There are lots of reasons to seek out healthy dividend-paying stocks for your portfolio. For one thing, they can generate income for you no matter what the overall economy or stock market is doing. That income alone can offset the erosive effect of inflation. Better still, dividends from growing companies tend to grow as well, giving you bigger payouts over time. That beats many other investment alternatives. High dividend stocks can naturally seem more appealing than low dividend ones, but they're not all gems. Still, some high dividend stocks are indeed worth salivating over -- and worth further investigation.
When you're looking at high dividend stocks, understand that a hefty payout should never be enough. Some yields are high only because the stock has tanked. If it's a temporary decline, you might be looking at a tasty opportunity. If the company is in serious trouble, though, steer clear despite the big payout. It's far from uncommon for dividends to be reduced or eliminated. Cast an eye on the dividend growth rate, too, because a slow-growing 5% yield can be eclipsed by a fast-growing 3% or 4% one.
Below are a few high dividend stocks worth considering.
Textainer (NYSE:TGH) is in the business of leasing big containers for use in intermodal shipping. The shipping business can be expected to pick up as the global economy gets back on its feet. Textainer has recently been expanding into the leasing of tanks, as well. The company offers not only an appealing dividend yield of 4.9%, but it also has been raising that payout significantly, more than doubling it over the past five years. Its payout ratio is below 50%, too, suggesting plenty of room for further growth. Textainer's stock seems reasonably or attractively priced, too, with its forward P/E ratio of 8.0 below its five-year average of 8.5. Bears don't like its rising debt or negative free cash flow, though (which is partly a result of beefing up its supply of containers), but there's still a lot to like about it.
FLY Leasing (NYSE:FLY) is also among the high dividend stocks focused on leasing. The company leases commercial jets to airlines. Based in Ireland, it offers an attractive proposition to airlines, leasing them newer, more fuel-efficient planes, and helping them avoid the major expense of buying new aircraft. FLY Leasing's dividend took a tumble in 2009, from $0.50 per quarter to $0.20, but it got a 10% bump in 2012, and recently yielded 5.4%. Its payout ratio is also below 50%, affording room for growth. The stock seems quite attractively priced, too, with a recent P/E ratio of 7.4 and a forward P/E of not much more than 4. It's not growing as rapidly as some peers, but it is growing, and is also carrying relatively less debt than various peers and working on paying it down.
Safety Insurance (NASDAQ:SAFT), also impressive among high dividend stocks, is a rather boring company that's good at what it does -- offering auto insurance, primarily in New England. Recently yielding 4.7%, its dividend has grown by 8.5% annually over the past five years and 24% annually over the past decade. (Its last hike, last year, was 20%.) Its payout ratio is 67%, which is not too worrisome. Its forward P/E ratio of 11 compares favorably with the five-year average near 18, and its PEG ratio is an appealing 0.70, as well.
These are some compelling high dividend stocks, but they're not the only ones. Do some digging of your own, or perhaps take a closer look at the companies above to see if they make sense for your portfolio.
Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Safety Insurance Group and Textainer Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.