It's certainly not difficult for investors to find high-yielding stocks these days, particularly among beaten-down financials. Idearc (NYSE: IAR ) for instance, features an incredible yield of more than 100%!
As the saying goes, however, some things are too good to be true, and unfortunately that's the case with Idearc's yield. After all, the yield looks at trailing dividends -- you know, before the company started having big problems. In March, Idearc said it would discontinue its dividend altogether.
Toil and trouble
As a general rule of thumb, any dividend yield more than three times the market average should be approached with caution, and it definitely merits extra research. At present, the S&P 500 average yield is 2.2%, so any yields greater than 6.6% would occupy this danger zone.
See, what matters when it comes to high-yield investing is the sustainability and potential growth of a company's dividend. If dividends are important to you, you don't want to end up with a stock like Fifth Third Bancorp (Nasdaq: FITB ) , which has cut its dividend by more than 65%. Among other things, it's important to look for stocks with sufficient dividend coverage, modest debt, and a history of increasing dividend payments.
Let's find some
To narrow our search to a few good names, we'll enlist the help of our Motley Fool CAPS screener and search for larger stocks with:
- Yields greater than 3.5%.
- Below-market price-to-earnings ratios.
- Four- and five-star CAPS ratings.
The last bullet point is particularly important, because we've found that four- and five-star stocks outperformed the market by a wide margin from November 2006 to July 2008.
Without further ado, here are a group of five top-rated high-yielding stocks, according to our 115,000-member CAPS community:
|
Company
|
CAPS Rating
|
Yield
|
Research
|
|
Xcel Energy (NYSE: XEL )
|
****
|
4.6%
|
XEL
|
|
Duke Energy (NYSE: DUK )
|
*****
|
5.2%
|
DUK
|
|
Vodafone (NYSE: VOD )
|
****
|
7.9%
|
VOD
|
|
Frontline (NYSE: FRO )
|
****
|
19.4%
|
FRO
|
|
Taiwan Semiconductor (NYSE: TSM )
|
*****
|
4%
|
TSM
|
Source: Motley Fool CAPS as of Aug. 21, 2008.
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