If you're frustrated by the paltry 2% yield of the average stock in the S&P 500, you're not alone.
Thankfully, you don't have to reach for yield by investing in unstable companies or engineer a complex options strategy just to get little extra income. Readers of my High-Yield Investing newsletter know that it's just a matter of knowing where to look.
These five stocks offer more than double the average yield of the U.S. equity market -- and have far outperformed it. The S&P 500, gained about 2% in 2011, including dividends, but these standouts actually delivered average total returns of 35.4% in the same 10 months.
Their long-term performance is just as impressive. In the past half decade, they returned an average 11% a year, while stocks in the S&P 500 are at break-even.
To find these income plays, I screened for steady, reliable dividend payers that grew both dividends and earnings in good times and bad.
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Over the past five years, these companies hiked their dividends an average of 6% a year. They are an exemplary group of dividend growers, considering that the 500 industry-leading companies in the S&P 500 actually reduced their dividends by 1% annually over the same five years.
And 6% is just an average. Pipeline partnership Sunoco Logistics (NYSE: SXL) and tobacco maker Reynolds American (NYSE: RAI) put in double-digit increases of 10% annually during the past five years.
Moreover, these shareholder-friendly companies have the wherewithal to support their dividend increases. Like many high-yield stocks, most of these companies are designed to pay out cash flow and raise money to grow by issuing shares.
So it's especially impressive that as a group they've been able to grow per share earnings at an average clip of 12% a year during the past five years. The 7% growth rate of the S&P 500 pales by comparison.
Past returns and growth rates can't predict future performance, but these six picks look set to continue delivering growing dividends and attractive overall returns going forward. Earnings projections are difficult to come by, as some of these companies are not widely followed. Nevertheless, the average estimated growth rate for all but two of them (whose projections are unavailable) are a healthy 8% annually over the next five years.
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Dividends for the group are expected to grow in tandem with earnings. According to Bloomberg projections, which have proven to be more than 90% accurate, their dividends are anticipated to grow an average 4% annually over the next three years.