High yield sectors have had a truly outstanding year in 2009. Junk (high yield) bond funds are up over 50%, from a time when their yields were at record levels (above 25%). Back then, risk was being punished, and risk aversion became the driving force for investors. The subsequent rally has reduced yields from dividends paid by junk bond funds to 10-12%, not too far above the 9% area they have yielded in the best of times.

Last week, Bill Gross, head of PIMCO, the world's largest owner of debt, said junk bonds had peaked. Junk bond funds sold off but have bounced back partially this week.

Dividends and capital gains are the 2 ways for earning money when investing in stocks. With stocks experiencing one of their best years in history, dividends are being ignored even though they can be helpful earning a steady rate of return. The S&P 500 Dividend Aristocrats are members of the group required to have a minimum track record of 25 consecutive years of paying higher annual dividends. Only about 10% qualify. Below are two excellent companies, one which everybody knows and a second which is not as well known. Each has an outstanding and consistent record of dividend growth, a valuable tool in earning high rates of return.

Coca Cola (KO), founded in 1886, has the best known brand names in the world. They sell Coca Cola and related cola syrups to their bottlers which are in turn sold to retail businesses around the world. Coca Cola claims to be in more countries than the UN. Additional drinks include Minute Maid, A&W Root Beer, Glaceau, Dasani and brands specific to foreign countries. In the last two decades, the stock had a run from 20 to over 80 in the middle of the first decade. Then it pulled back to the 40s where it has largely traded since then. In the last 10 years sales doubled to $32 billion, EPS and dividends have more than doubled. Their finances are quite strong, allowing them to purchase more than 1.2 billion shares of treasury stock. Coca Cola has increased the annual dividends for more than 40 consecutive years. At 53, Coca Cola still yields over 3% (far above yields on short term instruments). With aggressive expansion overseas, i.e. China, Russia, etc., revenues and profits should keep growing so they can continue their streak of higher annual dividends.

MLPs keep roaring ahead, taking them to new yearly highs. It seems like we're in a new world when remembering last October. I had just written a primer article on MLPs, introducing many investors to a new type of investment. That was at the start of September, after MLPs had already fallen 20% from their peaks in the prior year (along with other market averages). Then they plunged and by October it looked liked they were heading for zero. Risk averse was the driving force in investment thinking, all securities with high yields were being thrown away without regard to their investment value. The collapse of Lehman (LEHMQ.PK) in September made matters worse for MLPs because they had been a big believer (and investor) in MLPs. MLPs went through an awful 6 months as yields shot up to over 15%. But believers were rewarded.

From their lows, MLPs have rebounded sharply. The Alerian MLP Index (AMZ) at 265, is up a dazzling 100+ points from the lows in March. Aside from a modest setback in June and settling into a trading range during August-September, the rise has been about as steady as could be hoped for. In October, the index is up 10% from the low of the latest trading range.

Stock markets are having one of their best years in history. Most averages are up over 50% from their lows in March. As usual, the gains have not been spread around equally. Some of the Dividend Aristocrats have been left behind and represent superior opportunities for value investors.

Dividend Aristocrats are companies in the S&P 500 which have minimum track records of 25 consecutive annual increases for their dividends. However, this elite group has shrunk in the last year. All banks are being removed after dividend cuts. This year, General Electric (GE), Pfizer (PFE) and Masco (MAS) have cut dividends which will take them off the list by next year. But those remaining in the group represent excellent values, many have been left behind in the market surge this year. These were the kind of stocks recommended by top analysts when the markets were at their lows (so much for listening to the "experts" for investment advice) last March. Now many of these companies represent good values.

The last 12 months have been an unusually volatile time for MLPs.

Traditionally they are low beta securities, but in September 2008 stocks fell off the cliff and MLPs joined in the massive sell-off. It looked like the end of the world; there were even requests to get Chicken Little's phone number. MLPs then had a very rough five months but came roaring back from the lows in March 2009. The Alerian MLP Index (AMZ) shot up from under 160 to just above 250. Then for two months the index traded sideways in the 240s; no advance while the rest of the markets kept going higher. Wednesday marked a new 2009 high of 252, but because the index did not break through the ceiling with conviction it's too early to tell if MLP buyers can take the index to new highs.

Junk (high yield) bonds are having their best year in history. At the start of 2009, risk averse was the popular theme in plunging stock markets. Junk bond prices plummeted sending their yields over 25%. Since early March, stocks roared back (popular stock averages are typically up 50%) and the rebound in junk bonds has been even more dramatic. Risk is being embraced and rewarded.

