This year’s market rally, with the S&P up about 15% during 2013, has rendered it more difficult to find above-average dividend yield investments. Most companies have not maintained elevated payout ratios (dividends as a proportion of net income), as share prices climbed. That said, there are a few industries where total-return remains an appealing factor, and healthy income can be received. The current 10-year Treasury bond yield, currently around 2.2%, can be considered a reference point for high dividend yields.
The sectors/investments worth consideration include: Oil and Gas MLPs (master limited partnerships), tobacco firms, utilities, and telecom firms. Here’s an example from each category.
MLPs – Alliance Resource Partners, L.P. (NASDAQ:ARLP)
Master Limited Partnerships usually distribute about 100% of the limited partner shareholders’ share of total income as payouts, almost always rendering them good purchases for those seeking solid income. Coal producer Alliance is not only growing its revenues and profits, but also pays out what amounts to approximately a 6.4% yield.
Conditions in the coal market are favorable, marked by rising demand and falling supply. Moreover, Alliance Resource Partners, L.P. (NASDAQ:ARLP) has secured a strong backlog of commitments for domestic steam coal. Estimates suggest that volumes could grow around 10% in 2013 at improved pricing levels. Accordingly, another good year seems to be on tap.
Alliance shares have sold off of late, providing an opportunity for purchase in my view. It is one of the best MLPs I’ve found, among a group that includes Plains All American Pipeline, Williams Partners, Energy Transfer Partners and others.
Tobacco producers – Reynolds American, Inc. (NYSE:RAI)
I have blogged about tobacco firms in the past, including in another posting related to income holdings where I mentioned Lorillard. They tend to have solid financials, with price hikes helping to offset slowing demand. Plus, the companies consistently increase payouts.
Reynolds American, Inc. (NYSE:RAI) shares offer an annual dividend yield of roughly 5.2%. The company combines dividends with repurchases, boosting shareholder value. In terms of operational initiatives, it is keeping costs in line with the reduced volume environment, likely allowing for ongoing profit growth. Although its core RJR Tobacco unit is under sales pressure, two of its smaller divisions, American Snuff and Santa Fe, are growing their sales and income.
RAI shares hold appeal for their yield and are a good addition to a long-term stock portfolio.
Utilities – The Southern Company (NYSE:SO)
Over the years Southern has been one of the most steady stocks available. Its beta of 0.24 indicates very low volatility. That said, the shares have sold off a bit along with the broader income stock universe. They yield about 4.6%, and ongoing hikes to the dividend are probable.
Notably, The Southern Company (NYSE:SO)’s core wholesale revenues climbed a whopping 59% in the March quarter, driven by both pricing and higher kilowatt hours. This pace of growth will probably not persist, though the economic climate in Southern’s southeast market is showing signs of improvement.
Now may be a good time to shares of The Southern Company (NYSE:SO), based on their yield and low-risk attributes.
Telecom service providers – BCE Inc. (USA) (NYSE:BCE)
Not too long ago, I posted an entire blog concerning Canadian telecoms (read it here). Despite the price falloff, I continue to believe shares of BCE Inc. (USA) (NYSE:BCE), Canada’s largest telecom, hold appeal as a total-return investment. They yielded 5.3% at the most recent price.