Why Total Yield Can Be a Savior in Volatile Markets

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Income investors are finally having their moment. In a volatile year for markets, which saw major indexes hover around bear market territory, value-oriented investors are poised to benefit. 

This comes after years of income-seeking investors seeing their portfolios outmatched by a market that favored growth. But despite the selloff we’ve seen so far this year—the

S&P 500

is down by 15%—there are still a number of well-positioned companies that have performed better than the broader market. Even more, these companies are returning capital to shareholders in the form of dividends and buybacks, leading to total yields in excess of 8%. 

Needless to say, with little predictability in equity markets these days, investors are on the hunt for the comfort of sustainable dividends and buybacks. Chris Senyek, chief investment strategist at Wolfe Research, found 38 companies that he expects will outperform in the coming months. In addition to having high total yields, the companies also have little leverage and haven’t lowered their earnings projections.

Many of the winners on Senyek’s list come from the energy and financial sectors. This shouldn’t be a surprise. After years of weak capital discipline, energy companies got more conservative and were poised to benefit handsomely from the sudden surge in oil and gas prices. As for financial firms, they have held up steadily during the uncertainty of the pandemic and are now set to reap the benefits of the Federal Reserve’s moves to lift interest rates.

On the energy side, one of the names Senyek recommends is

Marathon Petroleum

(ticker: MPC), which has gained 62% this year and has a total yield of 18.7%.

Pioneer Natural Resources

(PXD) and Apache (

APA

) also top his list as both have gained more than 45% this year and have total yields in excess of 15%.

For financials, the picture is a little more complicated. Many of the names have seen their stock prices dip but their total yields—and their ability to maintain those levels is still convincing, in Senyek’s view. He likes

Annaly Capital Management

(NLY), which is down 12% but yields 14%.

Principal Financial Group

(

PFG

) and

MetLife

(MET) have both gained 6% this year and they have total yields hovering around 11%.

While these names represent just a handful of the companies Senyek listed, it’s a good reminder for investors that even in volatile times, there are opportunities.

Write to Carleton English at [email protected]