Screening for Equity Income Persistence and Minimum Yield

by: Richard Shaw

Investing for equity income as an alternative to bonds requires more than just looking at yield, including among other things persistence and consistency of dividend payments.

Bonds typically have the positive feature of persistent and consistent coupon payments, but the negative feature of no growth in payments. Some dividend stocks have a proven record of persistence and consistency (while many do not), and also a tendency to increase payments over time.

Let's see what's available in dividend stocks in terms persistent and consistent payment history with above average current yields.

There are 651 stocks traded in the US that have persistently paid dividends in each of the past 7 fiscal years, and the past 12 months, and the last regular payment period, AND which consistently paid a dividend amount that was equal to or greater than the prior periods (including 12-months >= last fiscal year, and indicated annual dividend >= last 12-months).

If we further restrict the list to those stock with a 3-month average trading volume of $25,000 per minute or more, there are only 360 stocks that pass all the criteria. At $100,000 per minute or more, the list shortens to 221 companies.

If we then restrict those 221 companies to those with a yield greater than 2% as of Friday November 12, 2010, the list reduces to 116 companies. If we use a greater than 3% yield test, the number of qualifying companies is 63. There are only 30 companies that pass the test if greater than 4% is the required yield. Their symbols are: BMY, CNP, CTL, D, DTE, ED, EPD, ETR, FE, HCBK, HCP, HRB, KMB, KMP, LLY, LMT, MCHP, MRK, NYB, PAYX, PBCT, PBI, PCL, PEG, PGN, POM, PPL, SO, VZ, and XEL.

The S&P 500 Dividend Aristocrats index (tracked by SPDR Dividend ETF (SDY)) consists of 50 companies in the S&P 500 that have paid and increased dividends for 25 yeas or more, plus some other criteria, such as $5 million per day dollar trading volume (a little less than $13,000 per minute). Of those 50 companies only 4 pass this last test involving $100,000 per minute trading volume and greater than 4% yield: CTL, ED, KMB, LLY and PBI.

If we back off to only a $25,000 per minute trading volume, while maintaining the greater than 4% yield requirement, there are 10 qualifying companies in the Dividend Aristocrats: BKH, CINF, CTL, ED, KMB, LEG, LLY, PBI, TEG and VVC.

If we back off further to a greater than 3% yield criterion, then 21 companies pass: ABT, ADP, BKH, CINF, CLX, CTL, DBD, ED, JNJ, KMB, LEG, LLY, MCD, PBI, PNY, RPM, SON, TEG, VFC, VVC and WGL.

There is certainly more to stock selection than the criteria we have listed, but these shortened lists may be useful to some do-it-yourself investors as they search for equity income opportunities suitable for themselves. There is also no need to restrict investments to those that have met all these criteria. Depending on your needs and preferences, you may be content with stocks for which the dividends have gone up and down a bit. We have a combination of some of those variable dividend companies in our equity income allocation, and some like those in the lists above in our various accounts.

Disclosure: Holdings Disclosure: Because we express no opinion on any of the securities listed in this article, and because of the comprehensive nature of the list, we decline to identify which we hold in our managed accounts. We hold some, but not most, and also hold other equity income stocks that do not meet these particular criteria.

Disclaimer: Opinions expressed in this material and our disclosed positions are as of November 18, 2010. Our opinions and positions may change as subsequent conditions vary.
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