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It’s important to remember that dividends are not a guarantee of future payments. When a company is having financial problems, it may cut its dividend to help stay afloat.

If you want a reliable source of income from a stock, make sure to do your homework. Several things can indicate a sustainable dividend – important among them are a healthy source of cash flows, which are used to fund the dividend. For this article, we ran a screen on rallying high-yield stocks that appear to have met this standard.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.


We began by searching for rallying high-yield stocks - those trading above their 20-day, 50-day, and 200-day moving averages with an annual dividend yield above 3%.

Then we screened that stock universe for those with enough operating cash flow and levered free cash flow over the last year to completely cover their dividend payments. (Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt, while operating cash flow is a broader measure of cash from operations.)

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.



Do you think these companies will continue, or maybe increase, their dividend payments? Use this list as a starting-off point for your own analysis.

List sorted by dividend yield.

1. Telecom Corp. of New Zealand Ltd. (NZT): Telecom Services Industry. Market cap of $3.71B. The stock is currently 9.53% above its 20-day moving average, 18.99% above its 50-day MA, and 25.64% above its 200-day MA. Dividend yield at 6.69%, with a payout ratio of 150%.

TTM Operating Cash Flow at $1.21B, or $3.14 on a per-share basis (vs. annual dividend per share at $0.47, TTM Operating Cash Flow per share / annual dividend per share stands at 6.69).

TTM Levered Free Cash Flow at $418.02M, or $1.09 on a per-share basis (vs. annual dividend per share at $0.47, TTM Levered Free Cash Flow per share / dividend per share stands at 2.31).

2. R.R. Donnelley & Sons Company (NASDAQ:RRD): Business Services Industry. Market cap of $4.34B. The stock is currently 4.12% above its 20-day moving average, 9.19% above its 50-day MA, and 20.23% above its 200-day MA. Dividend yield at 4.98%, with a payout ratio of 105.97%.

TTM Operating Cash Flow at $669.70M, or $3.23 on a per-share basis (vs. annual dividend per share at $1.04, TTM Operating Cash Flow per share / annual dividend per share stands at 3.1).

TTM Levered Free Cash Flow at $486.00M, or $2.34 on a per-share basis (vs. annual dividend per share at $1.04, TTM Levered Free Cash Flow per share / dividend per share stands at 2.25).

RRD is a short squeeze candidate, with a short float at 13.49% (equivalent to 13.25 days of average volume). The stock has had a good month, gaining 10.64%.

3. Chunghwa Telecom Co. Ltd. (NYSE:CHT): Telecom Services Industry. Market cap of $31.14B. The stock is currently 1.69% above its 20-day moving average, 3.45% above its 50-day MA, and 21.40% above its 200-day MA. Dividend yield at 4.93%, with a payout ratio of 88.89%.

TTM Operating Cash Flow at $2.73B, or $3.52 on a per-share basis (vs. annual dividend per share at $1.00, TTM Operating Cash Flow per share / annual dividend per share stands at 3.52).

TTM Levered Free Cash Flow at $1.38B, or $1.78 on a per-share basis (vs. annual dividend per share at $1.00, TTM Levered Free Cash Flow per share / dividend per share stands at 1.78).

4. Advance America, Cash Advance Centers Inc. (NYSE:AEA): Credit Services Industry. Market cap of $373.92M. The stock is currently 4.36% above its 20-day moving average, 13.19% above its 50-day MA, and 22.71% above its 200-day MA. Dividend yield at 4.17%, with a payout ratio of 39%.

TTM Operating Cash Flow at $137.56M, or $2.21 on a per-share basis (vs. annual dividend per share at $0.25, TTM Operating Cash Flow per share / annual dividend per share stands at 8.83).

TTM Levered Free Cash Flow at $51.96M, or $0.83 on a per-share basis (vs. annual dividend per share at $0.25, TTM Levered Free Cash Flow per share / dividend per share stands at 3.34).

AEA might be undervalued at current levels, with a PEG ratio at 0.62, and P/FCF ratio at 3.31. The stock has gained 30.72% over the last year.

5. PRIMEDIA Inc. (NYSE:PRM): Publishing Industry. Market cap of $313.77M. The stock is currently 22.46% above its 20-day moving average, 37.03% above its 50-day MA, and 62.03% above its 200-day MA. Dividend yield at 3.98%, with a payout ratio of 55.23%.

TTM Operating Cash Flow at $51.01M, or $1.14 on a per-share basis (vs. annual dividend per share at $0.28, TTM Operating Cash Flow per share / annual dividend per share stands at 4.09).

TTM Levered Free Cash Flow at $32.36M, or $0.73 on a per-share basis (vs. annual dividend per share at $0.28, TTM Levered Free Cash Flow per share / dividend per share stands at 2.59).

6. BT Group plc (NYSE:BT): Telecom Services Industry. Market cap of $25.34B. The stock is currently 3.05% above its 20-day moving average, 5.80% above its 50-day MA, and 21.57% above its 200-day MA. Dividend yield at 3.67%, with a payout ratio of 28.76%.

TTM Operating Cash Flow at $7.54B, or $9.74 on a per-share basis (vs. annual dividend per share at $0.73, TTM Operating Cash Flow per share / annual dividend per share stands at 13.35).

TTM Levered Free Cash Flow at $3.05B, or $3.94 on a per-share basis (vs. annual dividend per share at $0.73, TTM Levered Free Cash Flow per share / dividend per share stands at 5.4).

7. IDT Corporation (NYSE:IDT): Diversified Communication Services Industry. Market cap of $659.89M. The stock is currently 4.60% above its 20-day moving average, 5.48% above its 50-day MA, and 27.44% above its 200-day MA. Dividend yield at 3.02%, with a payout ratio of 2.02%.

TTM Operating Cash Flow at $70.42M, or $3.06 on a per-share basis (vs. annual dividend per share at $0.88, TTM Operating Cash Flow per share / annual dividend per share stands at 3.48).

TTM Levered Free Cash Flow at $56.49M, or $2.46 on a per-share basis (vs. annual dividend per share at $0.88, TTM Levered Free Cash Flow per share / dividend per share stands at 2.79).

*Operating cash flow, levered free cash flow, and annual dividend sourced from Yahoo! Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 7 Rallying Dividend Stocks With Excellent Dividend Coverage