High yield dividend stocks remain en vogue as Federal Reserve Chairman Ben “Shalom” Bernanke continues to keep rates at historically low levels. With the Fed funds rate hovering at 0% so that banks can get back on their feet, individual investors have few places to turn other than high yielding dividend stock investments. The Fed has penalized safety-seeking savers and retirees in order to make sure that the big and powerful banks can turn a profit.
For example, one of the most favored “safe” investments that investors have enjoyed throughout their lifetimes has been certificates of deposits. With this depressing interest rate environment, most risk-adverse investors have been enduring close to a 1% or less return on their money. Beyond certificates of deposit, the next safest investment option has been U.S. treasury bonds. Worse, treasury bonds, if not kept until maturity, could actually be a money losing investment. Many Wall Street insiders suspect that there will be a mass exodus from the treasury bubble that has been inflating as investors –globally – have jumped into US treasuries to escape the uncertainties of an economic downturn and a volatile equities market.
On the other hand, investors can pick a number of compelling high yielding stocks that deliver income in the form of a dividend and have upside to their stock price.
Here a few top dividend yielding companies to consider:
Dividend Stock – CenturyLink
CenturyLink (NYSE: CTL), headquartered in Monroe, La., is a leading provider of high-quality broadband, entertainment and voice services over its advanced communications networks to 7 million phone and 2.2 million high-speed internet consumers and businesses in 33 states. Although CenturyLink is rarely profiled and unknown by most investors, it is an S&P 500 company and is included among the Fortune 500 list of America’s largest corporations. CenturyLink is ramping-up cost savings as it integrates its $11.6 billion acquisition of Embarq, a local phone company spun off by Sprint Nextel in 2006. CenturyLink is now in the process of acquiring Qwest (NYSE: Q) for $10.6 billion in stock. This is a union that will create a national presence and strong cash flows. In the most recent quarter, CenturyLink reported operating revenue of $1.8 billion and an increase of 6% in earnings per share from the same quarter last year. CenturyLink continues to grow their business – adding more than 29,000 high speed internet customers and 26,000 satellite video customers during the quarter.
This is helping to offset declines in the traditional fixed-line business. This is a profitable business with a healthy 52% year-over-year operating margin and strong cash flows to support returns of nearly $219 million of the past quarter’s free cash flow to shareholders — representing a 51% payout ratio. The only threat to the hefty dividend is any future decision to upgrade their network as they compete in the new areas that the Qwest merger brings. Enjoy a hefty 8.1% dividend yield.
Dividend Stock – Reynolds American
Reynolds American Inc. (NYSE: RAI) is the country’s second largest domestic cigarette producer with brands that include Kool, Pall Mall, Winston, Salem and the widely known and popular, Camel. Yes, cigarette smoking is deadly and the anti-smoking campaigns continue to be wildly successful, but don’t let that make you think this is a shrinking company — revenues for the past 12 months exceeded $8.4 billion, barely budging from the sales generated in the previous equivalent period. Most importantly, cigarette companies are cash cows. Just because cigarette smoking is on the decline, it doesn’t mean that Reynolds can’t continue to generate billions in profit. Reynolds expects to drive growth through its smokeless tobacco division — The American Snuff Company. In 2006, Reynolds acquired Conwood, the second-largest domestic producer of smokeless tobacco through such brands as Grizzly, Kodiak, and Levi Garrett and is now enjoying annual growth in the high single digits. And, most appealing is that the smokeless tobacco segment, the major generator of sales growth, won’t face the expensive litigation that has plagued the entire sector for decades.
For now, smokeless tobacco only represents 8% of sales, but it could double over the coming decade. Even in the cigarette division, Reynolds has successfully executed a strategy to focus on advertising and promoting its more profitable brands – which make-up close to 65% of revenue. So, although 2nd quarter revenue was flat year-over-year, Reynolds’ leading premium product, Camel, reached volume growth of nearly 3%. Reynolds American delivers a steady 6.4% dividend yield.
Dividend Stock – R.R. Donnelley
Founded 145 years ago, R.R. Donnelley & Sons Company (NASDAQ: RRD) is the largest printer in North America. For over 60,000 customers, R.R. Donnelley designs, manages and produces words and images in both paper and in digital form for customers in the publishing, healthcare, advertising, retail, technology, and financial services. In addition to traditional commercial printing and direct mail, the company also handles business communication outsourcing, logistics, online services, digital photography, and content and database management.
