The Best Dividend Stocks of 2011

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In December, I chose three dividend stocks that I thought would be solid performers for 2011. Two months into 2011, after they've reported earnings, I'm taking a look at how they've performed compared to the S&P.

The three dividend stocks were Frontier Communications (NYSE: FTR  ) , Altria (NYSE: MO  ) , and Annaly Capital (NYSE: NLY  ) . Each pays a huge yield, ranging from Altria's 6.2% to Annaly's 14.6%. Those big yields also mean that you're not likely to see as much capital appreciation as you would with fast dividend growers. But I selected three high dividend payers because big current yielders are more likely to outperform fast dividend growers over a fairly long period of time, as I explain here.  

So how have they performed thus far compared to the S&P?



Dividend-Adjusted Performance (YTD)










SPDR S&P 500 (NYSE: SPY  )



Source: Yahoo! Finance. YTD = year to date.

With the exception of Frontier, these players are in the ballpark of the S&P's return for the year. Most of Frontier's year-to-date 15% price plunge occurred after it reported disappointing earnings earlier this week. But dividends are such a huge part of these companies' total return profiles, and each business has yet to start paying its 2011 dividends.

In December, I liked Frontier better than peers CenturyLink (NYSE: CTL  ) and Windstream (Nasdaq: WIN  ) because it offered a higher current yield and still looked underpriced relative to those rivals. That's still the case, but these three wireline players have declined in price recently and now yield a good bit more than they did at the start of the year. While Frontier's earnings have been roughed up by integration costs, the company still generates ample free cash flow and predicts plenty more for 2011, so its meaty 8.8% yield should be safely covered. But this declining space is still tough for all the players.

It's the same old stuff for Altria. While the stock is even for the year, it has yet to start its 2011 payouts, since its most recent distribution in early January had a record date back in December 2010. Its flat year-to-date return belies its solid operating performance, as my colleague Colleen Paulson explains here. In its most recent quarter, the company saw adjusted EPS growth of 12.8% and projected 6% to 9% more EPS growth for this year. Oh, and another $1 billion stock buyback. What's not to like?

And then there's Annaly. Its flat year-to-date performance is to be expected given its massive dividend. You have to accept that all your return is going to come from that 14.6% yield. Its quarterly dividend is down quarter over quarter and year over year, and its interest rate spread declined from 2.79% to 1.85% year over year. Those are not such encouraging signs, but the company recently raised $1.3 billion in capital (before expenses) in a secondary offering, so it's still seeing a place to put money to work, which should help keep the yield up in the short term.

So that's where things stand with these dividend dynamos after the first earnings reports of the year. If you're interested in other dividend stocks, I've recently started picking up shares of another big dividend payer, as I detail here. And here's a way to play the dividend game that's free money.

Want some more dividend ideas? Click here for a free report from Motley Fool expert analysts: "13 High-Yielding Stocks to Buy Today."

Jim Royal, Ph.D., owns shares in Frontier Communications and Annaly. The Fool owns shares of Altria and Annaly. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (17)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 25, 2011, at 11:43 AM, prginww wrote:

    What about the risk of Annaly's dividend being cut like Frontier's? Ok, Frontier's dividend is still hefty, but less than it used to be.

    More (very) high yielding stocks are here:

    But beware of inflated yields (either by a special super dividend, or a low stock price combined with the ttm dividend).

  • Report this Comment On February 25, 2011, at 12:22 PM, prginww wrote:

    I personally dont think these three stocks are the best for 2011 (and their numbers, at least so far) show it. But, there is more to it than these first rounds of numbers, so we'll have to see, as the Fool states. Either way, interesting article.

    See my list for 2011 here:

  • Report this Comment On February 25, 2011, at 5:00 PM, prginww wrote:

    I had been watching NLy fro some time now, did my DD, finally bought them and regret having done so. So far this year they have had two share offerings, talk about dilution of shareholder value. I still hold on to them hoping that they'll stop the offerings and increase in value. The dividend keeps me from pushing the sell button, but that may not be good enough by summer's end if they continue their diluting actions. I almost feel like CYS is a better investment at the moment...time will tell!

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