Higher yielding stocks outperformed for much of this year, but fell sharply with the pop in interest rates. The table below, derived from S&P 1500 non-financial stocks, illustrates that the higher the yield as of April 30, the worse the performance through June 24:
|
Price Change By Yield S&P 1500 Stocks Ex-Financials |
|
|
April 30 Yield: |
Price Change 4/30-6/24 |
|
0% |
2.7% |
|
>0% but <2% |
-0.3% |
|
2% - 2.9% |
-1.5% |
|
3% – 4% |
-2.2% |
|
>4% |
-2.4% |
|
S&P 1500 |
-1.6% |
|
S&P 500 |
-1.5% |
The table below compares the total return of the S&P 500 to several indexes of higher yielding stocks. REITs and utilities were particularly hard hit, but consumer staples were not spared, also turning in negative performance from April 30 through June 24.
|
Performance of High Yield Indexes Over Selected Periods (Total Return %) |
||||
|
YTD thru 4/30/2013 |
4/30- 6/24/2013 |
6/24/2013 YTD |
||
|
Ticker |
Description |
|||
|
SPX Index |
S&P 500 |
12.74 |
0.05 |
11.43 |
|
DJDVY Index |
Dow Jones Select Dividend |
15.41 |
-3.89 |
10.93 |
|
UTY index |
Phil. Utility |
19.65 |
-11.22 |
6.22 |
|
AMZ index |
Alerian MLP |
20.85 |
-4.50 |
15.41 |
|
FNER index |
Equity REITs |
14.94 |
-12.05 |
1.09 |
|
IXR index |
Con. Staples |
18.16 |
-3.51 |
14.01 |
|
WFBDC index |
Biz. Development Co.’s |
9.72 |
-7.98 |
0.97 |
|
SGQE index |
European quality dividend |
9.73 |
-6.37 |
2.74 |
|
MXWDHDVD index |
MSCI World Hi. Div |
13.62 |
-7.45 |
5.15 |
|
FNMR index |
Mtg. REITs |
18.95 |
-20.01 |
-4.85 |
Prior to the sell-off in dividend names, investors were willing to accept smaller yield premiums than usual. The table below presents the yield premium of several of the indexes with longer data histories. We compare index yields to the S&P 500 to calculate the yield premium. Yields in April vs. the S&P 500 were relatively small vs. their longer term average. In many cases, the premiums have adjusted dramatically higher since the sell-off began:
|
Yield Premium of Index vs. S&P 500 (Index yield/SP Yield – 1) |
|||||
|
12/31/12 |
4/30/13 |
6/24/2013 |
Average Year-end Premiums 2006-2012 |
||
|
DJDVY Index |
Dow Jones Select Dividend |
92.3% |
83.8% |
85.0% |
96.8% |
|
UTY index |
Phil. Utility |
91.2% |
80.4% |
97.7% |
84.8% |
|
AMZ index |
Alerian MLP |
174.5% |
159.7% |
178.2% |
199.8% |
|
FNER index |
Equity REITs |
53.4% |
49.9% |
68.6% |
111.1% |
|
IXR index |
Con. Staples |
42.9% |
35.2% |
36.9% |
31.6% |
|
FNMR index |
Mtg. REITs |
509.6% |
468.2% |
583.6% |
503.0% |
Note how the relative yield of utilities narrowed sharply year-to-date through April. However, utilities along with mortgage REITs were among the hardest hit sectors since April 30. As a result the yield premium expanded over the last couple of months, surpassing the 12/31/12 figure. The relative yield on mortgage REITs widened significantly as well.
