Matt Phillips at the Wall Street Journal’s MarketBeat blog has a good feature on stocks that have a long record of paying dividends. This list, from Standard & Poor’s, includes large company stocks as usual, but also includes small and mid-cap stocks. Here is an excerpt from the MarketBeat post [emphasis added]:
So, here’s a fresh list of dividend payers to know. Compiled by Howard Silverblatt, senior index analyst at Standard and Poor’s. The list includes 73 stocks from the broad S&P 1500, which includes midcaps and small caps as well as blue chips. These companies have paid increasing annual cash dividends for the past 10 years. The yield information was as of Friday Dec. 17.
And in an effort to capture a sense of dividend sustainability, these stocks have been screened for what Silverblatt calls a coverage rate. Simply put, this is a formula that plots earnings per share versus dividend payouts, and the minimum level of coverage to make this list is 2.0. So for example if a company pays out $1.00 in dividends, it has to make at least $2.00 in earnings per share…
The post also came with a very long table of the 73 dividend stocks compiled by S&P. The list is sortable by name of company, exchange, ticker symbol and yield, so it is fun to play with. Here are the first 15 stocks in the table, listed alphabetically. This is a screen shot, so to play with the sorting, you’ll have to go to MarketBeat post which is linked above (and below the charts too). Click to enlarge:
Here is another screenshot from the list, ranking the first 15 stocks by highest dividend yield. As you can imagine, this skews the list towards large company stocks:
I’m not recommending these stocks. Obviously, you would need to do your own research if you are considering doing so. I tend to be much more comfortable with diversified portfolios generally found in mutual funds and ETFs. In any case, my key key point is that there are attractive dividend yields available in the stock market these days. Yields that rival many taxable bond funds.
Are high quality stocks a yield opportunity?
The dividend yield for the S&P 500 is a little less than 2% now. This is low by historical standards, but compares favorably to current yields on short-term and intermediate-term Treasuries. For example, 90-day T Bills are about 0.13%. Two-year Treasuries yield 0.61% and five-year Treasuries yield 1.98%.
One advantage that stock dividends have over bond yields is that dividends generally rise over time as companies prosper. The dividend payment typically goes up, particularly at large, well-run companies. On the other hand, bond issuers never get together and decide to increase the yield on fixed rate instruments such Treasury or corporate or municipal bonds. One disadvantage of course is that stocks are far more volatile than short-term bond funds. So, if you go this route, you have to be ready for the downside risk.
In my view, with reasonable price - earnings ratios and decent dividends, selected high quality stocks look to be attractively-priced for patient, long-term investors. By high quality, I mean name brand companies with solid businesses, strong balance sheets, broad product lines and good dividend histories.
One exchange traded fund that follows a high dividend investment strategy is the Vanguard High Dividend Yield Index ETF (VYM). Another is the iShares Dow Jones Select Dividend ETF (DVY). DVY has a yield of 3.6% now. I have not used either fund, but they both look interesting.