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6 Market-Beating US Income Stocks

10/18/2011 7:30 am EST


Neil George

Editor, Profitable Investing

There are some stocks in the US that have been able to stand up to the worst of the perfect storms of Wall Street, says Neil George of The Pay Me Strategy.

When it comes to US-listed stocks, very few have managed not only not to have lost value in the market over the disastrous last quarter, but also the quarter before, as well as the past 12 months of overall lousy US stock performance.

Even fewer are the stocks that managed to focus their attentions on benefiting shareholders by paying dividends that are yielding at more than at least twice the average dividend paid by the members of the S&P 500 index.

But perhaps there’s a connection between paying higher dividends and positive stock performances. After all, investors can be a lot more patient with a good company, even if it has a stock that sags—if the company keeps cutting reasonable checks quarter after quarter.

The key is to find these companies that not only pay reasonably, but also manage to keep their stocks positively performing—not just for brief periods of success, but consistently, especially during the dire quarters of late.

In coming up with the stocks that are working, I looked at those that managed positive price performance for not just the last quarter, but the prior quarter and the trailing last four quarters. And to make it worthwhile, I then restricted the list to include only those successful companies that were paying dividends that yielded at least 5%—more than double the current average yield of the S&P 500.

Would you be surprised that the number of US-listed stocks that met the test—and are regular stocks and not bond or other income funds—is very small? In fact, after going through the list and taking out a few for specific takeover or other market oddities, the list comes down to a meager nine stocks.

The nifty nine, interestingly enough, are in four distinct industries: utilities, energy, banking, and real estate. Six of the nine are featured below:

Utility Players
While utilities traditionally have been the go-to group during times of market and economic uncertainty over the past troubled recent quarters and trailing year, this industry group has been disappointing.

The number of stocks performing well has been fewer in number, and even worse, those that have been faring well have seen their dividend yields effectively plummet to unsatisfactory levels.

Two US utility companies have made the short list. First is St. Louis-based Ameren (AEE). Ameren is primarily a regulated power generator and provider for the markets of Missouri and Illinois.

Diversified in its generating capabilities, the company’s plants run from coal-fired and gas to nuclear. Revenue has been expanding at an annual rate of over 7%—good, given that that its core metropolitan region has been contracting in economic output and population over the past several years.

Moreover, the company continues to focus on its efficiencies to make the most of its stable marketplace. Operating margins continue to expand by more than 7%, making the most of its revenues from better use of its assets.

And while returns on overall assets and equity are fairly flat, shareholders continue to be rewarded by a dividend running at 5.2%. This, along with a stock that’s generated an overall positive return for the trailing year, at near 6%—including a positive return in excess of 4% for the last quarter.

Buy Ameren under $32. [The stock was trading just above $30 at midday Monday—Editor.]

Joining Ameren on this short list is UIL Holdings (UIL), formally known as United Illuminating Company. Like Ameren, UIL, based in New Haven, is a regional power generator and distributor with a reasonably stable (but not high-growth) local market.

Nevertheless, UIL—like Ameren—continues to make the best of its business, bolstering revenue at a growth rate even higher than Ameren, at an average annual rate of over 11%. And while that’s impressive, the company’s growing efficiencies are leading operating margins at an expanding rate of over 9%.

Dividends are running close to Ameren, also roughly 5.2%. The overall total return of UIL is proving a bit better than Ameren with the trailing year running at over 20% including the last quarter’s positive return of over 3.1%.

Buy UIL under $35. [Shares went for less than $33 at press time Monday—Editor.]

NEXT: Real Returns


Real Returns
One of the last industries that you would think would have positive performance during the worst of the markets is real estate. But as in any market, if you own the right properties in the right locations—and keep a lid on management and finances—you can manage to make a profit.

Two real estate companies structured as real estate investment trusts (REITs) have been proving this right. Orlando-based National Retail Properties (NNN) and NTS Realty Holdings (NLP) are two that have kept their stocks in the black while also paying shareholders well along the way.

National Retail Properties, as its name suggests, owns retail properties around the nation that are leased out to major-brand companies on long-term net contracts. The key is for the company has been to keep a tight focus on the right properties and tenants.

NTS Holdings is a bit more expansive in its focus. The company has a mix of commercial, retail, and multi-family properties in its portfolio.

While the underlying assets of these two property performers are diverse from each other, their performances are similar. Dividends for National Retail Properties are running at 6%, while for NTS Holdings the dividend is yielding a bit less at a rate of 5.5%.

And for the past year, returns for both are running at over 4% and 10% respectively for the two, including the past quarter’s returns of 11% and 15%.

Buy National Retail under $29 and NTS Holdings under $4.50. [Both stocks were well under these targets on Monday afternoon—Editor.]

Buy a Bank? Really?
While bank bonds and selected preferreds have been a great buys over the past few years, buying bank common stocks have not been the best part of the market to find positive performers.

But three banks made the cut, with positive stock performances and dividends paid to shareholders.

None of the three are nationally known, and that’s probably why they made the cut. While the big banks continue to whittle down their loan portfolios in favor of building up their capital, these three never were that levered up, and are now garnering more attention from their local customer bases.

Latrobe, Pennsylvania-based Commercial National Financial (CNAF), Oneida, New York-based Oneida Financial (ONFC) and Madison, Indiana-based River Valley Bancorp (RIVR) all have been raising customer deposit bases over the past few years and controlling their lending portfolios to generate profits to shareholders, while their bigger and better known peers continue to flail and be filleted on Wall Street.

While each could be much more efficient when it comes to generating returns on assets and equity, it’s their lack of leverage and trading that’s made them successful in their respective businesses and—more importantly for shareholders—their positive stock performances.

Commercial National pays a dividend of over 5.2% and has been generating a positive return for the past trailing year of over 25%, including the latest quarter’s gains of over 5%. Buy it under $22. [Shares could be had for under $20 on Monday—Editor.]

Oneida Financial pays a similar dividend, yielding around 5.5%, and has provided a trailing year’s positive performance of over 30%, including the last quarter’s gains of over 6.2%.

And River Valley is right in line with its other two peers in this very select group, with its dividend yielding 5%. And like its peers, the past trailing year has been good for stockholders that have reaped gains of over 19.9%, including last quarter’s gains of 3%-plus.

Buy it under $17 a share. [The stock was right at that level Monday afternoon—Editor.]

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