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We prefer stocks with high dividend yields to long-term treasury bonds. Although bonds usually perform well in a down market, we do not think they are good investments for the next 10 years. Currently the 10-year Treasury bond has a yield to maturity of lower than 2%. Therefore, it is almost impossible for a portfolio of high dividend stocks to underperform the 10-year Treasury bond, as a stock that yields over 5% will only underperform the bond if the stock loses more than 25% in the next 10 years. In this article, we are going to focus on dividend stocks for strong income. These stocks not only pay dividend checks regularly, but also are trading at attractive multiples.

Below we compiled a list of dividend stocks for strong income. All companies have at least a $10 billion market cap and dividend yields of higher than 4%. They also have low P/E ratios and forward P/E ratios.

Ticker

Company

Forward P/E

Dividend Yield

EXC

Exelon Corporation

14.09

5.29%

LLY

Eli Lilly & Co.

12.23

4.96%

LMT

Lockheed Martin Corporation

10.01

4.73%

NLY

Annaly Capital Management, Inc.

7.48

13.30%

PPL

PPL Corporation

11.43

5.08%

SCCO

Southern Copper Corp.

13.82

6.98%

Among these six dividend stocks, NLY and LMT were the most popular ones among hedge funds. There were 30 hedge funds with LMT positions and 27 hedge funds with NLY positions at the end of the third quarter. We think hedge funds have an edge over ordinary investors as they usually devote significant resources in researching stocks. Investors will be more likely to beat the market by focusing on the stocks that hedge funds love. Therefore, we are going to discuss NLY and LMT in detail in the following paragraphs.

NLY has a double-digit dividend yield of 13.30%. There were 27 hedge funds with NLY positions at the end of the third quarter. For example, Bill Miller's Legg Mason Capital Management reported to own $100 million of NLY stock. We agree with these hedge fund managers. The Fed has been committed to ultra-low interest rates for three more years. The low interest rate leads to low short-term funding costs for NLY. Additionally, the fixed income market is a bit volatile, which provides NLY with the opportunities to make timely investments in agency mortgage-backed securities. The company also has strong revenue growth and reasonable valuation. It has a 12-month trailing P/E ratio of 12.60, versus 15.57 for the average of the REIT - Diversified industry. It also has a low forward P/E ratio of only 7.48.

On the other hand, NLY recently announced lower-than-expected fourth-quarter results. It reported net income of $446 million, or $0.46 per share, for the fourth quarter of 2011, missing analyst expectations of $0.56 per share, according to Thomson Reuters. Additionally, NLY is also exposed to prepayment risk and interest rate risk. It can't finance at low costs if the interest rates increase. But the Fed's decision to keep interest rates low until the end of 2014 is a positive for Annaly.

LMT has a dividend yield of 4.73%. The company has been increasing its dividend payouts for the past nine years. Recently it increased its quarterly dividend from $0.75 per share to $1.00 per share, which was paid to its shareholders at the end of December. It also has a relatively low 12-month trailing P/E ratio of 10.82, compared with 15.61 for the average of the aerospace/defense products and services industry. We are bullish about LMT. The company has a leading position in the military market. It has strong cash flows and decent return on equity. The company is also very likely to continue returning cash to shareholders through buybacks and dividends. There are still some risks to our recommendation. The company is largely dependent on the government's military spending, which may be cut over the next couple of years to reduce budget deficits. Changes in the political or economic priorities will have a large effect on the company. But we think these weaknesses are offset by its strengths.

A few other dividend stocks for strong income include drug manufacturer Eli Lilly, basic material company Southern Copper and several utilities such as Exelon Corporation and PPL Corporation. All these stocks are trading at attractive multiples. For example, LLY has a P/E ratio of 9.43 and a forward P/E ratio of 12.23. SCCO, EXC and PPL's P/E ratios and forward P/E ratios are also all lower than 15. Additionally, all these stocks have high dividend yields, ranging from 4.96% to 6.98%. Billionaire Jim Simons was bullish about both LLY and EXC. His Renaissance Technologies had $262 million invested in LLY and another $64 million invested in EXC. We strongly encourage investors to do some in-depth research on strong dividend stocks and consider adding some of them to their portfolios.

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

Source: 6 Attractive Dividend Stocks For Income