Desperately Seeking Income
In this interest-rate environment, it's not difficult to find dividend yields of 3% to 5% on blue-chip companies. Megabanks such as Citigroup, Inc. and Bank of America Corp. have yields well above the S&P 500's 1.78% average. Battered pharmaceutical stocks also look appealing. On top of their yields, their low prices mean many of them have the potential for decent capital appreciation - giving them a heftier overall return. Pfizer, for instance, yields better than 3% and recently even raised its dividend by 26%.
A good way to get a diversified portfolio of dividend payers is through an exchange traded fund (ETF). The iShares Dow Jones Select Dividend Index Fund (DVY) owns roughly 100 of the market's biggest payers, with a heavy dose of financials, pharmaceuticals, and utilities. And the brand new SPDR Dividend ETF owns top-paying companies that have consistently increased their payouts. It tracks the S&P High Yield Dividend Aristocrats index, which yields approximately 3.3%.
And here's another up-and-coming investment idea. Income Deposit Securities (IDSs) which offer yields of up to 14%. An IDS is part stock and part bond. That means roughly half the yield comes from the stock dividend, which is taxed at the maximum tax rate of 15%. The remaining portion comes from bond payments, taxed at your regular income tax rate.
Right now, most Income Deposit Securities are issued by small but cash-rich companies. The yield on OTELCO, Inc., a rural phone company, is just north of 10%. Another small firm, CENTERPLATE, Inc., which runs concession stands at sports stadiums and other venues, is paying around 13%.
There's also another opportunity to pick up yields higher than 10% up north with Canadian Income Trusts. These trusts pay out a large chunk of their earnings, usually on the order of 60% to 80%. Like an IDS, income or royalty trusts tend to be from cash cows, typically in the natural resources sector. For example, ARC Energy has a dividend of 8.84%, while NAL Oil & Gas pays 12.2%. You can also find some outside of energy, including beermaker Big Rock Brewery (7% yield) and trucking and logistics company TransForce (7.73%). In today's yield-starved market, companies like these certainly fill the bill!
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A good way to get a diversified portfolio of dividend payers is through an exchange traded fund (ETF). The iShares Dow Jones Select Dividend Index Fund (DVY) owns roughly 100 of the market's biggest payers, with a heavy dose of financials, pharmaceuticals, and utilities. And the brand new SPDR Dividend ETF owns top-paying companies that have consistently increased their payouts. It tracks the S&P High Yield Dividend Aristocrats index, which yields approximately 3.3%.
And here's another up-and-coming investment idea. Income Deposit Securities (IDSs) which offer yields of up to 14%. An IDS is part stock and part bond. That means roughly half the yield comes from the stock dividend, which is taxed at the maximum tax rate of 15%. The remaining portion comes from bond payments, taxed at your regular income tax rate.
Right now, most Income Deposit Securities are issued by small but cash-rich companies. The yield on OTELCO, Inc., a rural phone company, is just north of 10%. Another small firm, CENTERPLATE, Inc., which runs concession stands at sports stadiums and other venues, is paying around 13%.
There's also another opportunity to pick up yields higher than 10% up north with Canadian Income Trusts. These trusts pay out a large chunk of their earnings, usually on the order of 60% to 80%. Like an IDS, income or royalty trusts tend to be from cash cows, typically in the natural resources sector. For example, ARC Energy has a dividend of 8.84%, while NAL Oil & Gas pays 12.2%. You can also find some outside of energy, including beermaker Big Rock Brewery (7% yield) and trucking and logistics company TransForce (7.73%). In today's yield-starved market, companies like these certainly fill the bill!
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posted by Bob Moser at
4:12 PM
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