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Investors Run to Safety of Top Dividend Stocks

Frank Byrt |Analyst
Thursday, 18 Aug 2011 | 2:14 PM ET

The rollercoaster stock market has investors running for shelter in the form of top-rated companies that pay high dividends or mutual funds that invest in them.

NYSE trader
Photo: Oliver P. Quilla for CNBC.com
NYSE trader

All U.S. equity mutual fund categories have seen large outflows this year, except for so-called equity-income funds, which took in $11 billion through Aug. 10, Standard & Poor's said. Investors are piling into the safest stocks as the U.S. economy is slowing. Just today, Morgan Stanley lowered its forecast for global economic growth.

Those funds are the $4 billion Columbia Dividend Income Fund, which has a yield of 2.36 percent and a loss of 3 percent this year; the $5.8 billion Vanguard Dividend Growth Fund , which has a yield of 1.99 percent yield and a loss of 0.7 percent; and the $5.6 billion Vanguard Equity Income Fund , which has a yield of 2.72 percent and a loss of 0.2 percent. The benchmark S&P 500 Index of U.S. stocks, in contrast, has fallen 4 percent.

With that in mind, we reviewed those funds and came up with seven stocks that they added to significantly or initiated stakes in during the second quarter:

The Columbia Dividend Income Fund about doubled its stake in Linear Technology to 539,000 shares, or 0.5 percent of its portfolio. The company, with a market value of $6.2 billion, makes high-performance analog integrated circuits for the industrial, automotive, communications and high-end consumer electronics industries. It carries a dividend yield of 3.53 percent and its shares are down 20 percent this year.

Columbia Dividend Income Fund also added to an old stand-by: the reliably high-yielding Johnson & Johnson. The mutual fund boosted its stake by adding 224,200 shares, which now makes it 1.7 percent of its portfolio, or its 15th-largest holding. Johnson & Johnson is the world's biggest and most diverse health-care company, with a market value of $176 billion. The company comprises three divisions: pharmaceutical, medical devices and diagnostics, and consumer products. It pays a dividend yield of 3.54 percent and its shares are up 5.8 percent this year.

The Vanguard Dividend Growth Fund initiated a huge position in defense contractor Northrop Grumman , buying 2.2 million shares, making it its eighth-largest holding. The company builds everything from lunar space modules to parts for aircraft carriers. Although the defense budget is likely to shrink due to Congressional efforts to cut the budget deficit, Northrop's strength in the information systems, electronic systems and aerospace industries should keep it healthy. It carries a 3.76 percent dividend yield and its shares are down 7.8 percent this year.

Vanguard Dividend Growth also initiated a position in toy-maker Mattel ,buying 2.1 million shares, or just under 1 percent of its portfolio. Mattel, with a projected yield of 3.69 percent, is down 0.2 percent this year, giving its shares a market value of $8.5 billion. Mattel sells toys under several brands names, including Barbie, Hot Wheels, Fisher Price and American Girl. The company also produces toys under exclusive entertainment licenses that tie in with and promote movies and video games.

The Vanguard Equity Income Fund added 567,000 shares to its existing stake in Unilever, making it a 1 percent stake. Unilever's shares are up 8.4 percent this year and they carry a yield of 3.84 percent. With a market value of $102 billion, Unilever is an international maker of packaged foods and household and personal products.

Vanguard Equity Income Fund initiated a stake in Vodaphone Group , buying 1.2 million shares, resulting in a 0.6 percent stake. Vodaphone is the second-largest wireless phone company in the world, with a major presence throughout Europe, and it also owns a 45 percent holding in Verizon Wireless in the U.S. It has a $142 billion market value and carries a 6.94 percent dividend yield. Vodafone's shares are up 8.2 percent this year.

Vanguard Equity Income also initiated a stake in Consolidated Edison, buying 273,700 shares in the holding company of two regulated utilities that provide power to New York City and surrounding counties. The largest is Con Ed of New York. They provide steam, natural gas, and electricity to customers in southeastern New York—including New York City—and parts of New Jersey and Pennsylvania. It has a market value of $16 billion and carries a 4.4 percent dividend yield. Its shares are up 13.6 percent this year.

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Disclosures:

TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Disclaimer

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S&P 500
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ED
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COLUM DIVINC Z
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JNJ
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LLTC
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MAT
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NOC
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UNA
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VANG DIVGROI
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VANG EQINC I
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VOD
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