The return of the Canadian peso means U.S. dollar dividends have rarely been this attractive to Canadian investors.
To uncover U.S. yield opportunities I started with all members of the S&P High Quality Rank Index to mitigate risk. The S&P quality ranking criteria favours companies with the best dividend growth backed with the most consistent, long-term profit growth. The resulting list consists of highly stable companies that can generate profits in any economic environment.
| Name | PE Ratio TTM | Fwd Dividend Yield | Estimated Total Return |
|---|---|---|---|
| Health Care Reit Inc | 280.93 | 5.41% | 9.63% |
| Entergy Corp | 10.13 | 5.39% | 7.32% |
| Altria Group Inc | 15.39 | 5.12% | 12.27% |
| Southern Co/The | 15.63 | 4.88% | 7.44% |
| Lorillard Inc | 16.34 | 4.35% | 4.86% |
| Darden Restaurants Inc | 18.30 | 4.32% | 6.10% |
| Scana Corp | 13.72 | 4.31% | 9.17% |
| Kimco Realty Corp | 27.29 | 4.27% | 12.46% |
| Agl Resources Inc | 17.24 | 3.94% | 2.00% |
| Wisconsin Energy Corp | 18.03 | 3.74% | 10.23% |
| Waste Management Inc | 19.93 | 3.42% | 9.85% |
| Mcdonald'S Corp | 17.06 | 3.41% | 12.89% |
| Lockheed Martin Corp | 14.57 | 3.40% | 0.32% |
| General Electric Co | 15.71 | 3.39% | 16.55% |
| Chevron Corp | 10.23 | 3.32% | 13.28% |
| Mattel Inc | 16.92 | 3.29% | 11.74% |
| Republic Services Inc | 19.96 | 3.21% | 15.82% |
| Paychex Inc | 26.49 | 3.20% | -1.92% |
| Sysco Corp | 18.00 | 3.19% | 7.00% |
| Clorox Company | 20.62 | 3.16% | 2.40% |
| Microsoft Corp | 12.73 | 3.12% | 9.88% |
| General Mills Inc | 18.13 | 3.12% | 8.77% |
| Kimberly-Clark Corp | 18.55 | 3.06% | 4.21% |
| Hasbro Inc | 22.53 | 3.06% | 7.12% |
| Procter & Gamble Co/The | 19.61 | 3.04% | 13.40% |
A lot of people are understandably squeamish about the ethics of defense and tobacco stocks so it's no surprise these sectors dominate the top of a list sorted by dividend yield. Enough investors dismiss them out of hand that the market demands a higher dividend premium. Altria Group Inc., Lorillard Inc., and Lockheed Martin Corp. are all in the top 15.
Personal investor sensibilities aside, valuations are also a problem in some cases. The highest yielding stock in the index, Health Care REIT Inc., currently trades at over 280 times trailing earnings.
Atlanta-based electrical utility Southern Co. looks good on yield and valuation but analyst expectations are low. The average 12-month target price suggests a less than three per cent return.
There are three stocks among the highest-yielding 25 in the quality index where the average target price is more than 10 per cent above current levels – General Electric Co., waste management company Republic Services Inc. and Procter and Gamble Co.
I've already professed my love for General Electric as a growth opportunity so obviously I'm going to point that out here. Procter & Gamble's reliance on emerging markets revenue worries me a little bit, but the company has been able to generate consistent profit growth despite economic volatility in the developing world.
Republic Services' attractive valuations, 3.2 per cent dividend yield and 13 per cent expected return suggests there might be investor gold hidden among the company's landfills.
There are other opportunities in the table that require further research. McDonald's Corp. looks interesting but has struggled recently with changes in developed world dietary habits. Microsoft Corp. is attractive on paper but the ongoing decline in personal computing raises the risk the stock will be a stagnant, water-treading value trap.