Defensive investors like high dividend yielding stocks and consider them as viable options in especially inflationary environments. We expect high dividend stocks to outperform the 10-year Treasuries over the next 10 years.
On the other hand, high dividend yields are not the only important criteria to be sought in defensive stocks. Defensive investors may also seek sustainable dividend payments from each high dividend yielding stock. Since high dividend yielding companies with lower dividend payout ratio are more likely to continue paying high dividends in the future, we believe conservative investors like to pick such companies when seeking sustainability and inflation protection.
We compiled a list of mega-cap U.S. stocks with low dividend payout ratios and high current dividend yields. The market data are sourced from Fidelity. All companies in this list have market capitalizations above $4 billion, 12-month dividend yields of at least 4% and positive EPS Growth over the last five years.
| Dividend Yield | Dividend Payout Ratio in 2010 | 52-Week Return | |
AT & T | T | 5.59% | 73.04% | 28.83% |
Reynolds American Inc. | RAI | 5.58% | 73.90% | 53.18% |
Eli Lilly and Co. | LLY | 5.25% | 41.35% | 13.76% |
BCE Inc. | BCE | 5.21% | 62.72% | 31.81% |
PPL Corporation | PPL | 5.17% | 44.73% | 11.39% |
Exelon Corporation | EXC | 5.03% | 51.72% | 7.78% |
SCANA Corporation | SCG | 5.01% | 63.12% | 8.52% |
Bristol Myers Squibb Co. | BMY | 4.80% | 59.26% | 13.79% |
Entergy Corporation | ETR | 4.79% | 45.63% | -6.33% |
DTE Energy Company | DTE | 4.77% | 60.56% | 7.62% |
Bank of Montreal | BMO | 4.63% | 56.34% | 5.09% |
Consolidated Edison Inc. | ED | 4.55% | 68.99% | 24.19% |
Canadian Imperial Bank of Commerce | CM | 4.52% | 53.95% | 11.71% |
Shaw Communications Inc. | SJR | 4.41% | 68.29% | 12.18% |
PG&E Corporation | PCG | 4.31% | 53.22% | 2.18% |
Alliant Energy Corporation | LNT | 4.28% | 57.45% | 25.65% |
CMS Energy Corporation | CMS | 4.27% | 48.53% | 33.21% |
Kimberly Clark Corp | KMB | 4.23% | 56.41% | 10.30% |
Xcel Energy Inc. | XEL | 4.23% | 61.88% | 19.69% |
Dominion Resources | D | 4.13% | 54.79% | 19.14% |
| AVERAGE | 16.68% | ||
All of the 20 large-cap U.S. stocks in our list have dividend payout ratio of less than 75%. In the last 52-week period, the average return of these 20 stocks was 16.68%. Only one stock in this group – ETR – had a loss in the past 12 months, whereas all other stocks except five – EXC, BMO, PCG, DTE and SCG – provided double digit returns in the same period.
The top 10 highest dividend yielding large-cap U.S. stocks with low dividend payout ratios are as follows:
1. AT & T: AT & T is a large telecommunications company providing telephone, internet and TV services. T has a 5.59% dividend yield and returned 28.83% during the past 12 months. T had EPS of $2.3 and a dividend payout ratio of 73.04% in 2010. The stock has a market cap of $182.22B and P/E ratio of 9.10. Phill Gross' Adage Capital has the largest position in T, holding nearly $400M of the stock. Cliff Asness, D.E. Shawand Jim Simons are also among T investors.
2. Reynolds American Inc.: Reynolds American Inc. is a large U.S. tobacco company operating worldwide. RAI has a 5.58% dividend yield and returned 53.18% during the past 12 months. RAI had an EPS of $2.49 and a dividend payout ratio of 73.90% in 2010. The stock has a market cap of $22.16B and P/E ratio of 16.07. Jim Simons, David Winters and Cliff Asness are prominent RAI investors.
3. Eli Lilly and Co.: Eli Lilly and Co. is a large pharmaceutical company operating worldwide. LLY has a 5.25% dividend yield and returned 13.76% during the past 12 months. LLY had an EPS of $4.74 and a dividend payout ratio of 41.35% in 2010. The stock has a market cap of $43.22B and P/E ratio of 8.48. Jim Simons' Renaissance Technologies had more than $200 Million in LLY at the end of March 2011. Ron Gutfleish's Elm Ridge Capital holds the second largest LLY position among 300+ funds we are tracking.
4. BCE Inc.: BCE Inc. is a telecommunications company providing telephone and Internet services primarily in Canada. BCE has a 5.21% dividend yield and returned 31.81% during the past 12 months. BCE had an EPS of $2.79 and a dividend payout ratio of 62.72% in 2010. The stock has a market cap of $29.37B and P/E ratio of 13.87. Louis Navailler had more than $40 Million in BCE.
5. PPL Corporation: PPL Corporation is an energy company providing electricity and natural gas delivery services in the United States and the United Kingdom. PPL has a 5.17% dividend yield and returned 11.39% during the past 12 months. PPL had an EPS of $3.13 and a dividend payout ratio of 44.73% in 2010. The stock has a market cap of $15.63B and P/E ratio of 11.62. Richard Schimel's Diamondback Capital has the largest PPL position among 3004 funds we are tracking. Phill Gross and Steven Cohen are also among PPL investors.
6. Exelon Corporation: Exelon Corporation is an energy company that delivers electricity in the United States. EXC has a 5.03% dividend yield and returned 7.78% during the past 12 months. EXC had an EPS of $4.06 and a dividend payout ratio of 51.72% in 2010. The stock has a market cap of $27.64B and P/E ratio of 11.16. Michael Messner's Seminole Capital and Bruce Kovner's Caxton Associates hold EXC positions in their portfolios.
7. SCANA Corporation: SCANA Corporation is an energy company providing electricity to retail and wholesale customers in the United States. SCG has a 5.01% dividend yield and returned 8.52% during the past 12 months. SCG had an EPS of $3.01 and a dividend payout ratio of 63.12% in 2010. The stock has a market cap of $4.96B and P/E ratio of 13.09. Phill Gross, Lois Bacon, Ken Heebner, Jim Simons and Israel Englander are prominent SCG investors.
8. Bristol Myers Squibb Co.: Bristol Myers Squibb Co. is a global pharmaceutical company. BMY has a 4.80% dividend yield and returned 13.79% during the past 12 months. BMY had an EPS of $2.16 and a dividend payout ratio of 59.26% in 2010. The stock has a market cap of $46.95B and P/E ratio of 14.26. Both Samuel Isaly and Jim Simons (See Renaissance Technologies'largest holdings here) hold more than $100 Million of BMY.
9. Entergy Corporation: Entergy Corporation is an energy company producing and distributing electric power. ETR has a 4.79% dividend yield but lost 6.33% during the past 12 months. ETR had an EPS of $7.1 and a dividend payout ratio of 45.63% in 2010. The stock has a market cap of $12.34B and P/E ratio of 10.04. Glen Russel Dublin's Highbridge Capital, Clint Carlson's Carlson Capital and Cliff Asness' AQR Capital hold the largest positions in ETR among many funds we are tracking.
10. DTE Energy Company: DTE Energy Company is a U.S. company providing electric and gas utility services in the United States. DTE has a 4.77% dividend yield and returned 7.62% during the past 12 months. DTE had an EPS of $3.6 and a dividend payout ratio of 60.56% in 2010. The stock has a market cap of $8.34B and P/E ratio of 14.44. Cliff Asness' AQR Capital had the largest position in DTE at the end of March 2011. Phill Gross' Adage Capital is also among DTE investors.
Disclosure: I am long T, PCG.
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