Thanks to market volatility and an uncertain economic future, dividend stocks became the heroes of 2011.
Bloomberg recently reported that the S&P 500′s dividend paying stocks outperformed those that hoarded their cash, and now the Wall Street Journal has more revealing data to add to the point.
James Bianco of the WSJ reports that a high dividend yield was just as important to the success of the stock performance. The top 100 highest dividend yield stocks on the S&P 500 are up an average of 3.7% before dividends. The 100 lowest-yielding stocks are down an average of 10%.
"In the third quarter, share-price returns on high-dividend payers exceeded those of lower-paying companies by 17 percentage points," concludes global asset management firm AllianceBernstein.
It's not too difficult to understand why investors seeking safety flocked to these dividend stocks, and in doing so helped to hike up the stock value. Investors find value in dividend income, and relatively stable yields above 4% are more attractive than many other investment opportunities.
"Dividend stocks should simply be viewed as a slightly less risky form of stock investing," adds Bianco. "As such, we should expect dividend-paying stocks to outperform during bear markets and underperform during bull markets."
He makes examples of two recent bear market periods and one bull market period where dividend stocks did just that. Between October 11, 2007 to March 6, 2009 dividend stocks returned -35.74% versus -46.10% for the S&P Equal Weight Index. From May 2, 2011 to Dec 21, 2011, on an annualized basis, dividend stocks returned -3.25% versus -13.81% for the S&P Equal Weight Index.
In the bull market between March 6, 2009 to May 2, 2011, dividend stocks returned 44.38% on an annualized basis, versus 56.64% for the S&P Equal Weight Index.
"If investors are savvy enough to know which way the market was heading in general, why even bother distinguishing between dividend-paying stocks and non-dividend-paying stocks?"
Dividend stocks have shown big gains over the year, but will their winning streaks continue?
For ideas, we collected data on institutional money flows, and identified 5 high yield dividend stocks that have seen significant institutional buying during the current quarter. All of these stocks are part of the S&P 500 index.
Big money managers have extensive resources to analyze investing ideas, so if they're buying a certain stock, it's worth paying close attention.
Do you agree with this bullish sentiment? Use this list as a starting point for your own analysis.
List sorted by dividend yield. (Click here to access free, interactive tools to analyze these ideas.)
1. Health Care REIT (NYS: HCN) : Engages in investment, development, and management of properties. Dividend yield at 5.42%. Net institutional purchases in the current quarter at 7.9M shares, which represents about 4.44% of the company's float of 178.01M shares.
2. HCP (NYS: HCP) : HCP, is an independent hybrid real estate investment trust. Dividend yield at 4.79%. Net institutional purchases in the current quarter at 24.4M shares, which represents about 6.02% of the company's float of 405.16M shares.
3. Kimco Realty (NYS: KIM) : Kimco Realty Corporation is a publicly owned real estate investment trust. The firm engages in acquisitions, development, and management of neighborhood and community shopping centers. Dividend yield at 4.61%. Net institutional purchases in the current quarter at 22.9M shares, which represents about 5.84% of the company's float of 392.33M shares.
4. Ventas (NYS: VTR) : Engages in investment, management, financing, and leasing of properties in the health care industry. Dividend yield at 4.27%. Net institutional purchases in the current quarter at 10.2M shares, which represents about 3.57% of the company's float of 285.99M shares.
5. Whirlpool (NYS: WHR) : Engages in the manufacture and marketing of home appliances worldwide. Dividend yield at 4.07%. Net institutional purchases in the current quarter at 3.0M shares, which represents about 3.95% of the company's float of 75.98M shares.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Institutional data sourced from Fidelity.
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