However, Treasuries rallied when risk averse behavior became the motivating force in the markets early in 2009. That rally cut the yield on the 10-year Treasury to only 2%. Then junk bonds rallied and Treasuries sold off sharply. The yield on the 10-year Treasury soared, touching 4% two months ago. In the last 2 months, Treasuries rallied again taking their yield back below 3¼%.

When the recession began, REITs held up well. Two years ago, the Dow Jones REIT Index rose to over 300. In the next year it slipped modestly, remaining over 250 when many other stocks did much worse. Last September the index fell off the cliff, plunging to under 100 in less than 2 months. It remained oversold until March 2009 and then began its recovery. Since than the Index has doubled from its low to 161. Most attention has been on its gain of 72% from depressed levels 6 months ago (two quarters).

Late last year, risk averse was the motivating force for stock investing causing most securities (especially high yields) to plummet and then continue in the dumps. As the credit crisis receded early this year, risk has come back into vogue and now risk is being rewarded.

One year ago I began writing for Seeking Alpha; my first article was an introduction to MLPS. They had come through a very difficult period, as was the case for the stock market. The Alerian MLP Index declined from its peak of 342 in July 2007. First it slipped into the low 300s and then fell to the high 200s, a little better performance than the Dow.

Following my article was "Terrible September", the worst month for the stock market, which included the Lehman collapse. Markets (including MLPs) fell off a cliff. In just one month, the index fell from 270 to 226, a 4 year low at that point. The stock market kept falling. The index plunged below 160 at its lows.

We are approaching the one year anniversary of the market meltdown last September. Since then junk bonds have gone through an unforgettable 12 months. After plummeting during the first two months, junk bonds have roared back in 2009. Many funds have recovered their market values from the start of the market meltdown, although reinvested dividends have been a big help. They rode the cycle from risk averse to risk acceptance in today's markets.

Junk bond yields carry higher because their lower quality ratings relate to higher risk for future interest payments. In the best of times, their yields are near 9% with a spread over the 10 year Treasury bond yield around 450-500 basis points. Early this year, the yield on junk bonds shot up to 20-25% with a yield spread of more than 2000 basis points (levels never seen before). Risk averse was the driving force in financial markets. Stocks and high yield bonds were sold recklessly to reinvest proceeds in safe investments: Treasuries, gold, etc. With the subsequent rise in the markets, yields plummeted to today's values which approach traditional levels.

At the beginning of this decade the Dow Jones REIT Index was roughly par (100), then grew steadily to 350 at the start of 2007. For the rest of the year and until September 2008 the index slipped to the 250-300 zone. That performance in 2007-2008 was not too bad given the decline for the rest of the stock market. Beginning September 2008 the REIT index fell off a cliff, much worse than the Dow. While the Dow lost one third, the REIT Index plunged 60% from 250 to 100. REITs bounced back in the year end rally, but then sold off badly, this time to 80, at market lows in early March. REITs joined in the subsequent 2 month rally followed by sideways trading between 120-140 while the Dow was edging up followed by impressive gains in July. The REIT index remains down YTD.

REITs are high yield securities and many are tax efficient with only a portion of the dividend taxable as income or capital gains. However, they have not participated in the enormous rally for other high yield sectors (MLPs & junk bonds) which have had gains of 50%+ YTD. REITs have lagged behind because they have already been bitten very hard by the recession. They collect rents, giving them feedback each month on the vacancy rates for their leases. Each REIT has a different story, but vacancy rates have been rising and are expected to increase further. Dividend increases have been few and limited, dividend cuts were more common (especially in 2009). A major commercial property REIT went bankrupt this year after being near death's door for a number of months. Other marginal REITs have stocks selling in single digits but have been able to remain alive and continue paying dividends (at reduced levels).

This year the stock market started with a continuation of a down market followed by one of its sharpest rallies beginning in early March. But the recovery has not been evenly spread as with all prior recoveries. Tech stocks have had a very strong rally. Nasdaq has been leading the way, already up 25% YTD. Such a gain for a full year would be considered outstanding. Investor appetite for risk (tech and high yield securities) has been very strong in the last few months.

The Alerian MLP Index (AMZ) is up 42% YTD and the index with reinvested income (AMZX) is up 47% YTD while the Dow is up only 4%. Junk bonds have also had a very strong rally with many of the funds up 50%+ YTD from depressed levels at the start of 2009 when yields of 20-25% were common.

While the Dow is struggling to get back to its 2009 starting value, this has been exceptional period for high tech companies, such as IBM (IBM), Google (GOOG) & Apple (AAPL), and MLPs. The Alerian MLP Index is up 35% YTD. The MLP index including reinvested income is up more than 40% YTD. These exceptional gains took only 7 months and compare favorably with the best yearly returns for each MLP index (AMZ is the index, AMZX includes reinvested income).

