Beat The Market By Investing In S&P 500 Dividend Challengers (Part 2)

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Includes: OKE, PCG, PEG, PPL, RAI, RTN, SRE, VZ, WM, XEL
by: Dividendinvestr

In a previous article, we provided a list of 30 stocks from David Fish’s Dividend Challengers in the S&P 500 and showed how they have beaten the SPY since the beginning of the year. Dave Fish compiles a complete list of all US stocks that have increased their dividend payout for at least 25 consecutive years, naming them as “Dividend Champions”. “Dividend Challengers” is a separate sub-list of US stocks that have increased their dividend payouts for 5-9 years and are nominees for future Dividend Champions. These lists can be found here.

We believe investors should be cautious of the upcoming inflationary environment and pick defensive stocks in near future. We think the Dividend Challengers in the S&P 500 that are able to increase dividends may provide inflation protection with sustainable returns and a better risk-return combination.

Below, we provided the remaining 28 stocks of the S&P 500 Dividend Challengers and showed how they have performed this year (the market data are sourced from Fidelity):

Dividend Yield

Dividend Payout Ratio 2010

YTD Return

Verizon Communications

VZ

5.57%

89%

6.54%

Reynolds American Inc.

RAI

5.49%

85%

26.03%

PPL Corp.

PPL

5.01%

45%

10.98%

Raytheon Co.

RTN

4.25%

36%

-8.30%

PG&E Corporation

PCG

4.23%

53%

-7.23%

Xcel Energy Inc.

XEL

4.22%

64%

7.89%

Public Service Enterprise Group

PEG

4.21%

44%

4.90%

Waste Management Inc.

WM

4.11%

65%

-8.12%

Sempra Energy

SRE

3.76%

53%

-0.22%

ONEOK Inc.

OKE

3.32%

72%

25.43%

Wisconsin Energy Corp.

WEC

3.30%

54%

9.84%

Travelers Companies

TRV

3.27%

26%

-10.14%

Safeway Inc.

SWY

3.23%

37%

-20.95%

Williams Cos Inc.

WMB

3.14%

63%

2.93%

Republic Services Inc.

RSG

3.13%

51%

-3.97%

Ryder System Inc.

R

2.93%

52%

-24.71%

Staples Inc.

SPLS

2.79%

31%

-36.42%

Xilinx Inc.

XLNX

2.62%

32%

0.95%

The Gap Inc.

GPS

2.61%

24%

-20.09%

Robert Half International

RHI

2.44%

127%

-23.14%

Texas Instruments Inc.

TXN

2.40%

26%

-9.87%

Occidental Petroleum

OXY

2.34%

32%

-20.10%

Yum! Brands Inc.

YUM

2.31%

45%

1.86%

Union Pacific Corp.

UNP

2.12%

34%

-2.80%

Tiffany & Co.

TIF

1.74%

40%

7.90%

QUALCOMM Inc.

QCOM

1.69%

35%

2.68%

Pall Corp.

PLL

1.55%

33%

-6.19%

Torchmark Corp.

TMK

1.31%

11%

-9.37%

AVERAGE

3.18%

49%

-3.70%

SPY

-6.65%

Click to enlarge

Since the beginning of this year, the average YTD return of these 28 stocks was -3.70% vs. -6.65% for the SPY. All these stocks except four – VZ, RAI and RHI – have dividend payout ratio of less than 75%. The average dividend pay-out ratio of those stocks is 49% and the average dividend yield is 3.18%.

Here are the 10 highest dividend yielding Dividend Challengers in our list:

Verizon Communications (NYSE:VZ): Verizon Communications is a large telecommunications company operating worldwide. VZ has a 5.57% dividend yield and gained 6.54% since the beginning of this year. The stock has a market cap of $101.65B and a P/E ratio of 16.03. Phill Gross' Adage Capital holds nearly $150 Million of VZ.

Reynolds American Inc. (NYSE:RAI): Reynolds American Inc. is a large U.S. tobacco company operating worldwide. RAI has a 5.49% dividend yield and returned 26.03% since the beginning of this year. The stock has a market cap of $22.50B and a P/E ratio of 16.78. Jim Simons, David Winters and Cliff Asness are prominent RAI investors.

PPL Corp. (NYSE:PPL): PPL Corp. is a utilities company that delivers electricity and natural gas in the United States and the United Kingdom. PPL has a 5.01% dividend yield and gained 10.98% since the beginning of this year. The stock has a market cap of $16.14B and a P/E ratio of 11.26.

Raytheon Co. (NYSE:RTN): Raytheon Co. is a US defence contractor and military equipment manufacturer operating worldwide. RTN has a 4.25% dividend yield but lost -8.30% since the beginning of this year. The stock has a market cap of $14.50B and a P/E ratio of 7.64. Phill Gross had nearly $300 Million in RTN at the end of June.

PG&E Corporation (NYSE:PCG): PG&E Corporation is a US utilities company providing electricity and natural gas mainly in California. PCG has a 4.23% dividend yield but lost -7.23% since the beginning of this year. The stock has a market cap of $17.28B and a P/E ratio of 15.91. Jim Simons is the most prominent PCG investor.

Xcel Energy Inc. (NYSE:XEL): Xcel Energy Inc. is another utilities company that provides electricity and natural gas delivery services in the United States. XEL has a 4.22% dividend yield and returned 7.89% since the beginning of this year. The stock has a market cap of $11.95B and a P/E ratio of 14.42.

Public Service Enterprise Group (NYSE:PEG): Public Service Enterprise Group is an American utilities company providing electricity and natural gas primarily in the northeastern an mid-Atlantic United States. PEG has a 4.21% dividend yield and returned 4.90% since the beginning of this year. The stock has a market cap of $16.48B and a P/E ratio of 10.21. Phill Gross holds more than $60 Million of PEG.

Waste Management Inc. (NYSE:WM): Waste Management Inc. is a US company that provides waste management and comprehensive waste removal services. WM has a 4.11% dividend yield but lost -8.12% since the beginning of this year. The stock has a market cap of $15.54B and a P/E ratio of 16.55. Boykin Curry's Eagle Capital had more than $250 Million in WM at the end of June 2011.

Sempra Energy (NYSE:SRE): Sempra Energy is a US energy holding company that provides energy-related products and services worldwide. SRE has a 3.76% dividend yield but lost -0.22% since the beginning of this year. The stock has a market cap of $12.20B and a P/E ratio of 10.46. Phill Gross and John A. Levin are among SRE investors.

ONEOK Inc. (NYSE:OKE): ONEOK Inc. is a utilities company that distributes natural gas in the United States. OKE has a 3.32% dividend yield and gained 25.43% since the beginning of this year. The stock has a market cap of $6.99B and a P/E ratio of 22.72. Charles Clough holds the largest OKE position among the 300-plus funds we are tracking.

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