With a Federal Reserve policy that has pushed interest rates to record-low levels, investors can no longer generate meaningful returns from money market or savings accounts. That has created significant demand for dividend stocks, many of which have been trending higher, and even now trade at 52-week highs. That has created some concern that certain dividend stocks are in bubble territory. That is why it's more important than ever to be selective when making new investments in dividend-paying stocks. A great place to start for new investment ideas is by researching what stock experts are saying about a particular stock and then doing your own due diligence to see if the valuation and other suitability factors make sense for your portfolio.
For many investors, CNBC's Jim Cramer is a steady source of new ideas since he has many years of experience and a solid track record as a stock picker. Jim Cramer recently gave a few dividend stocks a buy rating on his "Mad Money" TV show. With that in mind, here are some higher-yielding dividend stock ideas that are worth considering now. (The average stock in the S&P 500 Index yields about 2% so stocks that yield around 5% or more are considered by many investors to be high yield):
Linn Energy LLC (LINE) is an oil and gas company with interests in the Mid-Continent, Permian Basin, Hugoton Basin, Williston Basin, and other regions. This company is focused on paying shareholders very strong returns through dividends, which have been rising for the past several years. For example, in 2007, the annual dividend was $2.07 per share, but due to steady increases, the annual payout now stands at $2.90 per share. The stock already offers a generous yield of about 7.2%, and with a history of dividend growth, it could be poised to keep rising along with the stock in the coming years. It also doesn't hurt that Jim Cramer has been endorsing this stock. In a recent "Lightning Round," Cramer said "Go with Linn Energy..."
Here are some key points for LINE:
Current share price: $40.70
The 52-week range is $34.43 to $42.25
Earnings estimates for 2012: $1.24 per share
Earnings estimates for 2013: $1.66 per share
Annual dividend: $2.90 per share, which yields 7.2%
Altria Group, Inc. (MO) is known as being a leading tobacco company that owns brands like Marlboro, Virginia Slims, Parliament, and Benson & Hedges. However, it also has a wine division, which owns and partners with many popular brands including: Chateau Ste. Michelle, Columbia Crest, Northstar, Stag's Leap Wine Cellars, and many others. Altria shares make sense for income investors as it has a strong history of paying dividends. For example, in June, 2008, the dividend was 29 cents per quarter, but thanks to regular increases, the dividend is now 41 cents per quarter, which represents an increase of about 30% in the past few years. Altria already offers a healthy yield of over 5%, and with a strong history of dividend growth, buy and hold investors could be in for solid returns in the coming years. A recent "Lightning Round" summary on CNBC.com states: "Being as this stock pays a dividend yield of around 5 percent, Cramer continues to like this tobacco company's stock."
Here are some key points for MO:
Current share price: $31.80
The 52-week range is $26.80 to $36.29
Earnings estimates for 2012: $2.21 per share
Earnings estimates for 2013: $2.38 per share
Annual dividend: $1.76 per share, which yields 5.3%
American Capital Agency (AGNC) shares have recently declined along with many stocks in the mortgage REIT sector. Some investors are concerned that earnings will fall and cause mortgage REIT companies to lower dividend payouts. That is a valid concern, and it is likely that certain companies will lower the dividend if earnings decline due to changing market conditions. However, investors who have bought mortgage REIT stocks on short-term dips caused by dividend cuts and secondary offerings and have held these stocks, have generally done extremely well. Because this stock offers such a high yield, investors are able to smooth over temporary pullbacks and still end up with returns that have been significantly higher than what money market accounts or even many dividend stocks offer. As summarized in one recent Seeking Alpha article, Jim Cramer seems to have outlined the right strategy by stating:
"There are issues involved in these mortgage REITs. They might not do as well in this environment. The dividend could go down a little bit. But you stick with these kinds of stocks through thick and thin. I'm not backing away from it."
Here are some key points for AGNC:
Current share price: $32.50
The 52-week range is $27.03 to $36.77
Earnings estimates for 2012: $4.02
Earnings estimates for 2013: $5.47
Annual dividend: $5 per share, which yields about 15.1%
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.