It's certainly not difficult for investors to find high-yielding stocks these days, particularly among beaten-down financials. Idearc, for instance, features an incredible yield of more than 95%!
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 around 2%, so any yields greater than 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 General Motors
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-plus-member CAPS community:
Company |
CAPS Rating |
Yield |
Research |
---|---|---|---|
Altria |
***** |
6.2% |
|
Toronto-Dominion Bank |
**** |
3.9% |
|
Spectra Energy |
***** |
4.1% |
|
Provident Energy Trust |
**** |
14% |
|
Pfizer |
**** |
7% |
Source: Motley Fool CAPS as of Sept. 11, 2008.
Want to learn about other highly rated stocks? Sign up for Motley Fool CAPS today. Don't worry, it's 100% free, so enjoy your stay on us! Click here to start.