Concerns that a stock market correctionis overdue may be turning investors, particularly those near or in retirement, into yield hounds.
And since dividends on fixed-income securities are still at historically low levels, with the yield on 10-year U.S. Treasurys at less than 2.5 percent, they would do best to look for stocks with growing dividends being paid by high-quality companies, both for their yield and their potential share-price appreciation.
And given that definition, that means large-capstocks, as there are really few other places to jump for the investor seeking a secure total return.
In addressing that interest, ratings and research firm Morningstar, which tracks the portfolio changes of 26 top-performing mutual funds for its “Ultimate Stock-Pickers” series, screened its funds list. It found the most dividend-focused funds with stocks that pay an annual yield greater than that of the S&P 500’s 2 percent for last year.
Pharmaceutical and health-care stocks dominate the list, with five representatives. Although their share-price performances this year are poor, all hovering around break-even (compared with the S&P 500’s 11.3 percent gain), they pay relatively high dividends with the prospect for continued increases given the world's population growth, and the rising demand for more and new types of drugs as the population ages.
Consider the highest-yielding stock in the pack: GlaxoSmithKline. The dividend yield is 5.86 percent and the shares are up 26 percent over the past 12 months, including this year’s pedestrian 1 percent advance.
As one of the world’s largest pharmaceutical companies, GlaxoSmithKline’s dividend growth prospects and steady cash flow are relatively secure, given its huge list of patent-protected drugs. Its shares have yielded at least 4 percent annually since 2007. It is scheduled to pay a quarterly 66.3-cent dividend April 12, plus a 15.8-cent special dividend.
Here are the 10 most popular high-yielding dividend stocks among Morningstar’s Ultimate Stock-Pickers funds, listed in inverse order of highest yield:
10. Unilever
Company profile: Unilever, with a market value of $101 billion, is a consumer-goods giant, the third-largest packaged food company in the world. It also sells household and personal products. Its brands include Knorr soups, Hellmann’s mayonnaise, Ben & Jerry’s ice cream, and Lipton teas.
Dividend yield: 3 percent
Investor takeaway: Its shares are down 1.6 percent this year and have a three-year, average annual return of 27 percent. Analysts give its shares two “buy” ratings, three “holds,” and one “weak hold,” according to a survey of analysts by S&P. It is held by eight of the Ultimate Stock-Pickers funds.
9. General Electric
Company profile: General Electric, with a market value of $212 billion, is a diversified manufacturer and is organized into four segments: technology infrastructure, energy infrastructure, home and business services, and capital services.
Dividend yield: 3.3 percent
Investor takeaway: Its shares are up 12 percent this year and have a three-year, average annual return of 31 percent. Analysts give its shares seven “buy” ratings, eight “buy/holds,” and four “holds,” according to a survey of analysts by S&P. It’s expected to earn $1.54 per share this year and it will grow 14 percent, to $1.76, in 2013. It is owned by six of the Ultimate Stock-Pickers portfolios.
8. ConocoPhillips
Company profile: ConocoPhillips, with a $98 billion market value, is an international integrated energy company.
Dividend yield: 3.4 percent
Investor takeaway: Its shares are up 5 percent this year and have a three-year, average annual return of 30 percent. Analysts give its shares four “buys,” ratings, four “buy/holds,” eight “holds,” and four “sells,” according to a survey of analysts by S&P. It’s held by eight of the funds. It’s expected to earn $8.56 per share this year, and that it will rise to $9.14 in 2013. It is held by eight of the Ultimate Stock-Pickers funds.
7. Vodafone Group
Company profile: Vodafone Group, with a market value of $137 billion, is the second-largest wireless phone company in the world. That includes a 45 percent stake in Verizon Wireless.
Dividend yield: 3.5 percent
Investor takeaway: Its shares are down 1 percent this year and have a three-year, average annual return of 24 percent. Analysts give its shares two “buys” ratings, three “buy/holds,” one “hold,” and one “weak hold,” according to a survey of analysts by S&P. Morningstar analysts say Vodaphone “generates significant free cash flow, which it is using to increase dividends, make acquisitions, and reinvest in the business.” It’s owned by six of the funds.
