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Last week, I looked for magic formula tech stocks. With the recent pullback from the Japanese earthquakes, I thought I'd use the pullback to look for stocks with high dividend yields and magic formula like characteristics. The high dividend yield and low valuation should protect the stocks' downside while the high returns on capital and low valuation should provide plenty of upside.

To put the list together, I took the Russell 3000 and eliminated all stocks with negative EBIT or stocks that didn't pay a dividend. Then I ranked the stocks from highest to lowest dividend yield (so Capstead Mortgage (NYSE:CMO) had the highest dividend yield and received a 1. MFA financial (NYSE:MFA) had the second highest and received a two). I then did the same with the stocks on an EV / EBIT basis (Wellpoint (WLP) had the lowest EV / EBIT and recieved a one, PDL Biopharama (NASDAQ:PDLI) the second lowest and received a two, etc.). Finally, I ranked the stock from highest to lowest ROIC, with the highest ROIC stock (Corporate Executive Board (EXBD)) receiving a one. I then added the scores for each stock up and ranked the stocks based on the best score (so a stock with a two in each category would recieve a six overall score and would rate higher than a stock receiving a four in each category).

The following are the 25 highest rated stocks:

Ticker Short Name Div Yield EV / EBIT ROIC Div Rank Ebit Rank ROIC rank
PDLI PDL BIOPHARMA IN 11.15% 3.75 138.70 4 2 5
LO LORILLARD INC 5.51% 6.82 254.42 60 29 3
LLY ELI LILLY & CO 5.75% 5.99 37.38 51 13 50
LMT LOCKHEED MARTIN 3.92% 6.12 98.02 145 15 10
BMY BRISTOL-MYER SQB 5.13% 7.20 31.81 73 38 64
RAI REYNOLDS AMERICA 6.64% 7.20 24.11 28 37 125
MO ALTRIA GROUP INC 6.75% 9.79 31.67 26 138 65
INTC INTEL CORP 3.63% 6.10 33.23 161 14 60
NCMI NATIONAL CINEMED 4.64% 9.73 140.30 104 131 4
DLX DELUXE CORP 3.95% 6.58 30.28 142 22 75
DO DIAMOND OFFSHORE 4.96% 6.99 22.78 86 34 134
ACN
ACCENTURE PLC-A 2.85% 7.13 112.37 234 35 9
MSFT MICROSOFT CORP 2.60% 6.98 50.54 258 33 24
CLX CLOROX CO 4.65% 10.37 36.25 102 163 52
MHP MCGRAW-HILL COS 2.74% 7.69 42.66 243 51 37
PM PHILIP MORRIS IN 4.43% 10.84 47.47 119 186 29
STRA STRAYER EDUCATIO 3.11% 9.49 120.01 210 119 7
SBGI SINCLAIR BROAD-A 4.17% 7.57 18.94 128 50 188
BKE THE BUCKLE INC 2.18% 7.30 60.85 309 42 16
HRB H&R BLOCK INC 3.79% 8.02 21.04 152 61 155
MAT MATTEL INC 3.77% 9.75 28.99 155 134 83
JNJ JOHNSON&JOHNSON 3.95% 9.59 25.93 141 124 107
LANC LANCASTER COLONY 2.40% 7.94 40.49 284 59 43
EXC EXELON CORP 5.81% 8.23 14.64 49 68 272
FCX FREEPORT-MCMORAN 1.99% 6.60 44.47 336 23 34
Average 4.42% 7.75 60.29

With an average ROIC of over 60% and dividend yield of almost 4.5% , this list certainly looks interesting. It also has something for everyone - from high yielding tobacco stocks (LO, MO, RAI) to healthcare stocks beaten down by fears of Obama-care (JNJ, LLY, BMY) to commodity stocks (NYSE:FCX) and industry leaders beaten down by a murky outlook for their sector (DO, HRB).

Diamond Offshore, in particular, looks interesting. The stock has already received some love from value investors, but the stock has largely lagged the market due to worries over our Gulf of Mexico drilling policy. Their dividend yield is somewhat skewed because their dividend policy is variable, but the company should have a bright future given the continued rise in energy prices. The company has a history of excellent capital allocation, so look for them to take advantage of volatility to buy assets on the cheap or return capital to shareholders when prices don't make sense.

Source: 25 Dividend Stocks With Magic Formula Characteristics