If you're interested in stocks paying dividend income but don't know where to start searching, one idea is to look at what the "big money" is buying.
Big money investors, or institutional investors, include hedge fund managers, mutual fund managers, and pension managers, among others. These investors have access to sophisticated research and often have a lot of experience in investing. For these reasons, the market closely watches which stocks they decide to purchase.
Institutional interest aside, it's still important to do your own research when it comes to any stock investment. For dividend stocks, two important things to keep in mind are the dividend yield and the payout ratio.
A high dividend yield (i.e., dividend/stock price) can mean a lot of things -- it can mean a handsome dividend (the best scenario), a falling stock price, or an unsustainably high dividend. To avoid potential value traps, we screen for dividend yields under 7%.
The payout ratio (i.e., dividend/EPS) is also important to consider. If a company's dividend is a big share of its earnings, its dividend may be unsustainably high. We screen for payout ratios under 50%.
Incorporating these ideas, we ran a screen on high dividend yield stocks, with dividend yields between 4%-7%. We then screened for payout ratios under 50%.
Lastly, we screened for stocks seeing significant net institutional buying over the current quarter, expressed as a percent of share float.
Do you agree with hedge funds' optimism for these names? Use this list as a starting point for your own analysis.
List sorted by net institutional purchases as a percent of share float. (Click here to access free, interactive tools to analyze these ideas.)
1. SK Telecom
2. TIM Participacoes
5. Communications Systems
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.
Kapitall's Alexander Crawford does not own any of the shares mentioned above. Institutional data sourced from Fidelity.