List of dividend paying stocks The recent market downturn has creating buying opportunities for astute investors, especially for dividend stock buyers. Here�s why. The dividend yield for a stock is the return you would achieve over the next 12-months, assuming that both the dividend payout and the share price remain constant for the year. It�s calculated by dividing the expected next 12-months dividends by the share price. For example the yield would be 5% for a stock currently trading at $100 per share that is expected to pay $5 in dividends over the next year ($5 divided by $100). So, the dividend yield to new buyers goes up when share prices drop. Thanks to the weak market, yields on dividend payers with strong fundamental outlooks are higher than they�ve been for some time. he best dividend stocks are those that increase their dividends while you hold them. You win two ways when that happens. The higher payouts increase your yield and the dividend increase usually drives the share price higher. Conversely, a dividend drop is bad news. Screening is the best way to find dividend stocks. Screening involves using special programs available on financial websites to search the entire market for stocks meeting your selection criteria. The selection of available free screening programs has steadily declined over the past couple of years and MSN Money�s Deluxe Screener (moneycentral.msn.com) is the only remaining free screener capable of implementing the needed search requirements. If you haven�t used the MSN screener, it will probably take you a couple of hours to figure it out. But once you get the hang of it, using it is easy (disclosure: I also write investing columns for MSN Money). To help you get started, I�ll included in parenthesis, the instruction phrase needed to implement each search requirement. I�ll start with dividend yield (Even better, here's a link to the complete screen). High-Yield he yield must be high enough to make the stock worth buying. What�s �high enough� is subjective. But, I�ve found that 5% yields usually get the attention of dividend investors (current dividend yield >= 5.0). Bigger is Better Reducing risk is an important part of dividend investing. Bigger companies are usually less volatile, and, hence, safer, than smaller firms. Market capitalization, which is how much you�d have to pay to buy all of a company�s shares, measures company size. Stocks with market-caps below $1 billion are considered �small-caps� and are the riskiest. So, I set my minimum market-cap at $1 billion (market capitalization >= 1,000,000,000) to exclude small-caps. Analysts� Advice Stock analysts issue various gradations of buy/sell ratings on the stocks that they cover. Despite their less than stellar reputations, it still makes sense to let them do the work, in terms of figuring out a firm�s fundamental outlook. MSN compiles the individual ratings for each stock into five categories: strong buy, moderate buy, hold, moderate sell, and strong sell. For reasons too involved to describe here, �hold� ratings often equate to �sell.� Thus, I require consensus ratings of �moderate buy� or better (mean recommendation >= moderate buy). Earnings Growth Since earnings power dividends, earnings growth is necessary for dividend growth. Again relying on analysts, I require long-term (next five-years) earnings growth forecasts of at least 5% per year, on average. While that doesn�t sound like much if you�re used to investing in growth stocks, most high-dividend payers don�t grow earnings faster than 10% annually (EPS growth next 5-years => 5). Earn a Dollar Most dividend payers generate earnings amounting to several dollars per share annually. In a healthy market, I wouldn�t be so picky, but considering current conditions, to reduce risk, I require that analysts must be forecasting at least $1 per share of earnings in the current fiscal year (Current Yr. Earnings Est >=1). Track Record Many high-dividend stocks have only recently gone public and haven�t been in business long enough to establish a reliable track record. To rule out these risky bets, I require that passing stocks have been reasonably profitable for at least the past five�years. Return on equity (net income divided by book value) is a widely followed profitability measure. For growth stocks, many experts require at least 15% ROE. But for dividend payers, 10% is good enough (ROE: 5-Year Avg. >=10). Decent Chart In a normal market, I prefer stocks with strong price charts, meaning that they�ve moved up in price in recent weeks. But, in this market, few dividend stocks would meet that requirement. So, under the circumstances, I�m only requiring that the share price hasn�t dropped more than 20% over the past three months (% Price Change Last Qtr. >= -20). Since I arbitrarily picked that value, modifying it to fit current conditions when you run the screen. My screen turned up nine high-dividend candidates. However, to reduce the odds of picking a problem stock, I used Yahoo (finance.yahoo.com) to manually check their dividend histories (get a price quote, select historical prices and then �dividends only�). I�ve had the best results with stocks that have recorded a consistent pattern of dividend growth. One stock flunked that check leaving me with eight final candidates: Allied Irish Banks (5.0% yield), Bank of America (5.4%), BT Group (6.2%), Cedar Fair, L.P. (6.6%), Energy Transfer Partners, L.P. (5.5%), Plains All American Pipeline, L.P. (5.3%), Suburban Propane Properties, L.P. (5.8%), and TC Pipelines, L.P. (6.5%). Five of the firms, designated by �L.P.,� are organized as Master Limited Partnerships (MLPs). They require special forms at tax time and may not be suitable for tax-sheltered accounts. So consult your tax advisor before you buy them (disclosure: I own shares of Energy Transfer Partners). As is the case for any screen, consider the results a list of candidates for further research, not a buy list. Pay most attention to each firm�s business outlook and avoid any stocks likely to be touched by the subprime mortgage debacle. Also, since we can�t don�t know when the market will recover, only invest funds that you won�t need for at least one-year.
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