Stocks with Big Dividends and Terrific Records
If you're looking for yield, make sure you look for health, too.
Yield is back in style. History tells us that a large component of the stock market's total return comes from dividends, but it's usually only in bear markets that anybody cares. After all, the mailman continues to deliver dividend checks in bear markets, whereas capital gains by definition disappear. (For those of you looking for a refresher on dividend yield, check out the Morningstar.com Investing Classroomcourse on the topic.)
I did oversimplify just then. The mailman continues to deliver the dividend check--but only if the company is still healthy enough to pay it. And that's the trick in finding good high-yield stocks. As long-term investors, we want companies that can continue to pay dividends even in hard times. Here's one way to search for high-yield stocks that stand a good chance of maintaining those dividends.
My screen within Premium Stock Selectorfocuses on stocks with dividend yields of at least 2.4%. Why this figure? For those stocks that pay dividends--which is only about 2,000 stocks out of our universe of 7,000--a yield of 2.4% is the 50th percentile. (When you choose to screen on a field like dividend yield within Premium Stock Selector, a pop-up window shows the quartile break points.) I also look for companies with five-year dividend growth in the 50th percentile, which translates into growth of at least 4.5%.