Tuesday, September 13, 2011

High Yielding Large Caps

A clear cut sign that equities are getting cheap again is when you start to see some high yielders in the marketplace. I am not talking about when you seen small cap and mid cap stocks with abnormally high dividend yields that are unsustainable. I am talking about when you see large blue chip companies that have yields which are incredibly high. That is the situation taking place in the market right now.

Look at the industrial giant General Electric (GE) as an example. General Electric has its hand in just about every single aspect of the economy. The company has seen its value plummet over the past few weeks and its shares are trading below the $15 level again. Shares are trading at 11 times earnings which is very reasonable but the hidden value is the fantastic dividend yield. General Electric is yielding over 4%. Investors get to own a value play and collect a juicy dividend at the same time.

Intel (INTC) is back flirting with a valuation in the teens again which isn’t good news for current shareholders. The price does however represent a great long opportunity for investors looking for dividend growth and high yields. The stock has been unfairly punished this year despite posting outstanding earnings. Intel was a good dividend stock when its shares were yielding 3%. Now the stock is a steal with a 4.3% dividend yield. Add in the fact that the company has raised dividend payouts nearly 25% a year over the last decade and you see why Intel is a winner.

Remember that there are always bright spots in every single market. Investors can get fearful and park their money in cash or short tem bonds that have horrible years. The smart move however is to start searching for stocks that are paying dividends so they can generate some kind of positive return during these dips.

Investors should look to load up on shares of big blue chip companies when yields are rising. Companies like these that generate substantial amounts of free cash flow and that have a long term history of paying dividends are safe bets to continue paying out dividends even during market downturns.

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