With no end in sight to the European debt crisis, one has to wonder if the U.S. is next? With 100% debt to GDP ratio, we aren’t very far behind of our European peers. At annual deficit north of 9%, U.S. fiscal situation is on par with that of PIIGS nations. At least their political system has been forced to reform, while our government is mired in political gridlock. The super committee can’t even agree on what’s on the agenda let alone making any real progress. With the debt situation in the U.S. deteriorating, investors need to protect themselves from the larger macro and political events. Luckily for us, U.S. corporations are in great shape. In fact, most of their balance sheets are in the best shape ever. I compiled a list of high dividend stocks that pay higher yield than U.S. 30-year Treasury bonds and that are in very healthy condition.
Microsoft (MSFT) – Microsoft might not have the sexiest products, but they are making serious cash from their bread and butter businesses. There have been double digits growth in their server and business divisions and Windows 8, which is to be released next year, is expected to give the company another boost. At 8.9 times earnings and $50 billion in cash, the company’s valuation is one of the lowest ever. It also pays a healthy 3.2% dividend yield compare to 2.97% on 30-year U.S. Treasury.
Altria Group (MO) – The US-based tobacco company is one of the most consistently growing companies. Altria has split itself up a year years ago and is currently only focused on the U.S. market. Don’t let the 16 times PE fool you, the stock is paying a healthy 6% dividend and they have been raising their dividends annually for as long as they have been paying them. Its management is known for being shareholder friendly. The firm uses most of its free operating cash-flow either to buy back shares or to increase dividends. At a yield almost double that of U.S. Treasury, it’s no wonder the stock hasn’t been affected much by the recent turmoil.
Exelon Energy (EXC) – Exelon operates the largest nuclear power plant fleet in the US. With electricity usage regulated and stable, this is the ultimate defense stock. The management has a history of share buybacks and increasing dividends. Most of free cash flow from its operations benefits the shareholders directly. At close to 5% dividend yield and a PE of only 11.5, the valuation is trading at a 10-year low while the dividend yield is at a 10-year high.
Exxon Mobil (XOM) – As the largest corporation in the U.S. by market capitalization, Exxon Mobil is also one of the cheapest and best capitalized. It has the best industry safety records so the chance of Exxon Mobil pulling a BP is low. Not only it has huge oil reserve that is growing annually, it also has one of the largest natural gas reserves. As oil prices inch higher, natural gas seems like the only other viable alternative. Exxon is well positioned from both higher oil prices and the switching to natural gas. Although the firm’s 2.5% dividend is the lowest in this group of 5 stocks, the stock will benefit from the ongoing energy trend and offer much share appreciation potential.
AFLAC (AFL) – Aflac is a premier health insurance provider that focuses on supplement health insurance. The firm has been growing at a stable rate in the past decade. Its dividend has gone up annually even throughoutthe 2008 recession. As baby boomers keep aging, the need for supplement health insurance will be huge. At 10 times PE and 3.4% dividend, the firm has very cheap valuation both on an absolute and on a relative basis.
The 5 companies listed above are being run by top of the line management. Other than a sustainable yield above that of any Treasury bonds, they all boast strong balance sheets and potential to grow in the next decade. These stocks will not only provide you a nice dividend paycheck but their stocks are likely to appreciate once the current economic turmoil abates.