U.S. Treasury yields are plummeting — making it harder to find cash flow. But you can still get triple the yield on some rock-solid S&P 500 companies' dividends.
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All told, 11 S&P 500 companies sporting upper-medium investment grade credit ratings of A- or higher are paying dividend yields of 4% or higher, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. Some of the companies include utility PPL (PPL), energy firm Chevron (CVX) and financial Progressive (PGR).
Getting 4% now is an outstanding payout. Keep in mind that the yield on the 10-year Treasury Thursday dropped more than 2% to 1.29%. That's down from roughly 1.5% just a month ago and the lowest since February. Plunging Treasury yields are forcing investors to get more creative to find dividends they can count on.
"Treasury yields continue to fall and that might not change unless inflation expectations grow," said Edward Moya, senior market analyst with Oanda.
Dropping Treasury Yields Pressures Income
Yields on Treasuries are in a "full-blown retreat," says Nicholas Colas, founder of DataTrek Research.
Many investors are piling into Treasuries on the fear the Federal Reserve will bungle its moves to raise rates, he says. Investors are hoping to gird against an economic slowdown sparked by an overly aggressive Fed.
But Colas shows a counterpoint to that argument: "U.S. large cap stocks are doing fine." "Maybe that's because second-quarter earnings season should be excellent, and investors feel they can be patient," Colas said.
But for whatever the reason, S&P 500 investors can find big companies with solid credit ratings yielding 4%. Showing just how strong that yield is now, look at the yield on the large bond ETF, iShares Core U.S. Aggregate Bond (AGG). It's yielding just 2.1%, although it's filled with all sorts of bonds of various ratings.
You can do better, though.
Plumbing Income From S&P 500 Utilities
S&P 500 utilities continue to provide some high-quality Treasury beating yields. Of the 11 A- or higher rated S&P 500 companies yielding 4% or more, three hail from the utilities sector.
Just look at PPL. The Pennsylvania electric and gas utility wins a healthy credit rating of A-. And even so, it still yields a robust 5.89%. There's always a trade-off, though. Utility stocks are lagging this year. Shares of PPL are off 0.2% this year as investors brace for a disappointing year of profit. PPL is only expected to earn $1.61 a share this year, down by roughly a third from 2020.
And that's the story of all the higher yielding utilities. All their shares are flat this year. Investors, too, got burned before on the utilities sector before. And that's why some investors are looking to the S&P 500 energy sector.
S&P 500 Energy: Big Stock Gains Plus Huge Dividends
The S&P 500 energy sector is the big winner this year. And dividends are part of the reason.
Not only is Chevron's stock up more than 21% in 2021 so far, it's yielding an enviable 5.21%. Yes, there's an ongoing shift to clean energy. But with Barron's Top CEO of Chevron at the helm, Michael Wirth, investors are hopeful the company can navigate the transition.
"Most of our meetings now begin with a discussion of (environmental, social and governance factors), and that wasn't the case just a few years ago," Wirth told Barron's. "Our challenge is to deliver higher returns and lower carbon."
Looking For S&P 500 Income
Going for income, it seems, comes with its own risks. The only A- rated, high dividend S&P 500 company with an IBD Composite Rating over 80 is Progressive. It's an insurance company that knows how to run itself over the long-haul. The stock, which counts Warren Buffett's Berkshire Hathaway as a long-time investor, wins fans with a 4.9% yield.
And while shares of the A-rated company are down nearly 1% this year, they're up nearly 200% over the past five years. That's roughly twice the S&P 500's 104% rise in that time. "We don't have a tangible product; we have trust. And I want to make sure we earn every one of our customers' trust every day," CEO Tricia Griffith told Barron's as part of being named at top CEO.
Trust certainly is important. But a high dividend, especially now, doesn't hurt either.
Top S&P 500 Dividend Yields From Highly Reliable Companies
All sport yields of 4% or higher and credit ratings of A- or better
| Company | Ticker | S&P credit rating | Dividend yield | Stock YTD % ch. | Sector | Composite Rating |
|---|---|---|---|---|---|---|
| PPL | (PPL) | A- | 5.89% | -0.2% | Utilities | 34 |
| Exxon Mobil | (XOM) | AA- | 5.76 | 45.7% | Energy | 62 |
| Chevron | (CVX) | AA- | 5.21 | 21.4% | Energy | 38 |
| Progressive | (PGR) | A | 4.94 | -0.6% | Financials | 80 |
| Philip Morris International | (PM) | A | 4.86 | 18.8% | Consumer Staples | 56 |
| International Business Machines | (IBM) | A- | 4.69 | 11.6% | Information Technology | 47 |
| Prudential Financial | (PRU) | A | 4.58 | 24.2% | Financials | 72 |
| Simon Property Group | (SPG) | A- | 4.45 | 46.8% | Real Estate | 69 |
| Southern Company | (SO) | A- | 4.28 | 0.2% | Utilities | 50 |
| Consolidated Edison | (ED) | A- | 4.23 | 1.4% | Utilities | 37 |
| Realty Income | (O) | A- | 4.14 | 9.2% | Real Estate | 60 |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter@mattkrantz
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