resource conservation; Energy sector provides energy and climate conditioning services, power equipment installations and industrial maintenance and Transportation services include airport hub services, rail branch line management and management of regional and national public transit systems under public-private partnerships. The company operates through several subsidiaries, including Thermal North America Inc, Veolia Water, Veolia Proprete, ONYX EST, Dalkia Investissement and Parc des Fontaines, among others. (More details)

Mercury General Corporation (NYSE:MCY)

Mercury General, through its subsidiaries, is primarily engaged in writing automobile insurance in a number of states, principally California. Mercury General also writes homeowners, mechanical breakdown, fire, umbrella, and commercial automobile and property insurance. The company offers automobile policyholders various types of coverage, such as bodily injury liability, underinsured and uninsured motorist, personal injury protection, property damage liability, comprehensive, collision and other hazards. It sells its policies through approximately 5,700 independent agents and brokers, of which over 1,100 are located in each of California and Florida. The remaining agents and brokers are located in Georgia, Illinois, Texas, Oklahoma, New York, New Jersey, Virginia, Pennsylvania, Arizona, Nevada, and Michigan. No independent agent or broker accounted for more than 2% of its direct premiums written during the year ended December 31, 2010. (More details)

United Microelectronics Corporation (NYSE:UMC)

United Microelectronics Corp. is principally engaged in the manufacture of semiconductor products. The company operates its businesses primarily through wafer production services. It provides the customer-tailored design, testing and production of silicon intellectual property products, embedded integrated circuits, masks and wafers. The company offers complementary metal-oxide semiconductor logics, mixed signals, radio frequency CMOS, embedded memory products, high voltage and CMOS image sensors. The company distributes its products primarily in North America, Asia and Europe. In December 2010, the Company acquired a set of equipment from ASML and another set of equipment from KLA-TENCOR Corporation. In March 2011, the company liquidated its wholly owned subsidiary, Alpha Wisdom Limited. In April 2011, the company formed a subsidiary in Beijing.

SPDR Barclays Capital High Yield Bond ETF (NYSEARCA:JNK)

SPDR Barclays Capital High Yield Bond ETF, formerly SPDR Lehman High Yield Bond ETF, seeks to provide investment results that correspond to the price and yield performance of the Barclays Capital High Yield Very Liquid Index. The index includes publicly issued United States dollar-denominated, non-investment grade, fixed-rate, taxable corporate bonds that have a remaining maturity of at least one year, regardless of optionality, are rated high-yield using the middle rating of Moody’s, S&P, and Fitch, respectively, and have $600 million or more of outstanding face value. Excluded from the index are non-corporate bonds, structured notes with embedded swaps or other special features, private placements, bonds with equity-type features, floating-rate issues, eurobonds, defaulted bonds, payment in kind securities and emerging market bonds. The investment manager of the fund is SSgA Funds Management, Inc. (More details)



Market Cap







High-Yield bond










Latin American stock




194 million

Oil & gas pipelines





Diversified REITS





Waste management





Property & casualty insurance





Semiconductor equip





High-Yield bonds






Some more notes: NGG has a forward annual dividend yield of 7.6%. It currently pays out a 5.9% yield and has managed to grow this yield at a pace of 6.9% over the last 5 years.

NLY has 5-year dividend growth rate of 30%. This company has rewarded investors handsomely over the years. It has a great track record when it comes to dividend payments, and should continue to perform well in the years to come. Its business is centered around the spread it earns between buying long-term mortgage-backed securities that are guaranteed by the government and borrowing via short-term loans that typically last only 30 days. It then uses the money from these short-term loans to buy mortgages that are guaranteed by the GSEs (government sponsored entities). The company earns money through these long-term mortgages. At the end of the 30-day period, NLY borrows again in order to pay off the previous loan, and the whole process starts again.

Because it’s structured as an REIT, it has to pay out almost all its earnings, hence the rather lofty dividend yields. It has a leverage ratio of roughly 6.35%; in other words $6.35 for every dollar of equity. This can be a good thing and a bad thing. If spreads decrease quickly, profits can drop rapidly, and vice versa. However, it has a prudent team, and they monitor their leveraged position very closely. Investors need to take this factor into consideration when deciding how much money they want to invest in this company.

Learn all you can from the mistakes of others. You won't have time to make them all yourself. --Alfred Sheinwold

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.