3:30 PM ET

Hungry for Dividends? KBW Orders High-Yield Financials

By Johanna Bennett

How much emphasis should investors put on dividend stocks in 2015?

That’s a good question. The yield on the 10-year Treasury note remains below 2%, leading some to predict that investors will remain focused on dividend-paying stocks in 2015.

It h also led MarketWatch.com’s John Coumarianos weighed in recently that income-hungry investors that are shuttling money that should be allocated to bonds into high-yield stocks may be courting disaster.

That’s an argument for another time and another blog post.

But for dividend investors where can they look? Perhaps financial stocks.

Granted, names sensitive to interest rates and exposed to the impact of falling oil prices on the energy companies to which they have loaned money have lagged the broader market so far this year. But Keefe Bruyette & Woods strategists Frederick Cannon and Matthew Dinneen argue that ”the good news about financial stocks is that there are numerous high-yield opportunities in the space which we believe are likely to perform well in a low-yield world.” As Cannon and Dinneen write:

KBW’s Financial Sector Yield Index (KBWD), against the S&P and an index of overall financial stocks. As shown, the KBWD has performed almost as well as the S&P and significantly outperformed the index of financial stocks. This is not surprising given the decline in interest rates and interest rate expectations this year. It is somewhat surprising that high-yielding financials have not outperformed the overall market given its higher yield. We suspect that this may be due to the market bias against financial stocks generally and may offer investors an opportunity to buy high-yielding financial stocks before a rally…We believe that a well-diversified portfolio of high-yielding stocks should show strong performance in 2015 assuming bond yields remain depressed.

Dec 26, 2014

One Website Picks Favorite Dividend Stocks With a Growth Kicker

By John Kimelman

Dividend stocks, almost by definition, tend to not offer investors much capital appreciation potential to go along with their rich cash payouts.  Thats because companies that pay out a lot of cash tend every quarter to shareholders tend not generate big amounts of revenue growth.

According to The Street, the financial website, that doesnt mean investors cant have the best of both worlds, if they know where to look.

In an article posted on the website Friday afternoon. The Street points out that  ConocoPhillips (COP ). Microsoft (MSFT ) and utility PG&E (PCG ) offer the income conservative investors love and the growth aggressive investors crave.

For example, integrated oil and gas company ConocoPhillips, which has boosted its bottom line despite production headwinds, is not letting weak oil prices deter it from its long-term goals. In the most recent quarter, Conoco grew net income by 8% year over year and grew earnings per share by 8.5% year over year.

The company also gave guidance that its fourth-quarter production would grow to between 1.54 and 1.57 million barrels of oil equivalent, a sequential improvement of more than 3% if the low end of the guidance range is met. That tops the 1.49 million barrels delivered in the third quarter.

ConocoPhillips is a top dividend stock to watch out for in 2015, writes Richard Saintvilus of the Street. Of the 19 analysts offering a 12-month price target, ConocoPhillips has a high target of $108 and a median target of $81, which suggests a potential stock price premiums of 54% and 15%, respectively.

Outside of the energy sector, dividend investors should consider a tech giant like Microsoft (MSFT) (up 28.25% year to date), which pays a yield of 2.58%.

That yield is likely to climb in the years ahead, adds Saintvilus. Thats because under new CEO Satya Nadella, Microsoft has been revitalized in 2014, growing revenue at almost 12% in the past year. Analysts expect profits to grow at a rate of 10% in the next five years.

With its current yield of 2.58%, Microsoft is a growth company thats also paying above-average income.

Finally, PG&E. which is up 35.20% in 2014, is another strong dividend payer to watch in 2015, according to the Street. (The San Francisco-based company is one of the largest combined natural gas and electric utilities in the U.S.)

With a yield of 3.31%, PG&E has also become a growth stock. writes The Street, with revenue jumping 18.2% year over year in the most recent quarter beating estimates by $260 million. With shares trading at around $54, PG&E is still cheap. The stock is trading at a trailing price-to-earnings ratio of 18, almost two points lower than the average P/E of companies in the S&P 500. And the P/E drops two points lower on a forward-looking basis, The Street adds. with revenue and profits growing at impressive rates, the stock could reach $62 in the next 12 to 18 months, yielding possible gains of 10% or more.

Aug 13, 2014

4:54 PM ET

AT&T Yields More Than CenturyLink, But Not For Long Morgan Stanley

By Michael Aneiro

Since Windstream [WIN ] shook up telecom valuations by spinning off assets into a real-estate investment trust, things have gotten so wacky that the historically high-yielding CenturyLink [CTL ] yesterday saw its dividend yield fall below that of staid telecom stalwart AT&T [T ]. Morgan Stanley says yesterdays 5.31% closing yield for AT&T marked the first time it yielded more than CTL (5.30%) since CTL established its high payout policy back in 2008, saying the market has generally demanded a higher yield from the RLEC space than from the Bells to compensate for the lower growth prospects. And in fact Ts yield slipped back below CTLs yield on Tuesday.

While we rate both stocks Equal-weight, we have modest 4% upside to our AT&T base case of $36, while our CenturyLink base case valuation is $37 (-9%, or 4% total one year return net of dividends). We see several factors driving the relative performance in coming weeks: 1) Progress of wireless wars, as Sprint and others tweak pricing ahead of the iPhone 6 rollout, 2) Spectrum auctions, particularly AWS-3 in November where AT&T is expected to be active, 3) REIT rollout, as investors, regulators and others digest Windstream’s actions further.