5 Great Stocks Yielding 5%
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Investors who love to receive income from their investments may be understandably frustrated by the current market environment. The Federal Reserve’s monetary policy has short-term interest rates at historic lows. Traditional fixed-income products like certificates of deposit and savings accounts routinely pay little more than 1%, if that. To say the least, it’s tough out there for income investors.
Never fear, fellow dividend fans: there are highly profitable stocks out there with hefty yields to satisfy your hunger for yield. With that in mind, here are five large-cap stocks to consider, each yielding more than 5%.
BP (NYSE: BP) is an oil juggernaut. While BP has been adversely affected by the 2010 Gulf of Mexico spill, the company has shown measurable progress since then. Including impacts from the spill, BP generated $39 billion in operating profit in fiscal 2011. As a result, the company was not only able to restore its quarterly dividend in early 2011, but it has raised its dividend twice since then. Its most recent increase was 12.5%, and the stock’s 5% yield compares very favorably to the dividends its Western oil competitors currently offer.
Altria (NYSE: MO) has a history that stretches back more than 180 years. Formerly the Philip Morris Companies, Altria slowly built a list of brands consisting of multiple products. Its tobacco offerings include Philip Morris USA, which holds the juggernaut Marlboro brand. Through its acquisition of UST Inc., Altria has smokeless tobacco offerings including the Skoal and Copenhagen brands. Altria also owns Ste. Michelle Wine Estates, John Middleton cigars, and a stake in brewing company SAB Miller. The stock trades for a modest price-to-earnings ratio of 16 and yields 5.2% at recent prices.
GlaxoSmithKline (NYSE: GSK) is a UK-based, $107 billion pharmaceutical company with a broad array of products. Glaxo derives more than 60% of its sales from outside the United States. Glaxo trades at a trailing price to earnings ratio of slightly less than 14 times, and a forward multiple of only 11.5 times. The company is committed to returning cash to shareholders, having declared a fourth-quarter dividend higher than its payout last year. In addition, the company bought back 2.5 billion pounds worth of shares in 2012 and will spend another one to 2 billion pounds on buybacks in 2013.
Lockheed Martin (NYSE: LMT) is the defense giant in the United States. While the threat of sequestration may scare you, it’s worth noting that the threat of budget cuts may already be priced in. Lockheed trades for just 10 times trailing earnings. A reality of the world we live in is that governments are constantly encountered with new security challenges. Lockheed Martin expects its operating margin to remain stable going forward, and it continues to be committed to returning at least 50% of free cash flows to investors through dividends and share repurchases. Lockheed has increased its dividend by more than 22% annually over the last five years.
AT&T (NYSE: T) provides internet, television, and phone communications services, products that most households refuse to go without. The company reported earnings per share excluding items increased 8.6% in 2012 versus the prior year. AT&T has raised its dividend at a rate of about 2.3% annually over the last five years. The stock has traded between $29 and $38 per share since the beginning of 2011, which may be attractive for investors who shy away from volatility.
The bottom line
A portfolio comprised of these stocks would allow dividend investors the opportunity to build a diversified portfolio of high-yielding stocks, giving you exposure to the energy, health care, consumer staples, industrials, and telecom sectors. In the hunt for yield, you might be tempted to take speculative bets by investing in troubled companies with huge dividend yields resulting from collapsing stock prices. However, you don’t need to take ill-advised risks in order to achieve big yields from your stocks. These companies, each with well-known brands and long histories of increasing profits, offer modest valuations with dividend yields that are anything but modest. If you’re an investor starved for yield, do yourself a favor and give these companies a closer look.
Robert Ciura owns shares of Altria Group, BP p.l.c. (ADR), and Lockheed Martin. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!