Seeking Alpha
Newsletter provider, fund holdings, insider ownership
Profile| Send Message|
( followers)  

Because of the expansionary monetary policies employed by central banks all over the world, fixed income securities, such as long-term treasury bonds, are losing their appeal. Instead, stocks with high dividend yields are attracting a lot of attention as investors bet that the higher dividend yields will make up for any potential losses in the value of dividend stocks. Historically dividend stocks not only managed to increase their dividend payments, but also had sizable gains in market value. We are extremely bullish about dividend stocks for the past couple of years and have been recommending them as alternatives to long-term Treasury bonds.

In this article, we are going to focus on dividend stocks in the services sector. All companies in our list have dividend yields higher than 3% and market cap over $2 billion. The market data is sourced from Finviz. We selected the top five stocks with the best performance so far this year.

Ticker

Company

Dividend Yield

YTD Return

CNK

Cinemark Holdings Inc.

4.22%

7.63%

PAYX

Paychex, Inc.

4.05%

6.00%

SMS

Sims Metal Management Limited

3.05%

23.81%

TWC

Time Warner Cable Inc.

3.02%

16.61%

WSO

Watsco Inc.

3.55%

7.47%

Since the beginning of this year, the market returned about 5.72%. The five stocks listed above all outperformed the market during this period. Two of these stocks - SMS and TWC - delivered double-digit returns since the beginning of 2012.

Sims Metal Management Limited (SMS) is the best performing stock on the list above. It returned 23.81% so far this year, versus 5.72% for SPY in the same period. Sims Metal Management Limited is a metals recycling company. It has a market cap of $3.3B and a P/E ratio of 16.07. It also has a decent dividend yield of 3.05%. At the end of the third quarter, Chuck Royce's Royce & Associates reported to own $146 million worth of SMS shares. Steven Cohen's SAC Capital Advisors also had $395,000 invested in SMS at the end of September.

Time Warner Cable Inc (TWC) also generated a double-digit return this year. It returned 16.61% since the beginning of this year, beating the market by about 11 percentage points. We like TWC. The company recently announced strong fourth-quarter results. For the fourth quarter of 2011, it reported net income of $564 million, up from $392 million for the same quarter of 2010. TWC also had a decent dividend yield of 3.02%. Moreover, we think the company has a strong balance sheet for sustainable dividends and buybacks.

On the other hand, TWC is also exposed to certain risks. For example, the company is faced with competition from satellite TV. The potential economic downturn may also negatively influence the company. But we are still optimistic about TWC. The company is expected to close its Insight acquisition in the first half of this year. We think TWC will be able to benefit more from the economies of scale. As of September 30, 2011, there were 27 hedge funds with TWC positions. Andreas Halvorsen is the most bullish hedge fund manager about TWC. His Viking Global reported to own more than $400 million worth of TWC shares at the end of the third quarter. Lee Ainslie's Maverick Capital also had $185 million invested in TWC at the end of September.

Paychex Inc (PAYX), Cinemark Holdings (CNK) and Watsco Inc (WSO) also performed quite well this year. But they are still trading at attractive multiples. Most of the five stocks have forward P/E ratios of lower than 20. Only WSO has a forward P/E ratio of 22.5. Historically high dividend stocks returned an average of 13.04% per year between 1927 and 2009, beating the overall market by 1.36% on the average per year. We think investors will be more likely to outperform the market by focusing on high dividend yielding stocks in the long term. We urge investors to do some deep research on these high dividend stocks for their own portfolios.

Source: Top 5 Best Performing Services Stocks With Decent Dividend Yields