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During the past few years, the financial markets have been hit by one crisis after another. For example, during the past summer, the market was hit heavily by the European debt crisis. However, this type of environment cannot last forever. Since the end of the third quarter last year, the market was up nearly 17%. We think such economic growth will continue in the future and the Fed may be late in response. We do not like the Fed's expansionary monetary policies and we are concerned that these policies will lead to inflation. Therefore, we have been recommending conservative investors play defensively by purchasing dividend stocks.

In this article, we will discuss the high-dividend stocks with the highest dividend yields in their sectors. All companies have at least $10 billion market cap and over 4% dividend yield, and are among the top two in their sectors in terms of dividend yields. Market data sourced from Finviz.

Ticker

Company

Sector

Dividend Yield

SCCO

Southern Copper Corp.

Basic Materials

7.00%

PAA

Plains All American Pipeline, L.P.

Basic Materials

5.44%

MO

Altria Group Inc.

Consumer Goods

5.71%

RAI

Reynolds American Inc.

Consumer Goods

5.57%

NLY

Annaly Capital Management, Inc.

Financial

13.78%

HCN

Health Care REIT, Inc.

Financial

5.19%

LLY

Eli Lilly & Co.

Healthcare

4.92%

MRK

Merck & Co. Inc.

Healthcare

4.29%

LMT

Lockheed Martin Corporation

Industrial Goods

4.83%

WM

Waste Management, Inc.

Industrial Goods

4.01%

CTL

CenturyLink, Inc.

Technology

7.64%

T

AT&T, Inc.

Technology

5.77%

EXC

Exelon Corporation

Utilities

5.34%

FE

FirstEnergy Corp.

Utilities

5.30%

Plains All American Pipeline LP is an energy stock with high dividend yield. The company is engaged in the transportation, storage, terminalling and marketing of crude oil, refined products and liquefied petroleum gas. It reported net income of $281 million for the third quarter of 2011, up from only $81 million for the same quarter a year earlier. PAA has a dividend yield of 5.44%. Chuck Royce's Royce & Associates invested $17 million in PAA at the end of September last year. The stock was up 29.97% since then, versus 16.99% for SPY in the same period.

Annaly Capital Management Inc has the highest dividend yield among large-cap financial stocks. It also has the lowest P/E ratio among the stocks listed above. The $16 billion market cap stock has a dividend yield of 13.78% and a low P/E ratio of 8.61. Annaly manages a portfolio of real estate related investments. There are 27 hedge funds with NLY positions in their 13F portfolios at the end of the third quarter last year. For example, Bill Miller's Legg Mason Capital Management had $117 million invested in NLY. It returned 2.92% so far since the end of September, lower than the 16.99% for SPY. But its low P/E and forward P/E ratios indicate that NLY is very likely to be trading at a discount.

Eli Lilly & Co also has a low P/E ratio of only 9.5. It also has the highest dividend yield among large-cap healthcare stocks. LLY has a market cap of $46B and a dividend yield of 4.92%. Eli Lilly develops, manufactures, and sells pharmaceutical products. It also has an animal health business segment. As of September 30, 2011, there are 25 hedge funds reported to own LLY in their 13F portfolios. Among them, Jim Simons had the largest LLY position. His Renaissance Technologies had $262 million invested in LLY at the end of the third quarter last year. LLY returned 9.10% so far since then, underperforming the market by 8 percentage points. But we still like LLY because it is trading at attractive multiples. Its forward P/E ratio is 11.92 and its P/FCF ratio is 11.55.

Southern Copper Corp , Altria Group Inc , Lockheed Martin Corporation , and Exelon Corporation are also with the highest dividend yield in their own sector. Historically, dividend stocks on average beat the market in the long term. The average return of high dividend stocks was 13.04% between 1927 and 2009, outperforming the market by an average of 1.36% per year. During the recent market turmoil, we think dividend stocks are able to provide better returns than most stocks. We strongly recommend investors focus on dividend stocks and do some deep research on those with the highest yields in their sectors.

Source: 14 High-Dividend Stocks With The Highest Yields In Their Sectors