Investors became particularly fond of equity REITs leading up to the sell-off. Individual securities have a longer data history than the indexes, so we present several large cap REITs below. After tightening further, most REITs in the table are now trading at higher yields relative to the S&P 500 than was the case on Dec. 31, 2012. Still, REITs don’t look cheap either on an absolute or relative basis. Many continue to yield only 3% - 4%, some offering even less than 3%. As the table below shows, these large REITs continue sell at narrower yield premiums than was the case from 2003-2012:
|
Yield Premium of Selected REITs vs. S&P 500 Sorted by 6/21/2013 Yield Premium /Average |
|||||
|
Yield Premiums over S&P 500 |
Average Year-end Premiums 2003-2012 |
Recent Yield Prem. Divided by Average |
|||
|
12/31/2012 |
4/30/2013 |
6/24/2013 |
|||
|
HCN US Equity |
115.4% |
91.8% |
121.3% |
205.5% |
0.41 |
|
HCP US Equity |
97.6% |
83.0% |
121.1% |
185.5% |
0.45 |
|
PLD US Equity |
36.9% |
28.6% |
43.5% |
106.9% |
0.45 |
|
EQR US Equity |
40.1% |
52.9% |
62.1% |
123.2% |
0.50 |
|
O US Equity |
97.2% |
81.4% |
123.0% |
182.8% |
0.58 |
|
KIM US Equity |
80.1% |
62.1% |
78.8% |
137.1% |
0.59 |
|
AVB US Equity |
27.7% |
44.1% |
40.8% |
91.6% |
0.65 |
|
VTR US Equity |
70.9% |
53.1% |
83.6% |
123.7% |
0.67 |
|
SPG US Equity |
15.7% |
16.3% |
32.4% |
71.4% |
0.68 |
|
VNO US Equity |
109.5% |
109.1% |
128.4% |
106.1% |
1.21 |
The far right hand column above is the ratio of the 6/24/13 yield premium to the security’s average yield premium from 2003-2012. The lower the number, the smaller the REIT’s yield premium vs. its average. For example, HCN is trading with a yield closer to that of the overall market than has been typical. Although SPG typically trades with a tighter yield to the S&P 500 than other REITs in the table, its relative yield has widened significantly in the sell-off, and is now above its longer term average.
Yield and Dividend Growth
We also wanted to see how dividend growth affected the performance of higher yielding stocks. We screened for S&P 1500 non-financials for stocks with yields above 3% as of April 30. We then checked out their performance according to the Bloomberg estimate of dividend growth. The higher the dividend growth estimate for these higher yielding stocks, the better the performance was over the period.
|
Price Change of Higher Yield S&P 1500 Stocks Ex-Financials |
|
|
Bloomberg 3-Yr Dividend Growth Estimate |
Price Change 4/30-6/24 |
|
>+5% |
-2.4% |
|
0% to +5% |
-7.4% |
|
<0% |
-11.5% |
|
All S&P 1500 with Yields Above 3% as of April 30 |
-5.5% |
|
S&P 1500 |
-1.6% |
|
S&P 500 |
-1.5% |
The reversal in performance between faster growing dividend stocks and higher yielding dividend stocks can also be seen in the performance of the Vanguard High Dividend Equity ETF (VYM) vs. the Vanguard Dividend Appreciation ETF (VIG).
|
Price Change Over Various Periods |
||
|
YTD thru 4/30/13 |
4/30 thru 6/24/13 |
|
|
VYM |
14.3% |
0.73% |
|
VIG |
12.1% |
1.2% |
|
S&P 500 |
12.0% |
2.1% |
Yield Blowouts
The table below is taken from the universe of non-financial S&P 1500 stocks with yields above 3% on April 30. The stocks below include only those where the dividend yield increased 10% or more from April 30 to June 24 AND where Bloomberg predicts positive dividend growth over the next three years. That is, yields expanded sharply, but dividends are expected to grow. The stocks are sorted by Bloomberg’s dividend growth estimate. Several utilities made this list given their sharp sell-off as well as their prospects for low single-digit dividend growth.
