Monday, May 16, 2011

Conservative High Yield Stocks

Bank accounts, are paying less than 1% interest these days and that is if you are very lucky. I have one account paying 0.01% interest. Recently my parents were recently looking for a relatively safe investment recently. So I suggested a portfolio of high dividend stocks that was a subset of the following list and average yield of just over 5%.

The obvious advantage of bank accounts is their safety. You can get a FDIC insured account and not stay up nights worrying about your money. While dividend paying stocks don't have that advantage, they have different risks and advantages. The risk is that the stock will go down in value causing you to lose some of your principle. The advantages are 1) the stock price could go up growing your investment; 2) some stocks pay a much higher dividend rate than the interest on bank accounts; 3) until the Bush tax cuts go away, the tax rate on dividends is ridiculously low (interest on a bank account is taxed as income).

If you are in the lowest tax bracket, taxes on investing are VERY low. If you are retired with low income this becomes a huge advantage of investing in dividend paying stocks. Hence the reason I recommended some of the following to my parents.

Pitney Bowes (PBI) - Current yield is 6%. There is risk to this stock as more and more physical mail goes away. But the pounds of mail I get from my PO Box every time I check shows mail is still very much with us.

Telefonos de Mexico (TMX) - Current yield 4.8%. This company is probably best known for making Carlos Slim one of the richest people in the world.

Duke Energy Corporation (DUK) - Current yield of 5.1%. I would have expected DUK to dip during the nuclear fear after the Japanese earthquake and problems at Fukushima. But Duke's stock price didn't faultier.

GlaxoSmithKline (GSK) - Current yield 4.8%. Large drug companies are facing problems. But their dividends should be safe for a few more years, and GSK has one of the highest pay outs.

Verizon Communications Inc. (VZ) - Current yield 5.2%. Long term I expect this industry to face disruptive forces that make it into more of a utility selling bits. But like the drug companies they have a few more years of life in them. You could interchange Verizon or AT&T (yield of 5.5%) in this spot.

Taiwan Semiconductor Manufactur (TSM) - Current yield 2.7%. TSM's current dividend yield is much below the others, but it does give equity exposure to the tech industry and to south east Asian foreign stocks.

For my parents we picked 4 of these stocks weighted to provide a near 5% yield and diversification across companies and industries. Note that three of the six are international stocks; although half of GSK's operations and more than half their revenue are from the US.
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