Highest Dividend Yield Stocks For Cheapskates

| June 24, 2015

I sunk some quality time into the U.S. Open this weekend, and if you’re a golf fan, I hope you did too. How about Jordan Spieth, only the sixth player in history to capture the Masters and the U. S. Open in the same year?

Do you play golf? The U.S. Open brings a dividend stock to mind… Callaway Golf $ELF.

Stick to the clubs and stay away from the stock. Invest in Callaway and you’ll wind up in the rough. Or you’ll be doomed to putt on those greens at Chambers Bay that looked worse than the Enron balance sheet.

No, Callaway is not one of the highest yield dividend stocks… far from it. The yield is down below half a percent, and the dividend payout ratio is redlining at 100%.

Callaway is a flat out risky play, going for the green instead of laying up… risky like those high yields that lure us into doing something we know we shouldn’t do.

We see a yield that’s up over 6% or 7% and we think, “I could buy a few shares of that and give my overall returns a nice little boost. I’d like to pump up my income a bit, and this looks like a great way to do it.”

Not a bad idea.

Not unless you start to play with fire and buy stocks because they deliver seductive dividend yields up over 10%.

But let’s say you’re happy with a more modest income edge. You’re comfortable with a yield that’s less than 10%.

And let’s say you’re a cheapskate. You’ll walk away if you don’t find a good deal.

You know what? There’s a whole world of high yield stocks waiting for you.

Deals On The Highest Dividend Yield Stocks

The first place to look is in energy stocks. Falling crude oil prices have been hammering stocks that have anything to do with oil.

Even natural gas pipeline companies are taking a hit. Spectra Energy Corp. $SE is in the business of natural gas transmission and storage, distribution, and gathering and processing.

There’s more oil in your backyard than there is in Spectra’s $37 billion in assets.

And the stock is down more than 20% over the past year. Call it irrational, call it unfair, call it whatever you want, but investors have soured on energy stocks.

If you’re a cheapskate, looking for a deal, you couldn’t find a better place to look.

A close second is the food business. It’s been a rough ride lately for the packaged food and beverage industries.

Kellogg $K, General Mills $GIS, Coca-Cola Enterprises $CCE, Pepsico $PEP, J. M. Smucker $SJM… they’re all struggling.

Why? Shifting consumer tastes. A growing number of people would rather pick up a jar of homemade jam at the local farmers market than grab a jar of Smuckers at Kroger $KR.

There’s a shift toward artisanal products, local brands, and healthier foods. It’s the craft beer phenomenon creeping into other consumer products.

Speaking of beer…

I love the Molson Coors ticker… $TAP. But what an overpriced stock. The P/E ratio is 32. That’s almost twice the P/E for the overall market. That’s like paying two bucks for a bottle of Coors Light when you can buy a bottle for less than a dollar at Wal-Mart $WMT.

A cheapskate wouldn’t touch this stock.

But wander up and down the aisles of food product stocks and you’ll turn up a good deal.

And here’s another sector where you’ll find a good deal on dividend yield.

Utilities. In the first quarter of 2015, utility stocks paid an average dividend yield of 3.6%, but the sector’s performance was 5.2% below the overall market.

The Highest Dividend Yield Utility Stocks

Let me show you the 3 highest dividend yield utility stocks:

  • Transalta Corp. $TAC pays an 8.97% dividend.
  • Southern Company $SO pays a 5.08% dividend.
  • TECO Energy, Inc. $TE pays a 5.02% dividend.

But hold on. Don’t rush in.

We’ve written about Transalta Corp. before and we warned dividend investors to stay away.

On May 4, my colleague, Michael Jennings, asked you to steer clear of Transalta. That day, the stock was trading at $9.88.

Now, it’s at $8.03.

The email we sent to our subscribers had the subject line, “The High Yield Utility Stock You Must Avoid.”

The Transalta warning was in a piece about the highest yield stocks.

Look… you’ve got to be careful. Just because you’re a cheapskate doesn’t mean you’re safe.

And as far as making a good deal on one of the highest dividend yield utility stocks right now…

TECO probably doesn’t make much sense. The Tampa-based utility has a high dividend payout ratio and a high P/E ratio, a bad combination for cheapskates.

Southern Company?

A nice 5% yield, 17 years of dividend growth, and a P/E ratio of 18, not bad at all.

Not exactly a clearance rack sale, but very reasonable.

And Southern Company, with power customers in Alabama, Georgia, Florida, and Mississippi, is down off its recent highs…

Dividend stock chart Southern Company $SO

 The Right Price To Pay For Dividend Yield

Don’t be too much of a cheapskate. When you see a stock like Southern Company, where the P/E ratio is in line with the overall market, don’t rush off before you take a good look.

Keep in mind that you’re buying income… You’re buying income for today and tomorrow.

In the case of Southern Company, you’ve got a nice 5% yield right now because the stock is off its highs. If the dividend payout stays the same, and the stock price makes up some of the 15% it’s lost this year, yield goes down.

Not a bad thing, if the dividend keeps growing. Remember, there’s nothing terribly wrong with a low dividend yield if it keeps on growing. When you reinvest your dividends, the yield will continue to grow.

It’s just like hitting singles and advancing the base runner. Before long, if you’re consistent, you score some runs.

When the people at Ned Davis Research looked into the long-term impact of reinvesting dividend, here’s what they found.

If you invested $100 in the S&P 500 at the end of 1929, and waited until 2010 to sell your stock, you had $4,989.

But if you reinvested all the dividends paid along the way…

Your $100 turned into $117,774.

What’s your investment horizon? Probably not the 81 years in this example.

But the strategy is just as solid if you’re looking down the road 10 or 20 years. You do a lot better when you reinvest dividends. They’re the dependable spark that lights up the income fire.

Looking for the highest dividend yield stocks is fine. Just make sure you’re not lured into the dangerous alleyways of outfits like Trans Alta.

What’s better is finding one of the highest dividend yield stocks that has solid growth prospects, where revenues can build, expenses can be managed, and the dividend grow year after year, decade after decade.

Cordially,

Paul Duke
Dividend Stocks Research

Note: Paul Duke writes and edits DividendStocksResearch.com. Sign up for our free dividend reports and dividend newsletter at http://www.dividendstocksresearch.com/free-sign-up. We’ll show you how to create regular income by investing in dividend stocks, easily, step-by-step.

 

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