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Highest Yielding Stocks to Buy Gaining Value as Treasury Yields Plunge

Despite the fact that the market is leaning toward the Federal Reserve raising interest rates at some point this year, yields on Treasury debt, especially the closely watched 10-year note, have plummeted. A new research note from RBC points out that when looking at stock valuations from a dividend perspective, stocks have not been this cheap in the 15 years. In fact, 51% of S&P 500 companies have a yield higher than the 10-year note. That’s up from 23% this time last year, and 41% from January of 2009.

The RBC analysts feel that with stock yields much higher than the 10-year, and investors aging and gravitating to income-producing stocks, valuations can be supported despite index levels near all-time highs. They also note that younger investors have a lower risk tolerance than in the past, and elevated exchange trade fund (ETF) demand, especially income related, is also very supportive.

We screened the S&P 500 for five of the highest yielding stocks in different sectors. All are yielding twice what the 10-year note yield closed at on Friday, which was 1.675%.

Altria Group Inc. (NYSE: MO) is a top tobacco stock to buy on Wall Street, and the company’s Marlboro brand is one of the most recognizable in the world. Many Wall Street analysts concede that the stock has solid downside support owing to the generous dividend yield, which remains at a huge premium in relation to the 10-year Treasury rate. Cash flow generation and the return of cash to Altria shareholders remain key facets of the company’s total shareholder return, and the analysts expect support of the strong dividend, which they believe will continue to climb, as well as strong share repurchase activity.

Altria shareholders are paid a 3.92%% dividend. The Thomson/First Call consensus price target for the stock is $55.44. Altria closed Friday at $53.10 a share.

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Chevron Corp. (NYSE: CVX) is a perfect story for investors looking to stay long the energy sector, which needless to say is probably the most out-of-favor sector on Wall Street. With a large dividend and a solid place in the sector when it comes to natural gas and liquified natural gas (LNG), long-term investors willing to look past the current debacle in oil pricing may be able to make a once-in-a-lifetime buy on this industry behemoth. Wall Street analysts estimate the company will have a compound annual growth rate of over 5% for the next five years, and the stock trades at a sizable valuation discount to its mega-cap peers

Chevron investors are paid a very solid 4.17% dividend. The consensus price target is $117.06, and shares closed on Friday at $102.53.

Darden Restaurants Inc. (NYSE: DRI) ) is one of the largest casual dining restaurant operators worldwide. It has operations in the United States and Canada with a total of 1,504 restaurants as of Aug 24, 2014. Darden operates restaurants under the Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V’s and Yard House brand names. Management returns much of its free cash to shareholders through share repurchases and dividends. With consumers having extra cash to spend as gasoline prices drop, the stock makes good sense.

Darden shareholders are paid a very respectable 3.58% dividend. The consensus price target is $57.91. The stock closed well above that Friday at $61.38.

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Duke Energy Corp. (NYSE: DUK) is one of the largest market cap stocks in the utility sector, which has performed outstanding over the past year. The stock is one of the leading U.S. utility companies, given its very stable earnings base, as a significant portion of the company’s earnings are derived from regulated operations. Also, the company has delivered a healthy financial performance in the past and remains an attractive option for income-seeking investors going forward.

Duke shareholders are paid an outstanding 3.65% dividend. The consensus price target is $85.33. Shares of Duke Energy closed Friday above that target at $87.14.

Verizon Communications Inc. (NYSE: VZ) is a top telecommunications company that offers investors consistent and steadily growing dividends. The company recently purchased $10.4 billion worth of new spectrum during the recent government auctions, and it is planning to continue to expand and improve its 4G LTE network, which they bill as the nation’s largest.

Verizon investors are paid an outstanding 4.82% dividend. The consensus price target for the wireless giant is $51.43. The stock closed Friday at $45.71.

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The RBC team has made an astute call on the valuation possibilities for these top dividend-paying stocks. Many have said they are overvalued along traditional metrics, but given the specifics the analysts pointed to, they remain solid buys. Most importantly, there are few alternatives for income-desperate investors.