Right now the stocks that make up the S&P 500 are paying a pretty meager average dividend yield of 1.83%. And guess what? That’s generous compared to the wider collection of stocks that make up the rest of the overall stock market in the US.
Standard & Poor’s just released a survey of some 7,000 companies that trade publicly in the US concerning their dividends, and the results aren’t good news – unless you’re in their executive suites of these companies.
Only 191 of those 7,000 companies raised dividends for the last quarter. Meanwhile, the guys running the companies managed pretty well, even without the dividends from their own stock.
Companies Aren’t Cutting CEO Compensation
Based on filings with the US Securities and Exchange Commission, the average pay package for a S&P 500 CEO is running at $10.9 million.
Now, we know that with the dollar not worth as many euros these days, perhaps they do need to make a bit more. And according to a recent study released by Equilar, which focuses on pay and benefit information, that average compensation packages is down for the first year since 2002 by an average of 6.8%.
But before you begin to grin about the misfortunes of the executive set, note that base pay rates are still rising — even this year — by an average of 5.7%. And while bonuses are down, helping to drive down overall compensation growth rates, companies are using backdoor means of keeping management well compensated.
First with actual stock. Compensation with actual stock grants is actually running up this year by an average of 1.4%. And then there’s the option game. Stock option grants to management are increasing right now at an average rate of 3.6%.
So more cash in their regular pay envelopes, along with more stock and options, and it kind of makes you wonder: As investors, where’s our cut? And where are our dividends?
Unfortunately, that doesn’t seem to be the focus of the guys running the 500 biggest companies. For dividends among S&P 500 companies are down over 16.9% percent over the past 12 months.
And it’s not just a one year problem. The average dividend for an S&P 500 stock is down over the past three years by 0.3%.
It’s not like these companies are giving investors big appreciation gains, either. In fact, the overall return for the average S&P stock is down 16.4% over the past 10 years.
That’s not going to work for you.
If you were to look down my current list of favored stocks, mini-bonds and funds that I continue to track inside my Stocks That Pay You portfolio, you would find that every stock, save one, not only paid a decent dividend, but actually continues to raise dividends over and over, year in and year out.
In fact, the average current dividend rate of my recommended stocks is running a tick shy of 7%. That’s more than 3.8 times the average yield for the 500 stocks that make up the S&P.
Okay, so what do I recommend?
Top 5 High-Dividend Investments to Buy Now
Sure, let’s start with the base of bonds. Yep, bonds, but not just from the U.S., but around the globe, giving us world-class high yields and diversity away from the US dollar. That begins with an old favorite – AllianceBernstein Global High Income (AWF).
This fund has an eclectic and ongoing mix of Asian, Latin American and European bonds of governments and agencies that keeps performing. And by performing, I don’t just mean the dividends — which continue to expand at a 3-year average of over 6.7% and currently pay a yield of over 8.6% – but also the gains.
The total return for this fund over the past 12 months is over 75%. And if you think that it’s over, it’s not. The fund still trades at a discount to what the actual bond portfolio is worth by over 5%.
Next, let’s look at one of my favorite individual mini-bonds from my favorite airline: American (AMR).
The company came out this week with its latest quarterly, which showed a slowing in losses, reduced costs and more importantly, a major series of capital infusions, ranging from equity to general and specific project and debt financing.
This continues to bring more and more credibility to the balance sheets of the company and proves out what I’ve been writing about this company for years now: It has the ability and the wherewithal to pay its investors.
And while there is value in the common stock, the real value is in the American Airlines mini-bond (AAR). This mini-bond has a stated dividend or coupon rate of 7.875% and continues to rally up in price. Currently trading around $18, this means a yield right now of over 11.2%, paid quarter after quarter.
My third pick is actually part common stock and part bond. It’s an income deposit security (IDS) that I’ve followed and recommended right from the IPO through today. From the get-go in December of 2004 through today, Otelco (OTT) has proved my case for it by turning in an overall return in excess of 46%, while the S&P lost over 10.3% in price alone.
Otelco is one of my favorite rural communications companies. With its base in low-cost and humble Oneonta, Alabama, management sticks to what the company does well, and it doesn’t deviate. Its growth comes from controlling costs and bolstering revenues from existing customers, as well as very specific acquisitions in markets that work just like its home market.
The results keep coming, with a dividend rate running at 12.8%.
Fourth, there’s another utility that’s actually an S&P 500 stock. Southern Company (SO) might seem tame with a dividend rate of 5.2%, yet that dividend has been rising over the past five years by an average of over 4% a year.
This is the steadiest of steadiest companies in the U.S. that keeps generating power and paying its stockholders.
No wonder then that over the same ten years when the S&P 500 lost ground, SO generated profits of over 234.9%. And that’s not just better than the S&P 500, but its performance is nearly 5 times better than its peers in the power utilities market.
Last up is a favored resource company that doesn’t need to rely on oil and gas in the stratosphere to make money. Linn Energy (LINE), based right here in the U.S. down in Houston, is set up to produce gas at prices that are well below the market.
And with low cost fields that keep revenues pumping with triple-digit gains, and a strategy of paying out a steady cut for investors, it’s no wonder Linn keeps producing for investors.
Returns this past year are over 73%. That’s over 15 times better than the biggest oil company in the S&P 500.
And that’s not a recent fluke, as the returns from the start, in January of 2006, have continued year in and year out, with an annual average of twice that of the biggest U,S, oil company and more than three times the average of the oil companies tracked inside the S&P 500.
And Linn keeps paying, with a dividend currently at over 10.2%, which has been rising since the company went public by an average annual rate of over 29%.
Neil George is editor of Stocks That Pay You.