When it comes to traditional printing, R.R. Donnelly is omni-present. For example, on August 16, the company was awarded a multi-year multi-million dollar contract to produce Wenner Media’s US Weekly magazine and just last month was awarded an agreement to produce Harvard Business Publishing’s flagship monthly magazine, Harvard Business Review. Because of its pricing power and size, R.R. Donnelly’s operations were virtually unfazed by the recession. It is back to business as usual. 2nd quarter 2010 net sales increased +2.2% to $2.4 billion compared to the 2nd quarter of 2009. Income from operations increased to $175.3 million from $135.0 million in the 2nd quarter of 2009 — that’s a whopping +29.8% increase. I believe that growth will be especially strong in the coming quarters — driven by the financial services division. R.R. Donnelley partners with corporate counsels, officers and directors, as well as securities lawyers, investment bankers and accountants to create, produce and deliver transaction and compliance documents to provide a full range of documents and communication solutions to support the increasingly complex regulatory requirement of capital markets—with additional communications being necessitated by stricter SEC filing requirements and the recently passed financial regulation bill. Even during the worst of the credit crisis and previous economic downturn the dividend has been steady –now delivering a yield of 6.9%.
Dividend Stock – France Telecom
France Telecom (NYSE: FTE) is the leading telephone company in France. But don’t let the name fool you. Its growth extends well beyond France’s borders and is being driven by its intentional push across Europe and into under-served areas such as the Middle East and Africa. By June 30th, the company had a total base of 182 million customers in 32 countries. France Telecom operates under the “Orange” brand and covers internet, television and mobile services in the majority of countries where the company operates. Orange is the number three mobile operator and the number three provider of broadband internet services in Europe and, under the brand Orange Business Services, is now one of the world leaders in providing telecommunication services to multinational companies.
Although the recession and credit crisis continues to slow down growth for most telecom operators, France Telecom continues to find ways to expand its customer base. In fact, the total year-on-year increase in the customer base was 3.8%. Mobile customers grew by 6.6% to 123.1 million — driven by an 18.4% year-over-year increase in Africa and the Middle East; with a combined total of 34 million customers.
France Telecom also saw a 2.2% growth in ADSL broadband subscribers to 13.2 million customers and rapid growth of digital TV with 3.6 million subscribers — a year-on-year increase of 34%. Excluding the impact of new regulation, revenues were stable compared with the first half of 2009, but the trend improved in the 2nd quarter of 2010 — up 0.3%. Impressive was the company’s reduction of net debt to $37.8 billion compared with $41.1 billion at the end of 2009. Heavy debt loads, especially as a result of expansion, have always been the thorn in the side of telecom operators — but not for France Telecom. The stock is undervalued right now; namely because of concerns of competitive pressure in France. A fourth compay, Iliad, just received their wireless license. But, the reality is that it will take two years for Iliad to build-out and cover even 25% of the country’s population. The dividend yield is 6.6%.
Dividend Stock – Telesp (TSP)
Telecomunicacoes de Sao Paulo S.A. – otherwise known as Telesp (NYSE: TSP) – is a telecom company that provides fixed-line telecommunications services in the Brazilian state of Sao Paulo. Telesp’s regional telephone network includes about 12 million fixed-line customers. Telesp also launched pay television service in August of 2007. Last quarter showed strong subscriber growth (+22% sequentially). In order to prevent cannibalization in the competitive cell phone marketplace, Spanish company, Telefonica, the 80% owner of Telesp, has kept Telesp from offering cell phone services so that its cellular operator, Vivo, can dominate the state.
So, although Telesp seems to be missing out on the revenue potential of cell phone services, Telesp is focused on other big revenue areas such as high-speed Internet and providing data transmission for business customers. In fact, most all of Telesp’s growth has been driven by the increasing interest and need for broadband services. There are now 3.1 million high speed Internet customers with huge upside for more revenue growth as the internet is still used by less than 40% of the population in the Sao Paulo area. In fact, Telesp signed on an additional 363,000 subscribers in the 2nd quarter of this year. As for the earnings, they are quiet impressive given the downturn of the global economy. Telesp reported 2nd quarter earnings on August 3rd, coming in at $0.77 cents, which was well ahead of street estimates of $0.50 to $0.55 cents and net income climbed 10.3% year-over-year to $389.8 million. The dividend yield is 4.3%.
As of this writing, Hilary Kramer did not own a position in any of the stocks named here.
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