Interest rates are at record lows in many parts of the world. U.S. Treasury bonds, certificates of deposits, and money market accounts return very little in terms of yield thanks to the policies which are poised to continue at the Federal Reserve. With new signs of economic weakness coming in from China, Europe and now the U.S., the low interest rate environment is likely to stay with us for years.
The volatility in the stock market and the continued concerns over the economy have made investors fearful of stocks in general, but the need and demand for income has made dividend stocks the only viable solution for an increasing number of investors. Many dividend stocks have been outperforming stocks that pay no dividend, and since traditionally "safe" investments yield next to nothing, this will probably keep demand for select dividend-payers very high for the foreseeable future. In some ways, dividend stocks are becoming the new "safety trade" and these stocks are even showing strength on days when the Dow Index is plunging.
The host of CNBC's "Mad Money" show, Jim Cramer has recognized this trend and he has suggested that dividend stocks can offer protection in a volatile market. While the average stock in the S&P 500 Index yields just over 2%, stocks that yield 4% or more, could be more stable than most since investors are likely to keep stocks that pay above-average dividend. However, there are a number of stocks that offer monster yields of over 10%, and yet still appear to be reasonably safe and stable to own. A few of these super-yielders have even earned a buy rating from Cramer. A buy rating from Cramer is another positive for a stock because so many investors follow his advice. Here is a closer look at the super-yielders (averaging 14%), that Cramer likes now:
Armour Residential REIT (ARR) shares were trading around $6.50 at the start of the second quarter, but it has been trending higher even as the market has corrected by about 10%, in the past few weeks. This is the kind of stock investors want now, a high level of dividend income, plus a share price that goes up even as the market goes lower. Even more impressive is the fact that Armour recently announced a secondary offering and yet the stock is still within striking distance of the 52-week high. Armour Residential operates as a real estate investment trust (REIT) that is focused on investing in residential mortgage-backed securities. It makes sense to buy this stock on dips as that strategy has been rewarding investors. Cramer recently said "buy, buy, buy" to a lightning round caller for Armour Residential shares.
Here are some key points for ARR:
Current share price: $7.26
The 52 week range is $5.40 to $7.62
Earnings estimates for 2012: $1.25 per share
Earnings estimates for 2013: $1.22 per share
Annual dividend: $1.20 per share which yields about 16%
Annaly Capital Management, Inc., (NLY) shares have been in a strong uptrend, rising from about $15 in April to a recent $17, days ago. This price action is making Annaly a perfect stock to buy on dips for many investors. Annaly is a top choice for many income investors because of its strong management team and predictable financial results. Annaly invests in mortgage-backed securities and operates as a real estate investment trust which is why it offers a very high yield. Annaly trades just above book value which is $16.18 per share. Cramer cites the strong management team and the 13% yield for why he likes Annaly. After a strong run, the stock is a bit overbought, so I would wait for dips before adding this high-yielder to a portfolio.
Here are some key points for NLY:
Current share price: $16.82
The 52 week range is $14.05 to $18.45
Earnings estimates for 2012: $1.97 per share
Earnings estimates for 2013: $2.05 per share
Annual dividend: $2.20 per share which yields 13.1%
Hatteras Financial Corp (HTS) shares have also been trending higher in spite of a declining market. In the past few months the stock been in a trading range around $27.50 to $29.50. Hatteras is based in North Carolina and operates as a mortgage real estate investment trust (REIT) that focuses on mortgage securities which are issued or guaranteed by U.S Government agencies or U.S. Government-sponsored entities, like Fannie Mae or Freddie Mac. Hatteras is externally managed by a company called Atlantic Capital Advisors LLC. A recent CNBC article states "Cramer likes this stock", although he does go on to say he prefers Annaly. However, if you already own Annaly or want to own both in order to diversify, this stock could make sense.
Here are some key points for HTS:
Current share price: $28.67
The 52 week range is $22.33 to $29.54
Earnings estimates for 2012: $4.20 per share
Earnings estimates for 2013: $4.17 per share
Annual dividend: $3.60 per share which yields 12.3%
Data is sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.