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With the volatility caused by the Greek Crisis and the end of QE2, I thought I would use today’s 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 started with the Russell 1000 and then ranked the stocks from highest to lowest dividend yield (so Chimera (NYSE:CIM) had the highest dividend yield and received a 1 and Annaly Capital (NYSE:NLY) had the second highest and received a 2). I then did the same with the stocks on an EV/EBIT basis (Humana (NYSE:HUM) had the lowest EV/EBIT and received a one, ITT Educational (NYSE:ESI) had the second lowest and received a two, etc.). Finally, I ranked the stock from highest to lowest ROIC, with the highest ROIC stock (Dun & Bradstreet (NYSE:DNB)) 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 receive 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 Company EV/ EBIT ROIC Div Yld EV / Ebit Rank ROIC Rank Div Rank
LLY
ELI LILLY & CO 6.40 37.38% 5.20% 33 45 34
STX
SEAGATE TECHNOLO 6.74 43.16% 4.81% 38 32 47
LO
LORILLARD INC 8.63 254.42% 4.73% 99 2 54
LMT
LOCKHEED MARTIN 7.29 98.02% 3.75% 58 7 92
INTC
INTEL CORP 6.35 32.71% 3.93% 32 59 84
STRA
STRAYER EDUCATIO 7.08 120.01% 3.23% 52 5 132
BMY
BRISTOL-MYER SQB 7.53 29.58% 4.76% 65 76 51
SCCO
SOUTHERN COPPER 10.22 42.40% 7.17% 159 34 9
MO
ALTRIA GROUP INC 10.32 31.67% 5.59% 162 63 21
GPS
GAP INC/THE 4.54 45.72% 2.54% 7 29 213
MSFT
MICROSOFT CORP 6.30 50.54% 2.60% 30 21 200
FII
FEDERATED INV-B 9.54 36.23% 3.99% 127 49 80
RAI
REYNOLDS AMERICA 9.24 24.11% 5.62% 116 121 20
AEO
AMER EAGLE OUTF 6.21 21.40% 3.46% 28 151 111
LLTC
LINEAR TECH CORP 9.27 47.35% 3.02% 118 26 152
ARCC
ARES CAPITAL COR 7.21 15.54% 8.78% 55 247 4
GRMN
GARMIN LTD 9.26 21.70% 4.71% 117 147 55
FCX
FREEPORT-MCMORAN 4.95 44.47% 2.05% 9 31 283
HRB
H&R BLOCK INC 7.96 21.04% 3.73% 80 152 93
CPB
CAMPBELL SOUP CO 10.40 38.35% 3.42% 171 42 115
RTN
RAYTHEON CO 7.47 20.45% 3.50% 63 163 108
MHP
MCGRAW-HILL COS 8.55 42.66% 2.48% 98 33 219
ADI
ANALOG DEVICES 7.91 28.54% 2.68% 77 85 191
CVX
CHEVRON CORP 7.14 20.45% 3.09% 53 162 146
NOC
NORTHROP GRUMMAN 5.90 18.68% 3.01% 22 187 153
Average 7.70 47.46% 4.07%

With an average EV/EBIT well below 8, ROIC of almost 50%, and dividend yield over 4%, the list certainly looks interesting. It seems to have something for everyone as well - from tech bellwethers like Microsoft and Intel to retailers like American Eagle and the Gap and huge drug companies like Bristol-Myer and Eli Lilly.

However, personally I think the commodity and oil producers make the most sense on the list. Freeport, Chevron and Southern Copper all generate great returns, pay consistent dividends, and have a proven history of focusing on creating shareholder value. They should benefit from continued demand from emerging markets, and they’ll serve as a decent hedge to any dollar weakness. Plus, they all have great balance sheets, so they should be able to weather any economic weakness and perhaps take advantage of weakness by picking up assets on the cheap.

Source: 25 Dividend Stocks With Magic Formula Characteristics