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Stocks With High Dividend Yields & Relative "Safety"

Updated on January 3, 2015
CliftonHRodriquez profile image

Clifton H. Rodriquez is a certified public accountant (CPA) by profession, but a passionate investment enthusiast.

Invest In Stocks With High Yield, But Low Risk

Investors wishing to stay invested in the stock market are forced to engage in a balancing act of finding stocks that relatively "safe" while providing returns (i.e., dividend yields and capital gains) that are satisfactory at the same time. Investors can easily achieve their dual mission by carefully vetting stocks that have relatively high dividend yields, but low Beta factors. Beta is the measure of the amount of risk associated with a stock in relation to the overall market (www.thestreet.com). In general, the market beta is 1.0. If a stock has a beta greater than the overall market, then it is said to be more volatile than the overall market. The opposite is also true. Well, the obvious question should be if beta tells investor the degree of risk associated with stocks in relation to the overall market, why does investors have such a difficult time avoiding volatile or risky stocks? Why not avoid them all together, given the fact that every stock beta is known beforehand?

Not all investors are risk averse. In other words, there is a significant number of investors who simply loves to take risk. In many cases, the riskier the stock, the more likely that these risk takers will be attracted to it; they love to juggle the risk reward cube because there is a slight probability that they could hit a homerun, to use a baseball metaphor. However, there are many ordinary investors who simply hate taking risks, market and company specific. They hate these risks to the point that they simply avoid risk assets (stocks) altogether. Accordingly to the December 2014 issue of DRIP Investor (www.dripinvestor.com), only 49% of Americans invests in the U.S. Stock Market. In that same article, the author maintained that wealth gap in the U.S. is widening. Is the wealth gap widening because 51% of Americans are using alternative investment vehicles to stocks, which do not contribute to the decreasing in the US wealth gap?

The wealth gap in America can be decreased through investment in high yielding dividend stocks which are relatively safe. How high are the dividend yields on these stocks, and what makes them so safe? Most of the stocks making the list of high yielding and relatively safe can be seen below. They have yields as high as 15% and beta as low as 0.20. What is more impressive with a lot of these stocks is that they are value plays. The number one value play with this group is Apache Corporation (APA). As of September 2014 it boasted a net book value of $81.78 while having a current market value of $65.43. What does this imply? Apache Corporation has a "risk free" premium of roughly $16.35. If an investor bought Apache Corporation's stock today at the current market price, and the company went out of business tomorrow, the investor would get back $16.35 more than they invested. The next value play listed below is Invesco Mortgage (a real estate investment trust). The risk free premium is roughly $5.40. Any investor who does their homework needs to focus on these value play stocks.

Given these high yielding dividend stocks coupled with relative safety investors simply cannot afford to ignore these stocks for alternative investments like bank passbook savings account, certificate of deposit, treasury note, or even insurance companies annuities. The yields from these stocks are simply too attractive for any investor to ignore.

Every investors needs to understand that investing in capital markets is very complex. It is necessary for investors, or potential investors, do engage in homework, and/or consult with investment advisors. Investing in the Stock Market involves taking risk ( i.e., stocks are called "risk assets"). A potential investors should not merely act after reading any article, but carefully review targeted stocks, and ensure that they can afford to expose their capital to potential loss. Ultimately, it is the responsibility of the potential investor to understand what their risk tolerance is, and whether that risk tolerance would lead them to invest in risk assets.

A Few of the High Yielding Value Stocks

Stock Symbol
Current Market Price
Net Book Value
Dividend Yield
BETA
APA
65.43
81.78
1.54%
0.96
AGNC
22.22
25.75
11.84%
0.20
ARCP
8.33
11.05
12.47
0.70
ANH
5.36
6.20
10.61
0.43
IVR
16.14
21.54
12.27
0.70
MMLP
28.32
14.44
11.62
0.59
NLY
11.27
12.87
10.59
0.23
TAXI
10.05
11.05
9.36
1.20
RSO
5.32
7.08
15.01
0.40

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