|
Higher Yielding Stocks with Largest Yield Expansion Since April 30 & Positive Dividend Growth Estimates |
|||||||
|
Dividend Yield as of |
Percent Change in Yield |
||||||
|
12/30/2011 |
12/31/2012 |
4/30/2013 |
6/24/2013 |
4/30/13 thru 6/24/13 |
3-YR Div. Growth Estimate |
||
|
OKE US Equity |
ONEOK INC |
2.58 |
3.09 |
2.80 |
3.49 |
24.6% |
19.92 |
|
WMB US Equity |
WILLIAMS COS INC |
3.71 |
3.97 |
3.55 |
4.46 |
25.4% |
19.22 |
|
KMI US Equity |
KINDER MORGAN IN |
3.73 |
4.08 |
3.89 |
4.38 |
12.6% |
12.88 |
|
SWY US Equity |
SAFEWAY INC |
2.76 |
3.87 |
3.11 |
3.52 |
13.2% |
12.42 |
|
WEC US Equity |
WISCONSIN ENERGY |
3.43 |
3.69 |
3.03 |
3.42 |
12.9% |
8.83 |
|
CLX US Equity |
CLOROX CO |
3.61 |
3.50 |
2.97 |
3.47 |
16.8% |
8.61 |
|
CMS US Equity |
CMS ENERGY CORP |
3.80 |
3.94 |
3.41 |
3.83 |
12.6% |
7.79 |
|
NU US Equity |
NORTHEAST UTILS |
3.05 |
3.51 |
3.24 |
3.66 |
12.9% |
6.88 |
|
D US Equity |
DOMINION RES/VA |
3.71 |
4.34 |
3.65 |
4.08 |
11.7% |
6.39 |
|
DRI US Equity |
DARDEN RESTAURAN |
3.77 |
4.44 |
3.87 |
4.49 |
15.8% |
6.27 |
|
NEM US Equity |
NEWMONT MINING |
2.33 |
3.01 |
4.32 |
4.82 |
11.6% |
4.85 |
|
DTE US Equity |
DTE ENERGY CO |
4.32 |
4.13 |
3.40 |
4.07 |
19.7% |
4.38 |
|
SO US Equity |
SOUTHERN CO |
4.08 |
4.58 |
4.21 |
4.73 |
12.3% |
4.01 |
|
NI US Equity |
NISOURCE INC |
3.86 |
3.86 |
3.12 |
3.61 |
15.6% |
4.00 |
|
PNW US Equity |
PINNACLE WEST |
4.36 |
4.28 |
3.58 |
4.15 |
16.0% |
3.57 |
|
XEL US Equity |
XCEL ENERGY INC |
3.76 |
4.04 |
3.40 |
4.00 |
17.7% |
3.54 |
|
PPL US Equity |
PPL CORPORATION |
4.76 |
5.03 |
4.40 |
5.06 |
14.8% |
2.79 |
|
AEP US Equity |
AMERICAN ELECTRI |
4.55 |
4.40 |
3.81 |
4.50 |
18.0% |
2.73 |
|
SCG US Equity |
SCANA CORP |
4.31 |
4.34 |
3.75 |
4.23 |
13.0% |
2.43 |
|
PEG US Equity |
PUB SERV ENTERP |
4.15 |
4.64 |
3.93 |
4.52 |
14.9% |
2.06 |
|
DUK US Equity |
DUKE ENERGY CORP |
4.55 |
4.80 |
4.07 |
4.67 |
14.9% |
1.92 |
|
TE US Equity |
TECO ENERGY INC |
4.49 |
5.25 |
4.60 |
5.26 |
14.3% |
1.86 |
|
ED US Equity |
CONS EDISON INC |
3.87 |
4.36 |
3.86 |
4.37 |
13.1% |
0.68 |
Jeff Middleswart is a Senior Analyst for Ranger International Management. The views set forth in this essay are solely those of Mr. Middleswart, and do not necessarily represent the views of Ranger International as a firm, nor any other member of the portfolio management team. As such, views set forth in this essay may be inconsistent with Ranger International’s portfolio positions or objectives.
Data from third party sources may have been used in the preparation of this commentary and neither Mr. Middleswart nor Ranger International has independently verified, validated or audited such data. As such, neither Mr. Middleswart nor Ranger International can guarantee its accuracy. In addition, neither Mr. Middleswart nor Ranger International accepts any liability whatsoever for any loss arising from use of this essay or any information, view, opinion or estimate herein.
The views expressed herein do not constitute research, investment advice or the recommendation for the purchase or sale of any security. Past performance of the asset classes discussed in this article do not guarantee future results.
© Ranger International
