"Do you know the only thing that gives me pleasure? It's to see my dividends coming in."
-- John D. Rockefeller
Mr. Rockefeller's words resonate now, as investors professional and amateur stare at the market's abyss, wondering how to generate returns. Since price appreciation is no longer a viable option for producing returns in the short term, income investors are turning to stocks with high dividend yields to eke out returns.
Dividends can be a sign of a company's financial health -- especially in this market, as former stable payers like Citigroup (NYSE: C ) have cut their dividends because of the current financial squeeze. These days, only about one-third of publicly traded companies in this country continue to pay a steady dividend. Mature companies that even today have more cash than they need to invest in their businesses are often some of the strongest ones out there.
In this macro environment, investing in stocks such as Altria (NYSE: MO ) and Veolia Environment (NYSE: VE ) , which yield 8% and 12%, respectively, gives you a solid return sans price appreciation. The companies are also strong companies, so when the financial tempest clears, investors should see returns through price increases.
How do you find solid companies with such high dividend yields? I did the dirty work for you using the Motley Fool's CAPS screener. To search for stocks with hefty dividends, I screened for companies with:
- A minimum dividend yield of 5%.
- Market caps of $250 million or greater.
- Five-star ratings, the highest possible, from our 120,000-member CAPS community.
Since we began tracking our CAPS investment community in November 2006, five-star companies have outperformed, with an average annualized gain of more than 12%.
|
Company
|
Market Cap
|
Dividend Yield (%)
|
|
Alliance Resource Partners (Nasdaq: ARLP )
|
$872 million
|
11.8
|
|
Altria
|
$31.4 billion
|
8.4
|
|
Cellcom Israel (NYSE: CEL )
|
$2.2 billion
|
14.7
|
|
Dorchester Minerals
|
$490 million
|
21.9
|
|
NYSE Euronext (NYSE: NYX )
|
$5.2 billion
|
6.1
|
|
Telecomunicacoes de Sao Paulo
|
$9.4 billion
|
15.3
|
|
Veolia Environnement
|
$10.3 billion
|
13.8
|
However, just because a company doles out dividends, that doesn't necessarily mean it always will. Companies are increasingly becoming more cash-constrained. Take Apollo Investment (Nasdaq: AINV ) , for example: The investment firm boasts a dividend yield of 24.5%. On the surface it may seem that this company would be rolling in cash, but dig a little deeper and you'll find that the fundamentals aren't as sturdy as that yield may imply. Mark-to-market accounting rules are forcing the company to revalue its loans and dragging down its asset coverage ratio, which may affect its ability to make future payments.
Dividends are one way to search for quality companies, but it's important to dig deeper and see if that investment is right for your portfolio. The above table is a great place to start, but you really need to keep up-to-date with dividend payers, since many continue to cut their payouts in this cash-centric environment. Start your search today at Motley Fool CAPS.
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