Whether you are looking to establish your first position in income investing or are an experienced income investor, you will want to spend some time reviewing the financials of five very attractive and high yielding stocks. All five of the following stocks are relatively cheap to get into and make reinvestment a more lucrative strategy due to the ability to purchase more shares with each payout. These companies have also established a consistent record of dividend pay outs and maintain high yields, which make them all the more attractive and a hot addition to any income investor's portfolio.
Income investing is defined as taking a long-term position in a stock and using the dividends that it pays to reinvest in more shares. The strategy compounds the returns on an initial investment each time dividends are paid because the shareholder owns more shares each time. In order for this strategy to be effective, an investor needs to take a position in stocks that pay dividends regularly at a high yield so that the investor's shares multiply with each payout. Income investing is especially valuable due to the fact that it protects investors from stocks that are inflated beyond the company's actual worth.
Frontier Communications (FTR) heads the list of attractive dividend reinvestment stocks on the market with a projected yield of 15% and a payout ratio of 0.82. This American telecom stock paid out four times in 2011, and is poised to grow in 2012 on continued momentum from the acquisition of fixed-line operations in 14 states from Verizon. Frontier provides phone service to 5.6 million customers across 27 states and high speed internet to another 1.7 million.
Nokia (NOK) has suffered the last three years, making now the perfect opportunity to get in as the company plans to provide hardware for Microsoft's Windows 7 phone platform. Despite devaluation of its stock over several years, the company remains the largest producer of cellular devices on the market. In addition, the company develops network equipment and software. Nokia consistently pays out dividends each year, has a projected yield of 10% and pays out at a ratio of 0.96, making it especially appealing due to the cheap buy-in.
Annaly Capital Management (NLY), formerly known as Annaly Mortgage Management, is a REIT that invests in mortgage-backed securities such as collateralized mortgage obligations and mortgage pass-through certificates. This New York-based company is backed by Fannie Mae, Freddie Mac and Ginny Mae, which guarantee principal payments on Annaly's investments. Annaly pays dividends quarterly at a projected yield of 14% and payout ratio of 1.3.
Chimera Investment Corp. (CIM) looks attractive due to quarterly dividends with a projected yield of 16% and a payout ratio close to 2.0. The company is a REIT, but is unique in that it invests in loans and securities rather than directly owning any real estate. Chimera has holdings in residential mortgage loans and other real estate related securities. At less than $3 per share, the company is perfect for any investor who cannot afford to drop a large amount of capital.
France Telecom (FTE) is the dominant phone provider in France, with over half of its business generated domestically. France Telecom also provides service to Spain and Poland, which accounts for 15% of its business each year. The stock provides dividends twice a year with a projected yield of 10% and a payout ratio of 0.65, which makes it the least attractive stock on the list.
Frontier Communications, Nokia and Chimera Investment Corp. look the most attractive to me, with an extremely affordable buy-in and consistent dividend payouts that will allow you to reinvest often and increase future earnings. I believe that taking a position in these three stocks will maximize your return on investment and pay off in the long run due to the fact that you can purchase more than three times the starting stock than could with Annaly Capital Management or France Telecom. Annaly Capital Management and France Telecom still look attractive, but the initial opportunity for growth is diminished by their higher entry costs, and I feel that you can gain more in the long haul by diversifying between Frontier, Nokia and Chimera.