These days, quality high-yield stocks are difficult to find. Thanks in part to the government's market intervention, stock prices have staged a massive rally since last year, and now investors have to pay a lot more for the same dividends.
The dividend yield, after all, is calculated by dividing the annual dividend by the current price -- if price keeps rising while dividend payments stay steady, dividend yields are going to fall.
Not to mention the economic uncertainty that we're dealing with at the moment. European debt trouble, a collapsing dollar, and a weakening U.S. jobs market, just to name a few -- these are all factors that could affect a company's ability to generate sufficient earnings to pay for future dividends.
That's why we wanted to find companies that are expected to boost their dividends significantly during the current year.
All of the companies mentioned below have projected dividend payments that are significantly higher than last year's dividend payments.
In addition, all of the companies mentioned below have low dividend payout ratios. The dividend payout ratio, which measures the size of a dividend payment to the company's net income, can be a useful indicator of dividend quality.
Companies with low dividend payout ratios choose to retain most of their income, instead of paying it out as dividends. This income can then be reinvested into projects that will hopefully generate future growth, which will help the company increase future dividend payments.
To further refine the quality of the list, we went back in time, and identified the dividend stocks that outperformed the S&P 500 during the most recent downturn (between Oct. 1, 2007-Feb. 1, 2009).
Of course, past performance is no guarantee of future results. But when you consider the dividend growth of the companies below, and their track record during market downturns, this list might offer a good starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
List sorted by dividend yield.
1. Nippon Telegraph and Telephone (NYSE: NTT): Communications Services Industry. Dividend yield at 2.93%, with a payout ratio at 31.16%. The company had a price return of 1.39% between Oct 1, 2007-Feb 1, 2009, beating the S&P 500 index by 48.01%. Current year dividend per share projection at $1.13 vs. last year's dividend per share at 0.74 (a growth rate of 52.76%).
2. Innophos Holdings (Nasdaq: IPHS): Chemical Manufacturing Industry. Dividend yield at 2.29%, with a payout ratio at 27.53%. The company had a price return of -0.07% between Oct 1, 2007-Feb 1, 2009, beating the S&P 500 index by 46.55%. Current year dividend per share projection at $1. vs. last year's dividend per share at 0.68 (a growth rate of 47.06%).
3. American Science and Engineering (Nasdaq: ASEI): Scientific and Technical Instruments Industry. Dividend yield at 1.4%, with a payout ratio at 25.34%. The company had a price return of 21.27% between Oct 1, 2007-Feb 1, 2009, beating the S&P 500 index by 67.88%. Current year dividend per share projection at $1.2 vs. last year's dividend per share at 0.9 (a growth rate of 33.33%).
4. InterDigital (Nasdaq: IDCC): Communications Equipment Industry. Dividend yield at 1.1%, with a payout ratio at 7.11%. The company had a price return of 57.94% between Oct 1, 2007-Feb 1, 2009, beating the S&P 500 index by 104.55%. Current year dividend per share projection at $0.40 vs. last year's dividend per share at 0.10 (a growth rate of 300%).
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Disclosure: Kapitall's Eben Esterhuizen does not own any of the shares mentioned above.
