Above Average Yields

The average dividend yield among stocks included in the S&P 500 Index hit an all time low of 1.11% in August 2000, as the Dot.com frenzy drove stock valuations higher.  Investors eventually took a more realistic view in valuing Internet-related investments, but dividend yields only modestly recovered before the financial crisis in 2008 and the Great Recession in 2010.  Even as stock prices have rebounded from those volatile days, dividend yields have settled near the 2.0% level.

Low dividend yields may not be entirely a matter of inflated valuation metrics and high stock prices.  Corporate leadership has favored stock repurchases as a vehicle to reward shareholders and dividend payments have taken a back seat.  Additionally, investors have so many more options for income.  All relatively new to the investment basket, real estate investment trusts, master limited partnerships and business development corporations by their very structures offer high yield to investors.  Energy investors also have the new ‘yieldco’ for investing in renewable energy projects.   With these options available, there is much less pressure in the board room to declare fat dividend payouts.

Nonetheless, there are interesting dividend-paying stocks available that offer above average yields.  More than just a few can also give shareholders a solid environmental-friendly holding.

Name	SYM	Sector	Price	Yield	PE
ABB Ltd.	ABB	Power grid tech	$19.69	4.16%	18.73
Acciona S.A.	ANA.MC	Renewable power generation	$88.90	3.87%	20.34
Boralex, Inc.	BLX.TO	Renewable power generation	$13.03	3.86%	36.89
Centrica Plc	CNA.L	Mixed power generation	$186.13	8.33%	15.49
Duke Energy	DUK	Power generation, distribution	$88.57	4.28%	21.57
Enel SpA	ENEL.MI	Electric and gas utility	$5.23	6.14%	11.24
Eaton Corp.	ETN	Power management systems	$72.94	3.56%	12.40
Entergy Corp.	ETR	Power generation, distribution	$86.35	4.22%	36.05
Fortis, Inc.	FTS	Electric and gas utility	$34.49	3.95%	19.98
National Grid	NGG	Electric and gas utility	$54.32	5.83%	8.43
Southern Co.	SO	Power generation, distribution	$46.66	5.12%	19.47
All currencies converted to USD.

Of course, no dividends are guaranteed and it is quite possible to pay a hefty multiple for a stock only later to read news of a dividend suspension.  General Electric (GE:  NYSE) shareholders are well familiar with the disappointment of evaporating dividends after GE cut its dividend twice in the last ten years.  Even the ‘green’ halo of renewable energy may not be enough recompense for a cancelled payout to shareholders.  

There is no crystal ball for future dividend payments, but a little scrutiny can elevate confidence in investments for yield. 

·        First, there are certain industries that are notable for strong, consistent dividends.   Well represented in the list above is the electric utility industry where business models create significant consistent cash flows. 

·        Next investors can consider whether a company has operation leverage, that can a company increase income by ramping revenue and achieving better coverage of fixed costs.  Tick off operating leverage for utilities and power generation companies as well.  

·        Then there is financial leverage, that is, how much debt does the company use relative to equity.  The lower financial leverage the more flexibility a company will have in making strategic decisions.  It also means shareholders may not have to witness precious cash flow siphoned off to pay insistent creditors.

·        Company size can be a good selection approach.  Just like the dominant lion in the pride, the largest company might also be the most powerful competitor.  The big kahuna could also be the one most likely to survive an economic downturn and most likely to keep those dividend checks coming.

The stocks in our list are just a few of the many energy-related companies that offer above average dividend yields.  With renewable energy sources such as solar and wind becoming a more significant part of the world’s power industry, we expect solar and wind companies to become even more prominent in the quest for dividend yield.     

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.