U.S. stock market falls one week and rallies the next, as Europe struggles with its debt crisis and domestic economy remains uncertain.
With the markets on a volatile swing, investors find it hard to balance their portfolios with fixed income.
The 10-year Treasury note is traditionally used by investors as a benchmark to sense clues about the central bank's economic outlook.
With the 10-year bond yielding less than 2 percent, investors are progressively focusing on dividend stocks to stabilize their income.
To find the best of fixed income and capital gains, consider buying stocks that pay reasonable dividends and have dropped on their price because of market faults. Since dividend yields jump high when share prices drop, investors following this strategy can obtain quality stocks at deep discounts.
This strategy does not call for simply picking high yielding stocks. While making sure the dividend yield is reasonable, investors should also be mindful of the company’s fundamentals.
Investors often look at a company’s cash position to believe that its dividends will sustain, but a company that has a lot of cash will not necessarily sustain or grow its dividends.
“If the company is using its cash flow to pay your dividend you should worry…you might get paid back with your own money,” says Jim Van Meerten, Marketocracy Master. “Make sure the current dividends are covered by current earnings, not by positive cash flow.”
Keeping up with the company’s earnings along with its dividends is a simple step to choosing strong dividend stocks. A basic way to do this is to evaluate reasonable dividend stocks with its earnings yield. Earnings yield is earnings per share from the previous four quarters divided by the share price. It is the reciprocal of the P/E ratio. This yield illustrates the percentage of each dollar invested that was earned by the company during the past twelve months.
The seven stocks below are yielding reasonable dividends balanced with higher earnings yield:
AT&T Inc. (NYSE:T)
AT&T and its subsidiaries provide telecommunication services to consumers, businesses, and other service providers worldwide. AT&T is currently yielding dividend at 6.12 percent and has an earnings yield of 11.99 percent. This stock has seen its 52-week low at 27.20 with its high at 31.94. The current 50-day moving average for AT&T is 28.46.
Royal Bank of Canada (NYSE:RY)
Royal Bank of Canada is a diversified financial services company. The company provides personal and commercial banking, wealth management services, insurance, corporate and investment banking and transaction processing services on a global basis. Royal Bank of Canada is currently yielding dividend at 4.64 percent and has an earnings yield of 6.18 percent. This stock has seen its 52-week low at 43.05 with its high at 63.59. The current 50-day moving average for RY is 49.15.
Raytheon Company (NYSE:RTN)
Raytheon Company, together with its subsidiaries, is a technology company and specializes in defense, homeland security and other government markets. The Company provides electronics, mission systems integration and other capabilities in the areas of sensing, effects and command, control, communications and intelligence systems (C3I), as well as a range of mission support services. Raytheon is currently yielding dividend at 4.38 percent and has an earnings yield of 13.45 percent. This stock has seen its 52-week low at 38.35 with its high at 53.12. The current 50-day moving average for Raytheon is 40.99.
Lockheed Martin Corporation (NYSE:LMT)
Lockheed Martin Corporation is a global security company engaged in the research, design, development, manufacture, integration, and sustainment of advanced technology systems and products. Lockheed Martin is currently yielding dividend at 4.17 percent and has an earnings yield of 10.7 percent. This stock has seen its 52-week low at 66.36 with its high at 82.43. The current 50-day moving average for LMT is 72.18.
E. I. du Pont de Nemours and Company (NYSE:DD)
E. I. du Pont de Nemours and Company (DuPont) offers a range of products and services for markets, including agriculture and food, building and construction, electronics and communications, general industrial and transportation. The company consists of thirteen businesses operating in seven segments: agriculture & nutrition, electronics & communications, performance chemicals, performance coatings, performance materials, safety & protection, and pharmaceuticals. DuPont is currently yielding dividend at 4.03 percent and has an earnings yield of 8.49 percent. This stock has seen its 52-week low at 40.21 with its high at 57.00. The current 50-day moving average for DuPont is 45.59.
Illinois Tool Works Inc. (NYSE:ITW)
Illinois Tool Works is a multinational manufacturer of a diversified range of industrial products and equipments operating in 57 countries. The company has eight segments: transportation, industrial packaging, power systems & electronics, food equipment, construction products, polymers & fluids, decorative surfaces, and other segment. Illinois Tool Works is currently yielding dividend at 3.33 percent and has an earnings yield of 8.43 percent. This stock has seen its 52-week low at 40.82 with its high at 59.27. The current 50-day moving average for ITW is 44.11.
Walgreen Company (NYSE:WAG)
Walgreen Company, together with its subsidiaries, operates a drugstore chain in the United States. The company provides its customers with multichannel access to consumer goods and services, pharmacy, and health and wellness services in communities across America. Walgreen is currently yielding dividend at 2.77 percent and has an earnings yield of 7.55 percent. This stock has seen its 52-week low at 30.17 with its high at 47.11. The current 50-day moving average for Walgreen is 35.56.