Remember back when rock-bottom interest rates had investors drooling over income stocks? Well, those days have been waning as of late.
The 10-year Treasury’s continued march north hit a milestone yesterday, briefly touching the 3% mark before receding back to around 2.9% today — still good for the note’s highest yield in more than two years. While yields have been driven up by continued fears about the Fed taking away the stimulus punch bowl, data showing jobless claims at their lowest level in almost six years provided Thursday’s spark.
At nearly 3%, Treasuries now sit around a yield mark once reserved by many as the floor for a “good yield on a dividend stock. But that doesn’t mean income stocks should be dropped altogether — investors should simply consider raising their standards.
The following three dividend stocks still easily trump Treasury notes, and are arguably just as safe. Take a look:
Dividend Yield: 4.4%
First up, we have Consolidated Edison (ED) — a consistent dividend bet if there ever was one.
Edison has paid out dividends since 1885 — that’s right, nearly 130 years — and has earned a place among InvestorPlace’s Dependable Dividend Stocks. ED’s current quarterly payout sits at 61.5 cents per share and makes for a 4.4% yield that easily boasts rising 10-year notes.
While Edison’s dividend growth isn’t anything to scream about, it did accelerate a bit early this year, when ED hiked it by a penny, vs. the half-penny improvements it has been making for years. In total, ED has only bolstered its payout by 10% in the past decade, but it’s a durable growth — Edison has hiked its dividends for 40 consecutive years.
ED does have a bit of a red flag in that its P/E of 16 is slightly higher than its five-year average, but that average was pretty skewed by the financial crisis; otherwise, it’s right on par with where Edison stock traded before the 2008-09 dip.
Sure, ConEd’s growth prospects are limited — earnings are slated to grow by less than 2% a year for next half-decade — and ED stock is flat so far this year, but if you’re looking for steady income, Edison’s as good as it gets.
Dividend Yield: 5.4%
No one should be stunned that a telecom stock made this list.
AT&T (T) — the company behind America’s largest and fastest 4G network — is sitting just less than flat for the year, but share appreciation isn’t AT&T’s featured act. No, it’s AT&T’s dividend — a 45-cent-per-share payout that sets its yield well north of 5%.
AT&T has been paying a dividend since 1984, when it shelled out 12 cents a quarter to shareholders. That payout has more than tripled since then, and it’s 67% better in the past decade. So not only is AT&T also among InvestorPlace’s Dependable Dividend Stocks — it’s the list’s second-highest yielder.
The payout itself has rock-solid backing of $4.5 billion in cash as of the end of Q2, not to mention $8 billion in free cash flow generated in the year’s first half alone.
Also, don’t worry about AT&T’s dividend stream being used just to offset stock losses in the future. AT&T might not see huge growth, but it’ll see something, considering the demand for broadband and wireless services continues to grow. In the most recent quarter alone, AT&T added 2 million new wireless and wireline high-speed broadband connections, plus the company recently bought Leap Wireless (LEAP) for $1.2 billion to add spectrum and prepaid customers.
Royal Dutch Shell
Royal Dutch Shell (RDS.B) has been struggling of late, too, but remains a great long-term income play. The Netherlands-based oil giant rewards investors with a hefty payout of 90 cents each quarter — which translates to a 5%-plus yield as of current prices.
RDS has paid dividends since 1947, just improved its payout this year and has grown its dividend by 62% since 2005 (when its stock split).
Meanwhile, Royal Dutch Shell boasted $7.2 billion in free cash flow for the first half of 2013, and management said it expected to achieve $175 billion to $200 billion of cash flow from operations from 2012 through 2015 in a $80-to-$100 oil price scenario. Oil prices now are north of $100.
Shell’s recent weakness has a silver lining. Sure, the company missed expectations in the most recent quarter thanks to attacks on its operations in Nigeria and a writedown of its North American shale assets, but the resulting selloff makes the stock look like a bargain. RDS.B is trading at just 9 times trailing earnings, while rivals Exxon Mobil (XOM) and ConocoPhillips (COP) both sport P/Es above 11.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.