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The Spanish stock market has been under pressure over the last few years due to the real estate crash in the country and the problems within its banking sector. Since the top reached in 2007, the Spanish benchmark IBEX 35 index has declined by more than 55%. Quite like other worldwide indexes, the IBEX touched its lows in March 2009 and then saw a huge rally until the beginning of 2010. But the IBEX has since fallen again, reaching new lows in 2012.

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Source: YahooFinance

Spain has been the most recent country in the spotlight due to the European debt crisis, leading to a €100bn bailout for its banks. However, in the last EU Summit, it was decided that the loans provided to Spanish banks by the ESFS/ESM won't have seniority status to other creditors and the ESM will have in the future the possibility to recapitalize banks directly. This is good news for Spain and led to a huge fall in the yields of Spanish debt.

This could represent a turning point on the sentiment towards Spain and could be an opportunity to buy stocks that have unusual high yields due to price declines, but still have good fundamentals. Although the short-term economic outlook for Spain is weak, given the price weakness over the last months on the Spanish market, there must be good opportunities for income investors with a long-term view. The following three stocks offer very attractive yields supported by sound business models.

CompanySectorMarket Cap ($)Div. YieldPayout RatioP/E Ratio
Telefonica (TEF)Telecommunications59 bn12.5%130%10.4
Banco Santander (SAN)Bank63 bn11.4%115%10.1
BME (OTCPK:BOLYY)Financial Services1,7 bn9.4%89%9.5

Telefonica is one of the world leader's integrated operators in the telecommunication sector, providing communication, information and entertainment solutions, with a presence in Europe and Latin America. As of December 2011, Telefónica's total number of customers amounted to 306.6 millions. The company has an attractive geographical mix operating in 25 countries, with half of its revenues generated in Europe and the other half in Latin America.

The company has maintained a policy of gradually increasing the dividend, which has been complemented with various share buyback plans. From 2007 to 2011, the dividend has increased at an annual rate of 21%. However, due to its weak domestic operating trends the company announced a lower remuneration policy going forward. For 2012, Telefonica is committed to paying shareholders €1.50 per share, of which €1.30 will be a mix of shares and cash and €0.20 will take the form of share buybacks. Only taking into account the €1.30 remuneration, Telefonica currently yields over 12%.

Source: Telefonica

Banco Santander: Santander is a bank based in Spain with a presence in ten major markets. More than 80% of its revenues and profits are derived from retail banking. It is the eurozone's leading bank and is among the top 15 financial institutions worldwide in terms of market capitalization, with more than €50 billion at the close of 2011.

Since 2007, Santander consistently met the shareholder remuneration objective, disbursing a minimum of €0.60 per share, despite the global economic crisis. The dividend frequency is quarterly, providing a frequent income stream for investors. Additionally, it offers to ADR holders through its Scrip Program the chance to receive the remuneration equivalent to the dividend in newly issued Santander ADRs, sell their rights in the market or receive cash.

Source: Santander

BME Group: Bolsas y Mercados Españoles (BME) is the operator of all stock markets and financial systems in Spain. BME has been a listed company since 14 July 2006 and an IBEX 35 constituent since July 2007. In the last few years, it has become a reference in the sector in terms of solvency, efficiency and profitability.

In the last three years the company has maintained the ordinary dividend stable at €1.60, and paid extraordinary dividends of €0.372 per share in 2009 and 2010. Over the last five years, and taking into account only the ordinary dividend, the average payout ratio is high at 86%. However, BME has a very strong profitability with an EBITDA margin of 70% in 2011, a margin that has been stable since 2008, enabling a very attractive shareholder remuneration policy and a high distribution of profits to shareholders.

Source: Bloomberg

Although the three stocks mentioned above have very attractive dividend yields, there are two even higher yielding stocks on the Spanish stock market, but with higher risk given the real estate market issues in Spain. ACS (OTCPK:ACSAY) and Fomento de Construcciones (OTCPK:FMOCY) are yielding above 12%, but both should be avoided, due to the high dividend cut risk.

Source: 3 Stocks Yielding Over 9%