The Federal Reserve announced results from a recent meeting which confirms that rates are more likely than ever to stay at extremely low levels. A recent Barron's article summarizes the Federal Open Market Committee results, and it states:
"The FOMC's assessment of future monetary policy had 11 of the 19 total participants keeping the funds rate well under 1% by the end of 2014. (That takes in the seven members of the Federal Reserve Board plus the 12 Fed district bank presidents, five of which vote on a rotating basis except for the New York Fed president who has a permanent vote.) But in April, only seven FOMC participants thought the fed-funds target would be under 1% by the end of 2014 while 10 thought it would be higher."
The recent confirmation by the Federal Reserve is likely to add support and more interest in dividend stocks that pay strong yields. Investors who stay in cash or money market accounts are likely to lose in the long-run, while investors who get into dividend stocks could be poised for income and possibly even capital gains. Here are some strong dividend-payers to consider now:
Seadrill Limited (NYSE:SDRL) shares have come down from around $39 in May, and now trade about 15% lower, near $33. This lower price creates an even higher yield for investors seeking income and increased potential for capital gains. This company offers an offshore fleet of drillships, jack-up rigs, semi-submersible rigs and tender rigs which are contracted by major energy companies around the world. Seadrill was started in 2005, so the equipment it owns is relatively new. This means the company can command higher day rates and generally lower maintenance costs. Seadrill has been raising the dividend every year since 2007, and it now pays a quarterly dividend of about 80 cents per share. This gives the stock a yield of roughly 10%. Even though oil prices are lower, demand and profits are likely to remain solid for Seadrill since it is not directly impacted by lower prices. While waiting for a higher stock price, investors can collect a yield that beats most other investments.
Key Data Points For Seadrill From Yahoo Finance:
Current Share Price: $32.59
52-Week Range: $24.68 to $42.34
Dividend: about $3.20 per share which yields almost 10%
2012 Earnings Estimate: $3.17 per share
2013 Earnings Estimate: $3.55 per share
P/E Ratio: about 10 times earnings
American Capital Agency (NASDAQ:AGNC) is a real estate investment trust that invests in mortgage securities. These types of companies are legally mandated to pay the majority (90%) of any earnings back to shareholders. That is one reason why the dividend yield is much higher than average. The other reason this sector offers high yields is because these companies use leverage to enhance shareholder returns. Just like many companies in this industries, it announced a secondary offering. Earlier this year, American Capital sold about 62 million shares in order to expand the portfolio. When stock offerings are announced, the share price often drops temporarily and this provides a buying opportunity. Investors should be prepared to buy during another offering or on dips, in order to get the best entry price.
Key Data Points For American Capital From Yahoo Finance:
Current Share Price: $32.53
52-Week Range: $22.03 to $33.95
Dividend: about $5 per share which yields 15.5%
2012 Earnings Estimate: $5.47 per share
2013 Earnings Estimate: $5.47 per share
P/E Ratio: about 6 times earnings
Chimera Investment Corporation (NYSE:CIM) shares plunged after the company announced it would lower the dividend from 11 cents per quarter to 9 cents. This news took the stock down from about $2.85 to $2.52. The drop was partially fueled by a slew of analysts who announced downgrades, after the fact. With the stock price now lower by about 10%, Chimera yields around as much as it did before, with a yield at nearly 15%. At current levels and on any further dips, investors should consider buying as the dividend cut now seems priced-in. Chimera is managed by a wholly-owned subsidiary of Annaly Capital Management, Inc. which is generally regarded as being one of the top picks in the industry by stock market experts like Jim Cramer. The stock now trades below book value which is $2.76 per share and at $2.52, it could be near the bottom.
Key Data Points For Chimera From Yahoo Finance:
Current Price: $2.52
52-Week Range: $2.38 to $14.07
Dividend: 36 cents annually which yields about 15%
2012 Earnings Estimate: 47 cents per share
2013 Earnings Estimate: 45 cents per share
P/E Ratio: about 7 times earnings
ConocoPhillips (NYSE:COP) shares have declined with the price of oil but for longer-term investors, this appears to be a buying opportunity. In the short-term, oil might continue to fall a bit further, but long-term fundamentals remain very strong as the global demand for energy continues to rise due to population growth and increased usage from emerging market countries, particularly China. Recently, the company completed a spin-off for the refining division, which now is called Phillips 66 (NYSE:PSX). This makes ConocoPhillips a more targeted gas and oil exploration and production company. This company has a strong history of dividend payments and increases so while the yield is not as big as some of the companies listed here, it still is more than double the average dividend stock and it is likely to continue growing. Dividend growth can be more important than the current yield and since this company has nearly doubled the payout from 31 cents in 2005 to 55 cents per quarter today, it is a solid option for income investors.
Key Data Points For ConocoPhillips From Yahoo Finance:
Current Price: $53.41
52-Week Range: $50.62 to $80.13
Dividend: $2.64 annually which yields about 5%
2012 Earnings Estimate: $6.39 per share
2013 Earnings Estimate: $6.76 per share
P/E Ratio: about 8 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.