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2013 Dividend Plays

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Bull market or not, investors are always searching for stocks that pay dividends. And the good news is that more and more companies are offering a return on investment to attract new capital — as yields are rising.

Aggregate dividends per share for S&P 500 companies grew nearly 16 percent year-over-year at the end of last year — while the number of companies paying a dividend to shareholders over the trailing month period hit a new 13-year high of 405, or roughly 81 percent of the S&P 500, according to Factset.

In a research note Facset analyst Michael Amenta pointed out that "Technology, Financials, and Consumer Discretionary sectors all boasted greater than 20 percent growth in year-over-year dividends per share (46.1, 25.6, and 20.6 percents respectively), and all these sectors have logged greater than 10 percent over eight consecutive quarters."

Amenta also highlighted that telecommunications services and utilities had the highest payout ratios—the percentage of a firm's profits paid out in dividends — for the 11th consecutive quarter (157.5 percent and 72.3 percent respectively).

But he noted that the "telco services payout ratio was inflated in part by Sprint Nextel's $4.3 billion dollar loss in 2012 and because four or five of the dividend-paying companies in the sector paid more in dividends than they earned in income in 2012."

Still, the S&P 500 aggregate payout ratio was 30 percent as of the fourth quarter last year, that's about 2.4 percent higher than the previous year, and the S&P's aggregate dividend yield is slightly more than 2 percent, which is in-line with the 10 year daily average according to Amenta.

(Read More: First Day of the Quarter a 'Sell the Gainers' Event)

The top 10 companies paying common and preferred dividends on a trailing twelve month basis are: AT&T, Exxon, GE, Microsoft, Chevron, J&J, Pfizer, P&G, Wells Fargo and Phillip Morris.

Those names are not surprising because they are often pop up in dividend discussions. But the top 10 companies by dividend yield on a trailing twelve month basis had some surprising names: L Brands (11.4 percent yield), Pitney Bowes (10 percent yield), Wynn Resorts (8.1 percent yield), Garmin (5.3 percent yield), Entergy (5.3 percent yield), Lorillard (5.2 percent yield), Pepco (5.1 percent yield), Diamond Offshore (5.0 percent yield), Altria (4.9 percent yield) and Abbott Labs (4.8 percent yield).

This list of twenty companies shows that of the many that pay dividends, opportunities exist in a diverse range of sectors. These are also names that analysts think are likely to continue paying dividends and are poised to go higher in 2013. Investing in these stocks provides investors with a strategy to put risk on in equities but with a little added protection. Consider for example Johnson & Johnson, which hit a new all-time high Tuesday.

(Read More: Avoid Dividend Stocks: Bill Nygren)

"Since the bursting of the dotcom bubble, dividend-paying stocks have exhibited fairly consistent performance characteristics: the lowest yielding stocks [bottom quartile] have exhibited negative returns, while the highest-yielding stocks have outperformed the S&P 500 Index," Amenta wrote.

But even more interesting, Amenta writes, is the difference between low dividend yielding equities and those that don't pay any at all.

(Read More: Second Quarter Begins, Markets Are Slightly Defensive)

"Even in this period in which yield carries a high value, stocks with the lowest dividend yield have also underperformed stocks that pay no dividends at all. In fact, since 2009, the bottom quartile's underperformance has been so severe that it has dragged down the return of dividend-paying companies to a level below the S&P 500. Note that this data excludes Apple, which distorts data on a market cap basis."

—By CNBC's Jackie DeAngelis; Follow her on Twitter: @JackieDeAngelis

Disclaimer

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC's Senior Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.