6. Johnson & Johnson
Company profile: Johnson & Johnson, with a market value of $177 billion, ranks as the world’s biggest and most diverse health-care companies. It has three divisions: pharmaceuticals, medical devices and diagnostics, and consumer products.
Dividend yield: 3.54 percent
Investor takeaway: Its shares are long-term underperformers. The stock is down 0.8 percent this year to $64.46. It has a three-year annualized return of 11 percent. Morningstar says that it “expects annual sales growth will average 5 percent during the next 10 years.” Analysts give its shares 10 “buys,” five “buy/holds,” and 14 “holds,” according to S&P. It’s expected to earn $5.12 per share this year, rising to $54.46 in 2013. It is held by 11 of the funds.
5. Sysco
Company profile: Sysco, with a market value of $17 billion, is the leading food-service industry distributor in the U.S. and Canada, with around a 17 percent share of the estimated $220 billion market. Most of its sales are to restaurants, which means revenue can fluctuate with the economy, but it also serves a core of institutional customers, such as hospitals, nursing homes, and schools.
Dividend yield: 3.64 percent
Investor takeaway: Its shares are up 2.8 percent this year and have a three-year, average annual return of 13 percent. Analysts give its shares two “buy/holds,” ratings, 11 “holds,” and one “weak hold,” according to a survey of analysts by S&P. It’s expected to earn $2 per share this year and $2.12 in 2013. It is held by six of the funds.
4. Pfizer
Company profile: Pfizer, with a market value of $165 billion, is the world’s largest pharmaceutical firm, with annual sales near $70 billion.
Dividend yield: 3.7 percent
Investor takeaway: Its shares are up 1.4 percent this year and have a three-year, average annual return of 21 percent. Morningstar expects the dividend payout ratio will increase in the future, and adds that its “foundation remains solid, based on strong cash flows generated from a basket of diverse drugs. The company’s large size confers significant competitive advantages in developing new drugs.” Analysts give its shares 14 “buy” ratings, six “buy/holds,” and five “holds,” according to a survey of analysts by S&P. Nine of the funds own this stock.
3. Merck
Company profile: Merck, with a market value of $114 billion, is a global, research-driven pharmaceutical company that discovers, develops, manufactures, and markets a range of innovative products to improve human and animal health.
Dividend yield: 4.5 percent
Investor takeaway: Its shares are up 0.8 percent this year and have a three-year, average annual return of 16 percent. Analysts give its shares 10 “buy” ratings, six “buy/holds,” and seven “holds,” according to a survey of analysts by S&P. S&P has a “buy” rating on its shares, with a $42 price target, a 10 percent premium to the current price. Analysts expect it to earn $3.79 per share this year, shrinking to $3.72 next year. It is held by six of the funds.
2. Eli Lilly
Company profile: Eli Lilly, with a market value of $46 billion, is a producer of prescription drugs offers a wide range of treatments for neurological disorders, diabetes, cancer and other conditions, and also sells animal health products.
Dividend yield: 4.92 percent
Investor takeaway: Its shares are down 3 percent this year and have a three-year, average annual return of 12 percent. Analysts give its shares three “buy” ratings, 15 “holds,” one “weak hold,” and two “sells,” according to a survey of analysts by S&P. It’s expected to earn $3.18 this year and that will grow by 15 percent, to $3.66, in 2013. It is owned by five of the funds tracked by Morningstar.
1. GlaxoSmithKline
Company profile: GlaxoSmithKline, with a market value of $114 billion, is one of the world’s largest pharmaceuticals companies.
Dividend yield: 5.86 percent
Investor takeaway: Its shares are up 1 percent this year and have a three-year, average annual return of 21 percent. Analysts give its shares four “buy” ratings, four “holds,” and one “weak hold,” according to a survey of analysts by S&P. S&P has it rated “sell” on valuation concerns given the ratings firm’s outlook for slow sales over the next few years. It’s expected to earn $3.55 per share this year and $3.89 next year. Six Ultimate Stock Pickers’ funds hold the stock.
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