Please ensure Javascript is enabled for purposes of website accessibility

Top-Yielding Stocks (You Might Actually Want to Buy)

By Rex Moore - Updated Apr 6, 2017 at 12:42PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This week's high-yield, low-risk screen.

The power of dividend investing is pretty well-known these days. Higher-yielding stocks tend to offer higher returns over time than low- or no-yield stocks, according to research from Jeremy Siegel and others. In fact, the 20 best-performing survivor stocks from the original S&P 500 in 1957 are all dividend payers.

What's more, reinvesting dividends acts as a "bear-market protector and return accelerator," according to Siegel. The extra shares purchased and accumulated at higher dividend yields during down periods act as a protector in falling markets, and these extra shares rising in value turn into a "return accelerator" when prices rise.

As the recent economic crisis illustrated all too well, however, you can't buy just any high-yielding stock. Dividends that are cut or suspended entirely can wreak havoc on a stock price, and thus your portfolio.

Fortunately, there are some steps you can take to lessen your chances of buying one of these train wrecks. James Early, advisor of our Motley Fool Income Investor service, suggests looking at the payout ratio for starters. That's simply the percentage of a company's net income that is used to pay its dividend. Obviously, the higher the payout ratio, the tougher it is for a company to meet its dividend obligation. James looks for a payout ratio below 80% for safer companies, and a sub-60%- or even 50%-payout for companies you consider risky.

To further stack the odds on your side, you can limit your search to companies that have grown their dividend over the past three years or so. That eliminates the less stable or erratic dividend payers.

I constructed a screen to find some promising high-yield, low-risk companies for further research. I made sure the stocks met the following criteria:

  1. Market cap > $1 billion
  2. Payout ratio < 60%
  3. Three-year dividend growth > 0%

Here are the top 10 highest yielders the screen produced:

Company

Market Cap (in Millions)

Payout Ratio

3-yr. Cumulative Dividend Growth

Dividend Yield

Kayne Anderson MLP Investment

$1,535

16.2%

3.8%

7.3%

Williams Partners (NYSE: WPZ)

$11,597

48.1%

38.9%

5.8%

Cincinnati Financial (Nasdaq: CINF)

$4,482

53.5%

15.8%

5.7%

Eli Lilly (NYSE: LLY)

$40,129

50.5%

20.6%

5.6%

Mercury General

$2,376

34.9%

19.4%

5.5%

Exelon (NYSE: EXC)

$27,361

50.5%

28.0%

5.0%

Bristol-Myers Squibb (NYSE: BMY)

$43,147

22.6%

12.5%

5.0%

Unisource Energy (NYSE: UNS)

$1,162

37.8%

47.4%

4.9%

American Electric Power (NYSE: AEP)

$16,694

58.3%

7.9%

4.8%

Avista

$1,146

56.9%

53.0%

4.8%

Data provided by Capital IQ.

These stocks are great places to start your research, but are not formal recommendations.

Foolish bottom line
Siegel sums it up nicely in his book, The Future for Investors: "Bear markets are not only painful episodes that investors must endure, they are also an integral reason why investors who reinvest dividends experience sharply higher returns."

Whether bear or bull market, there's a reason the top-performing stocks over the decades are all dividend payers. If you're lacking that type of exposure in your portfolio, you should take the first steps now toward finding stable dividend payers designed to weather any market cycle.

Fool analyst Rex Moore always sops his gravy. He doesn't own companies mentioned in this article. Motley Fool Options has recommended writing puts on Exelon, which is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
BMY
$74.86 (-0.13%) $0.10
Eli Lilly and Company Stock Quote
Eli Lilly and Company
LLY
$304.61 (0.53%) $1.59
Exelon Corporation Stock Quote
Exelon Corporation
EXC
$45.53 (0.29%) $0.13
American Electric Power Company, Inc. Stock Quote
American Electric Power Company, Inc.
AEP
$101.34 (0.77%) $0.77
Cincinnati Financial Corporation Stock Quote
Cincinnati Financial Corporation
CINF
$100.04 (1.21%) $1.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
373%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.