| NEW YORK
NEW YORK Aug 8 Investors once again are
snapping up high-dividend-paying U.S. stocks as Treasury yields
fall, which should keep utilities and telecom stocks near the
top of the buying list for the near future.
The S&P 500 utility sector, whose dividend yield
at 3.9 percent is more than 100 basis points above the 10-year
Treasury yield, led the S&P 500's advance on Friday
after concern about the launch of U.S. air strikes on Iraq drove
the benchmark bond yield to 14-month lows.
The equity market recovered from early losses, in part due
to news that Russia's Defense Ministry said military exercises
near the Ukraine border had ended. Any global worries that keep
a bid in government debt, meanwhile, will motivate investors to
go after stocks with fat dividend yields.
The utility sector is up 8.8 percent since Dec. 31, the
third best-performing sector for the year, following technology
and health care. Telecom hasn't been as strong - gaining just
0.8 percent in the same period - but two of that sector's
constituents, Windstream Holdings and Frontier
Communications, have both gained roughly 40 percent.
Utilities hit a bout of profit-taking after ending the first
half of the year in the No. 1 spot. The sector had risen 16.4
percent as of June 30, bolstered in part by the shares' high
yields and the appeal of a safer sector at a time when investors
were still a bit worried about economic growth.
Analysts say the attractiveness of high dividend-paying
sectors such as utilities is not likely to end soon, especially
with valuations still below the benchmark's level. The forward
price-to-earnings ratio for S&P utilities is at 14.9, below the
S&P 500's p/e of 15.2, Thomson Reuters data showed.
"The U.S. 10-year is an attractive yield given the backdrop
of very weak yields around the world. Therefore, that does make
the dividend-paying sectors increasingly attractive. That's been
the footprint for this market," said Quincy Krosby, market
strategist at Prudential Financial, based in Newark, New Jersey.
Overseas turmoil, particularly in Ukraine, has driven up
demand for safe-haven bonds, also supported by the Federal
Reserve's continued purchase of Treasuries while it gradually
pares back its bond-buying program.
The S&P 500 utility sector shot up 2 percent on Friday, its
biggest daily percentage gain since June. Earlier this week, the
index flirted with correction territory as it lost nearly 10
percent from a high set June 30.
Also benefiting from the drop in bond yields are
exchange-traded funds tied to dividend payers, including the
Powershares Dividend Achiever exchange-traded fund,
which rose 1.3 percent on Friday and is up 3.2 percent for the
The First Trust Morningstar Dividend Leaders Index Fund
has performed better, gaining 1.2 percent on Friday and
up 6 percent for the year so far.
The S&P telecommunications index has an even
higher dividend yield than utilities, at 4.7 percent, though a
smaller pool of stocks. The sector has been weak this year
because of a lackluster performance by its biggest names, AT&T
However, network communications company Windstream Holdings
has a dividend yield of 9 percent, the highest in the S&P 500,
while Frontier Communications is third highest, with a yield of
6.2 percent, according to Thomson Reuters data. Those compare
with the S&P 500's dividend yield of 2.4 percent. They have
gained 40 percent and 37 percent this year, respectively.
"Where yield lies is where investors are continuing to go
because there continues to be no alternative from other
income-producing securities," said Mark Luschini, chief
investment strategist at Janney Montgomery Scott in
(Reporting by Caroline Valetkevitch; Editing by Leslie Adler)