Year___AMZ____return___AMZX___return

Standard & Poor's Dividend Aristocrats are the elite dividend payers in the S&P 500. To be included, each company is required to have a minimum track record of 25 consecutive years of higher dividends. But this group has been shaken after the market meltdown. Seven banks in the group have been or will be dropped from the group after their dividend cuts. The most embarrassing was Bank of America (BAC), a Dow stock, which 2 years ago bragged about its track record of growth (including dividends) especially over the previous 30 years. At the beginning of the credit crisis, thecompany raised the dividend to a $2.56 annual rate. Just a few months later, it must have regretted that decision. Now it only pays a token dividend, and rejoining this group is a minimum of 25 years away. Early this year, 3 prominent members of the group, Pfizer (PFE), General Electric (GE) and Masco (MAS), cut their dividends which will take them off the list by December.

The S&P group has been reduced from about 60, to 51. By my calculations, at least 3 will be removed by year end. The number of new members must be small since these companies already need streaks of 23 or 24 years to be added to the group in the next year or two.

In the first half of 2009, junk bonds had one of their greatest rallies in history. At the beginning of this year, fear in the investment world was running high. Investors responded by selling risky investments, such as high yield (junk) bonds, using that money to purchase safer investments (i.e. Treasuries).

As a result, yields on Treasuries dropped to near record lows when investors pursued safety at any cost. The 10 year Treasury bond annual yield had plummeted to nearly 2%.

The first six months of 2009 have been a very good time for the high yield sector. They had fallen sharply in 2008, especially in Q4, when investors sold yield high yield securities to buy Treasuries. In 2009, they rebounded sharply as investors decided to accept risk in pursuit of double digit high yields.

But REITs have not shared as much as other groups (MLPs and junk bond funds) in the gains for 2009. The Dow Jones REIT Index began the year at 151, but plunged to 101 at the end of the first quarter. In Q2, the best quarter for stocks in many years, REITs climbed back to 128. REITs had a good gain in early April, but since then have been trading sideways between 120-140. After peaking early in June at roughly 140, the index has been slipping and sliding (as have many stocks). The Alerian MLP Index has a similar price pattern, but its decline from the high and subsequent recovery was more mild.

MLPs have been one of the most exciting groups in the markets in the first half of 2009. The Alerian MLP Index began the year at 176 and rose to 221 for a 26% advance. Alerian also has a second index which includes reinvested income. That one started the year at 428 and rose 31% to 560. Each index began on Dec 31, 1995, at 100. The first index has performed quiet well over the long term, especially when compared to other industry groups.

However with reinvested income the compounded annual growth rate has been nearly 13%, an envy for almost any industry.

The bull market passed a milestone on Friday as the Dow Jones Industrials became the last major index to break into the black for 2009. However the S&P 500 is only marginally higher, up 4%.

MLPs continue to have one of the best gains this year. The Alerian MLP Index (AMZ) has already had the equivalent of two very good years, but this was done in less than 6 months. The MLP Index with reinvested income (AMZX) has done even better. Their long term outlook remains bright. Each index started at 100 on 12/31/1995. The second index shows the success of MLP investment over the years largely comes from reinvested income.

The stock market has had one of its biggest rallies in history. In three months, Dow rose 2200 points (from a depressed level) by one third. Not bad, but it has been stalling in the last few weeks.

The high yield sector in particular appears to be getting over extended. MLPs, REITs and junk bond funds have had stronger recoveries from their lows. The Alerian MLP Index story is repeated in the other sectors. The premium of the yield on MLPs over the 10 year Treasury bond yield narrowed from over 1200 basis points at the lows last year to only 500 points.

MLPs continue to be the best performing group in the markets during 2009. The Alerian MLP Index shot up and added to its gains in May:

• December 31, 2008: 176
• May 29, 2009: 226 (up 28%)

The comparable Alerian Index with reinvested income (reflecting two distributions) had even better results.

Picking stocks during the credit crisis has been unusually challenging for yield sensitive investors, especially with numerous companies cutting dividends. The importance of the S&P 500 Dividend Aristocrats, companies in the S&P 500 with a minimum of 25 consecutive years of increased annual dividends, can be more helpful than ever. However, they have not been spared suffering. The elite group has lost (or will lose) all banks. In addition industrial giants, Pfizer (PFE), General Electric (GE) and Masco (MAS), with a 50 year track record of higher dividends, had large dividend cuts. In spite of this negative news, all is not gloom.

Dividend Aristocrats typically contain about 55 (out of 500) companies. The new list will probably be reduced to around 45 when reported later in the year. However, the smaller group remains an excellent source for investment ideas (i.e. investing for the long term). Dividend Aristocrats already announcing dividend increases in 2009 include: