To attain a decent yield on a bond with an attractive risk/reward ratio is becoming a difficult task for investors.
Yields on German Bunds continued to decline over the years to all-time lows due to loose monetary policy aimed at kick starting a weak European economy. For the first time ever the average yield on German Bunds has turned negative.
In this scenario, investors need to start considering other asset classes if they want to prop up returns on their portfolio. In addition, it is always recommended to diversify a portfolio even at asset class level.
High dividend paying stocks may be considered as an alternative for investors that typically invest in fixed income securities. These dividend paying stocks historically also tend to appreciate in price providing a capital return.
For those investors who want to keep on receiving their yearly income stream and at the same time a greater probability of capital upside on their investment, they can improve their risk/reward ratio by investing part of their portfolio in high dividend paying stocks.
When I think of high dividend paying stocks, the first thought that comes to mind is the ‘Dogs of the Dow’. They are the 10 highest dividend paying stocks in the Dow Jones Industrial Average (DJIA). The DJIA is made up of a total of 30 stocks.
In the Dogs of the Dow strategy, the investor shuffles around his or her portfolio, adjusting it so that it is always equally allocated in each of these 10 stocks.
Due to market movements in prices and changes in valuations, the constituents of Dogs of the Dow change year-on-year. For those investors adopting this strategy, they would have to rebalance their portfolio periodically due to the fact that the top 10 dividend paying stocks change or due to the fact that one of them could be dropped out of the DJIA.
The 10 Dogs of the Dow for 2015 (Prices and Dividend yields quoted below as at 16.04.2015)
Verizon Communications Inc (Ticker: VZ US EQUITY, Price: $49.27, Dividend Yield: 4.38%)
Verizon Communications Inc. is an integrated telecommunications company that provides wire line voice and data services, wireless services, Internet services, and published directory information. The Company also provides network services for the federal government including business phone lines, data services, telecommunications equipment and payphones.
Chevron Corp (Ticker: CVX US EQUITY, Price: $100.16, Dividend Yield: 3.82%)
Chevron Corporation is an integrated energy company with operations in countries located around the world. The Company produces and transports crude oil and natural gas. Chevron also refines, markets, and distributes fuels as well as is involved in chemical operations, mining operations, power generation and energy services.
McDonald’s (Ticker: MCD US EQUITY, Price: $95.63, Dividend Yield: 3.43%)
McDonald's Corporation franchises and operates fast-food restaurants in the global restaurant industry. The Company's restaurants serve a variety of value-priced menu products in countries around the world.
General Electric (Ticker: GE US EQUITY, Price $27.28, Dividend Yield 3.26%)
General Electric Company is a globally diversified technology and financial services company. The Company's products and services include aircraft engines, power generation, water processing, and household appliances to medical imaging, business and consumer financing and industrial products.
Caterpillar (Ticker: CAT US EQUITY, Price: $84.34, Dividend Yield: 3.20%)
Caterpillar Inc. designs, manufactures and markets construction, mining and forestry machinery. The Company also manufactures engines and other related parts for its equipment, and offers financing and insurance. Caterpillar distributes its products through a worldwide organization of dealers.
Exxonmobil (Ticker: XOM US EQUITY, Price: $87.73, Dividend Yield: 3.08%)
Exxon Mobil Corporation operates petroleum and petrochemicals businesses on a worldwide basis. The Company's operations include exploration and production of oil and gas, electric power generation, and coal and minerals operations. Exxon Mobil also manufactures and markets fuels, lubricants, and chemicals.
Merck (Ticker: MRK US EQUITY, Price: $57.84, Dividend Yield: 3.04%)
Merck & Co., Inc. Is a global health care company that delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products, which it markets directly and through its joint ventures. The Company has operations in pharmaceutical, animal health, and consumer care.
Procter & Gamble (Ticker: PG US EQUITY, Price: $83.50, Dividend Yield: 3.03%)
The Procter & Gamble Company manufactures and markets consumer products in countries throughout the world. The Company provides products in the laundry and cleaning, paper, beauty care, food and beverage, and health care segments. Procter & Gamble's products are sold primarily through mass merchandisers, grocery stores, membership club stores, drug stores, and neighborhood stores.
Coca-Cola (Ticker: KO US EQUITY, Price: $40.60, Dividend Yield: 3.00%)
The Coca-Cola Company manufactures, markets, and distributes soft drink concentrates and syrups. The Company also distributes and markets juice and juice-drink products. Coca-Cola distributes its products to retailers and wholesalers in the United States and internationally.
Pfizer (Ticker: PFE US EQUITY, Price: $35.19, Dividend Yield 2.96%)
Pfizer Inc. is a research-based, global pharmaceutical company that discovers, develops, manufactures, and markets medicines for humans and animals. The Company's products include prescription pharmaceuticals, non-prescription self-medications, and animal health products such as anti-infective medicines and vaccines.
This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.