Editor's note: A previous version of this story incorrectly included Public Service Enterprise Group as having passed the screen when, in fact, its trailing dividend yield falls below the 4% cutoff of the screen. We regret the error.
Financial websites have given investors more tools than ever to screen the markets for stock ideas. But those screens provide just the raw numbers -- not the story behind them. What might look like the start of a trend could be merely a one-time blip. Let's enlist Motley Fool CAPS to color in the outlines these numbers create.
To find the cream of the crop of high-yield dividend stocks that have great growth trends at reasonable prices, we'll screen for stocks with:
- Market cap of at least $1 billion.
- Price-to-earnings-to-growth (PEG) ratio of less than the S&P average of 1.4.
- Free cash flow of more than $100 million.
- A yield of at least 4%.
Then we'll tap the collective intelligence of our 84,000-plus CAPS investors to see whether these companies present real opportunities -- or whether they're priced low for a reason.
Opinions with the numbers
Here's a sampling from the list of stocks our screen pulled up today.
|
Company |
Yield |
CAPS Rating (Out of 5) |
|---|---|---|
|
AT&T |
4.5% |
**** |
|
Corporate Executive Board |
4.2% |
**** |
|
iStar Financial |
15.2% |
*** |
|
SunTrust Banks |
4.9% |
** |
Ma Bell pays you back
Investors might be getting some comfort from the $0.40-per-share quarterly dividend AT&T is now paying to stockholders -- at least it makes up for some of the costs many of us pay to the telecom giant for our wireless, phone, and Internet services. But AT&T has been treating shareholders to nice capital gains of late, as well -- shares are up more than 25% in the past two years.
AT&T owes much of its recent success to synergies brought together with the merger of SBC in 2005 and BellSouth in 2006. With the combined assets, AT&T is now a front-runner, going toe-to-toe with competing telco Verizon
But investors saw this growth threatened when Verizon Wireless announced unlimited nationwide plans for a flat fee last week. AT&T immediately matched the offerings, and stock in many wireless players dropped by nearly 10% on fears of a price war. But as I have noted before, price drops in wireless plans have tended to spur changes in overall customer usage behavior that make up for lost revenue. AT&T recently echoed this when group president John Stankey told an analyst conference that he sees the unlimited plans actually helping the company reach its target of mid-single-digit percentage revenue growth in 2008, rather than hurting it.
Indeed, several CAPS investors recently rating the company believe the market's reaction to the unlimited plans was overdone, and presented an opportunity to be bullish at a lower price. Overall, 2,785 of the 2,957 investors rating the company believe it will outperform the S&P going forward.
Everything aboveboard
It's not uncommon to see new high-yielding companies pop up on our colorless screen not because of a dividend increase, but rather thanks to a falling share price. Corporate Executive Board (CEB) is one such company, having seen its shares plummet nearly 50% in the past year. The provider of management research, training, and education tools hasn't come through with expected growth over the past several quarters, and a drop in profitability combined with a weak outlook in its most recent results whacked the stock for a 20% loss in a single day.
But some contrarian investors -- including the Motley Fool Inside Value team -- see value in the company's strong balance sheet and new efforts to expand internationally. With the valuation of the business dropping into a more palatable range of about 20 times forward earnings, many CAPS investors are striking more bullish tones as well. Today, more than 94% of the 349 CAPS investors rating the company believe it will beat the market going forward.
Let 84,000 investors be the judge
The collective wisdom of a huge pool of investors can quickly add color to a whitewashed page of numbers. But even with an entire community of qualified opinions acting as the judge, individual investors are still the jury and should perform their own research.
Want to see your favorite screen results run through the wringer in the CAPS community? It's free to tap the knowledge base and even give your own opinion in Motley Fool CAPS.
