Crisis Creates New Class of High-Yielding Stocks

The 10-year Treasury is under 1% (actually 0.95%, after a ride that took it as low as 0.5% in recent days). The S&P 500 is down more than 20% this year. So bonds aren’t yielding much, and stocks are down. What is an investor to do?

Go for the new crop of high-yielding stocks, according to Leuthold Group strategist Scott Opsal. Tumbling stock prices, prompted by the current coronavirus crisis, have created a new class of them, one that yields more than 4%. In fact, he has found 148 of them.

Retirement planning usually targets a 4% withdrawal rate, he noted, so finding this new trove of stocks that kick off that level of income, without dipping into capital “seems more distant than the summit of Mount Everest,” he wrote in a research note. But not anymore.

Opsal pointed out that some of these yields won’t stay as lofty because of “the inevitable dividend cuts that will come from the most vulnerable companies.” He observed that a national crisis seems like an inopportune time to chase high yields.

For more stories like this, sign up for the CIO Alert daily newsletter. 

Nevertheless, he went on, S&P 500 members need “a fairly solid business profile and a history of profitability” to be included in the august benchmark index. Hence, he argued, “we aren’t exactly rummaging in the trash heap.”

The high yielders are in financials, consumer staples, real estate, and utilities. At the top are the likes of Helmerich & Payne (energy, 17.8%), Williams Companies (ditto, 12%), Dow (chemicals, 11.8%), Ventas (real estate, 11.6%), and Simon Property Group (same, 10%).

The king of them all has a dubious hold on its prominent perch, if not its dividend payout, long-suffering department store chain Macy’s, at 20.5%.

He added that the energy providers are not in great shape, owing to the low prices of oil and natural gas. They may be candidates for dividend trims, too. Some companies will want to hoard cash to ride out the virus crisis, and may end up cutting payouts, as well, he predicted.