- By Rupert Hargreaves
At the time of writing, the S&P 500 index yields an average of 1.94%, which is one of the lowest average yields in its history. For the past 150 years, the only period when the index's average yield has been less was the decade between 1997 and 2007 when it was arguably in bubble territory.
For income seekers, this low yield is a depressing metric. There are stocks within the index that yield more than the average, but they are few and far between. 10 stocks currently yield more than 5% and 20 stocks yield more than 4%. There are 83 stocks with no dividend payout at all.
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The intrinsic value of LGEN
Look outside the U.S. for income
With the number of income opportunities limited in the S&P 500, income investors may find better opportunities outside the U.S., and one region that's known for its dividend stocks is the U.K.
At the time of writing, the U.K.'s leading index, the FTSE 100 supports a dividend yield of 3.6%, a full 85% above the S&P 500's average yield. What's more, there are plenty of stocks inside the FTSE 100 that yield 5% or more.
Take GlaxoSmithKline (GSK) for example. Glaxo is one of the world's largest pharmaceutical companies but unlike its U.S. peers, which all offer little in the way of income, Glaxo pays out the majority of its earnings to investors via dividends. The company's shares trade in both dollars (ADRs) and sterling, so there's no need to worry about exchange rates. The shares currently offer a dividend yield of 4.5% for the ADRs and just under 5% for the U.K.-listed shares.
Glaxo isn't the only company that has a U.K. and U.S. listing with a dividend yield of around 5%. Shares in BP (BP), one of the world's top five Big Oil companies, currently yield more than 7%, for both the U.K. and U.S. shares.
Yield makes up for risk
Companies only listed in London may come with the added risk of currency fluctuations for U.S. investors, but the extra yield more than makes up for the risk of investing overseas. Some of these companies are trading at downright cheap valuations despite their leading positions in the market.
Take pensions and long-term savings provider Legal & General. This business has been around for nearly 200 years and manages long-term savings as well as retirement funds. The shares trade in London for 244 pence a piece and support a dividend yield of 6%. The payout is covered 1.4 times by earnings per share, leaving plenty of room for payout growth or earnings volatility.