How to Find the Best Dividend and High Yield Stocks


With interest rates so low there has to be a better way to have your money working for you. Finding stocks that pay a decent dividend and a good yield is the best bet. With banks and CDs paying nothing, it is important to find the best and safest dividend paying stocks.

With banks, money markets and certificates of deposits (CDs) paying 1.5% or less and the lingering distrust and worry about stocks, more people are just looking for a decent yield. Decent means paying more then the average 1% and a safe yield where the company will not go under in the next year. Since the Great Recession of 2008, many are still very distrustful of Wall Street, banks and the stock market. And with good reason, who would have thought five years ago so many big banks and companies would have failed.

Dividends and Yields

There will only be a yield on a stock if that company pays a dividend. The yield of a stock is figured by dividing the dividend payment by the price per share of the stock. If a stock pays a $1 dividend and the price per share is $50, then the yield will be 2% ($1 dividend divided by $50 share price x 100 = 2%). Most places where you can get a stock quote will also show the dividend and yield for you.

The yield of a stock will go up when the stock price goes down; this is why when you find a high yield stock you have to look at the stock price history. The above example yield would change to a 5% yield if the dividend stayed the same and the stock dropped to $20 per share ($1 dividend divided by $20 share price x 100 = 5%).

High Yields Can Mean Trouble

When you hear of a company with a high yield, keep in mind it doesn’t always mean something good since a stock or company’s yield goes up when the stock price falls. When looking at any company’s stock, dividend and yield make sure you research the reasons for the high yield and possible stock price drop.

A high yield doesn’t tell the whole story. And when a stock drops like that and the company is having problems, there is a good chance they could cut their dividend or maybe even eliminate the dividend in the future.

A good example is a stock like Great Northern Iron Ore Company (GNI). They were once believed to be a great dividend stock. Today their dividend yield is 29.69%. That might sound great but you have to look at their stock price history. Their stock price has dropped from a 52-week high of $76.74 to their current price of $18.22. This is the reason their dividend yield is so high.

The Beta of a Stock

The beta of a stock is a measure of its volatility, and the more volatile a stock is, the more risky it could be. The more risk there is, the more gains should be expected, the lower the beta, the less of an expected gain. But this is an article about the best dividends and yields, not about capital appreciation. The higher the beta and more volatile a stock, the more it could gain, which also means the more it could drop.

The S&P 500 has a beta of 1, so any stock with a beta lower than 1 will be less volatile than the overall market. Less volatile just means a stock will usually appreciate less and also fall less. Most stock quote sites like show you the beta

Dogs of the Dow Strategy

The Dogs of the Dow is a long time strategy for investing in high yield stocks. Some people pick five and others pick 10 stocks from the 30 Dow Jones Industrial Average stock index that has the highest yields.

Since yields rise when a stocks price falls, buying these highest yielding stocks means that they dropped during the last year. The thinking is that buying these down stocks, they will rise during the coming year.

To invest in the Dogs of the Dow, you would put equal amounts of money into each five or ten of these stocks. This is the opposite of chasing winners. Of course the main worry is that some of these dog stocks dropped for a reason and could continue to fall and cut their dividend payment.

The top five highest yield DJIA stocks as of July 2014 are:

  • AT&T (T) with a yield of 5.13%
  • Verizon (VZ): yield of 4.26%
  • Pfizer (PFE): yield at 3.41%
  • Merck (MRK): 2.97% yield
  • General Electric (GE): 3.28% yield

Increasing Dividends

It is also important to look at the track record of dividend paying stocks, do they have a history of increasing their dividend. Stocks that are known to increase their dividends are a good bet they will continue to do so. You do not want to invest your money and then have that company slash its dividend.

Looking at a stocks dividend growth rate is important. Has the company continued to increase their dividend and can a company continue paying their dividends.

Dividend Aristocrats

There is a list of stocks that are called the Dividend Aristocrats. To be on the Aristocrats list, these stocks have had to raise their dividends for at least 25 consecutive years. Some of these stocks include:

  • Proctor & Gamble (PG) has raised dividends for 57 years with a yield of 3.21%
  • Coca-Cola (KO) has a 2.89% yield and has raised dividends for 51 years.
  • Johnson and Johnson (JNJ) with a 2.66% yield and increased their dividend for 51 straight years.
  • Northwest Natural Gas (NWN) has a yield of 4.00% and has raised dividends for 58 years.
  • Altria Group (MO) with a dividend yield of 4.53% and 44 years of increasing dividends.

If you don’t want to search for your own stocks, you can buy a dividend ETF that tracks the Dividend Aristocrats index with the SPDR S&P Dividend (SDY) with the dividend yield currently at 2.21%.

More Good Yields

The following stocks have good dividend yields as of July 2014, but some of these are rather risky and would need to be watched much more than a blue chip stock on the Aristocrats list.

  • Kinder Morgan Energy Partners (KMP): Dividend yield of 6.70%
  • Magellan Midstream Partners (MMP): 2.95%
  • Fifth Street Finance Corporation (FSC): 10.2%
  • Triangle Capital Corporation (TCAP): 8.77%
  • Martin Mainstream Partners LP (MMLP): 7.65%
  • Watsco (WSO): 2.33%
  • Life Partners Holdings (LPHI): 8.03%
  • Annaly Capital (NLY): 10.85%

Annaly Capital is a mortgage REIT (Real Estate Investment Trust) and the high yield should normally be a warning and in this case it does bear watching. It is still rated as a buy as long as interest rates stay low; when interest rates start to increase it might be time to sell this.

More Exotic High Yield Stocks

There are several other types of investments that have good yields but can be rather volatile. They include Energy Master Limited Partnerships, Royalty Trusts, Business Development Companies and Real Estate Investment Trusts. They include:

  • Natural Resource Partners (NRP) with a yield of 8.54%
  • BP Prudhoe Bay Royalty (BPT) 12.26%
  • Blackrock Kelso Capital Corporation (BKCC) 9.18% yield
  • Capstead Mortgage (CMO) with a 10.54% yield and a 0.39 Beta.

Finding More High Yield Stocks

You can use the Yahoo stock screener and set the yield, beta and other parameters that fit your needs and find other good dividend paying stocks. Many people just want a decent yield and return on their money. It wouldn’t bother me to hold stocks that didn’t make or lose a nickel over the year as long as I kept getting the good yield with the dividend payments.

Think Safety

Remember to think safety first, you don’t want to buy the next Lehman Brothers or Washington Mutual just for a high dividend and yield.

Copyright © January 2011-2014 Sam Montana

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