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 (NYSE:GM), which has cut its dividend. 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-plus-member CAPS community:


CAPS Rating



Altria (NYSE:MO)




Toronto-Dominion Bank (NYSE:TD)




Spectra Energy (NYSE:SE)




Provident Energy Trust (NYSE:PVX)




Pfizer (NYSE:PFE)




Source: Motley Fool CAPS as of Sept. 11, 2008.

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Spectra Energy and Pfizer are Motley Fool Income Investor recommendations. Pfizer is also an Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Todd Wenning follows a portfolio of high-yield stocks on CAPS, which you can see by clicking here. He owns shares of Pfizer. The Fool's disclosure policy rocks on with its bad self.