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For many of us, living on dividends and/or having a lined-up cash-flow from dividends is essential. A strong retirement account requires solid and stable dividend income. Therefore, I analyzed the top yield U.S.-based companies that offer solid dividends.

The compiled list consists of 33 companies that paid fat dividend checks in the trailing twelve months. During that period, these companies generated a dividend yield of at least 5%. They also have a minimum market cap of $1 billion and a maximum trailing P/E ratio of 20. I set the forward P/E ratio to be lower than 20, as well.

Analysts estimate these stocks to show positive EPS growth in the next 5 years. Setting the parameters as such ensures a sustainable 5% yield without crossing a payout ratio of 100%. I have investigated these stocks from a fundamental perspective, adding my O-Metrix Grading System where applicable. Here is the ultimate dividend list of 2011:

Ticker

Company

Sector

Avg. P/E

Yield

O-Metrix Score

ETR

Entergy

Utilities

9.76

5.22%

4.38

DUK

Duke

Utilities

12.76

5.32%

3.67

TEG

Integrys

Utilities

14.54

5.61%

4.34

HE

Hawaiian

Utilities

16.65

5.35%

3.72

VVC

Vectren

Utilities

16.14

5.13%

3.31

PGN

Progress

Utilities

15.92

5.12%

2.87

VZ

Verizon

Technology

14.75

5.48%

4.73

CTL

CenturyLink

Technology

16.18

8.49%

3.75

T

AT&T

Technology

9.77

6.13%

6.15

ARCC

Ares Capital

Financial

7.95

9.72%

11.57

NYB

NY Community Bank

Financial

10.14

8.29%

6.47

AGNC

American Capital

Financial

4.62

20.54%

24.39

CIM

Chimera

Financial

5.27

17.99%

24.02

KKR

Kohlberg K. Roberts

Financial

6.15

6.59%

16.75

NLY

Annaly Capital

Financial

6.44

14.97%

12.20

FNFG

First Niagara Financial

Financial

11.15

6.36%

9.49

CINF

Cincinnati Financial

Financial

16.10

5.99%

3.41

MCY

Mercury General

Financial

12.56

6.30%

5.57

MO

Altria Group

Consumer G.

14.23

5.69%

4.26

LEG

Leggett & Platt

Consumer G.

15.35

5.21%

6.18

RAI

Reynolds American

Consumer G.

14.61

5.72%

4.70

SXL

Sunoco Logistics

Basic M.

10.72

5.75%

5.48

TCLP

TC Pipelines

Basic M.

13.50

7.12%

4.89

ARLP

Alliance Resource

Basic M.

9.26

5.06%

8.13

SCCO

Southern Copper

Basic M.

11.61

6.76%

13.47

EPB

El Paso

Basic M.

16.74

5.28%

3.97

WPZ

Williams Partnership

Basic M.

15.74

5.54%

3.98

NRP

Natural Resource

Basic M.

15.23

7.62%

3.82

MMP

Magellan Midstream

Basic M.

18.26

5.27%

3.13

NS

NuStar Energy

Basic M.

17.65

7.59%

3.42

OKS

ONEOK Partners

Basic M.

18.24

5.46%

3.42

SEP

Spectra Energy

Basic M.

16.26

6.54%

3.72

Data from Finviz/Morningstar, and is current as of September 2.

Utility Stocks

6 Utility Stocks fall into my screening criteria. Duke Energy, Entergy, Integrys, Hawaiian, Vectren, and Progress Energy offer yields above 5% and are priced with P/E ratios lower than 20. Among these companies, Entergy has the highest O-Metrix score followed by Integrys. Entergy has the highest O-Metrix score, since it is priced with a single digit P/E ratio. It also has a lower payout ratio of 47%.

Integrys’s O-Metrix score is higher due to 7% annualized EPS growth expectation for the next 5 years. If you are not familiar with these two names, I would recommend Duke Energy since it offers a yield of 5.32%, and is priced with a relatively low P/E ratio of 12.19. I expect Duke’s alliance with Progress Energy to offer both companies a competitive edge in terms of larger economies of scale.

Technology Stocks

Naturally, all technology companies in the list are telecommunication service providers. With a single digit P/E ratio and 51% payout ratio, AT&T is the undisputed winner in this group. Verizon is also okay. It has a higher EPS growth estimate of 8.48%.

Centurylink was able to make it to the ultimate dividend list, but I am not sure about the sustainability. It offers a yield of 8.49%, the best among telecom titans. However, the payout ratio of 144% is a strong red flag. I could have been more comfortable with sustainability, if Century had enough liquid assets to back its yield. However with a current ratio of 0.99, current assets barely backup the current debt. Century is among the 4 yields that look unsustainable.

Financial Stocks

Initially I was thinking of excluding financial stocks from this analysis, since there is so much volatility regarding both their share prices and dividend payments. However, the finance-related stocks, especially the diversified real estate investment trusts, lost too much in the recent sell-off, offering good entry points. REITS still come with their own risks, namely the default risk, depending on their exposure to risky investment. At the same time, they could be strong outperformers.

Based on the average P/E ratios, current dividend yields, and future EPS growth estimations, the REITS have the highest O-Metrix scores. American Capital Agency has the top O-Metrix score of 24.39, followed by Chimera Investments (24.02). Annaly Capital has a score of 12.20. If the REITs are too risky, Kohlberg K. Roberts, First Niagara Financial, and NY Community Bank have O-Metrix scores of 16.75, 9.49, and 6.47, respectively.

Consumer Goods

Two tobacco companies make into the ultimate dividend list. With a yield of 5.72%, RAI has an O-Metrix score of 4.70, followed by Altria which has a yield of 5.69% and an O-Metrix score of 4.26.

Missouri-based Leggett & Platt is a lesser-known company that has great return potential. It is trading with a trailing P/E ratio 18 and forward P/E ratio of 12.5. Analysts estimate an annualized EPS growth of 13.75% for the next 5 years. With a nifty yield of 5.21%, the company has an O-Metrix score of 6.18.

Basic Materials

Partnerships dominate the basic materials portion of the top dividends list. Partnerships distribute a serious portion of their income and their payout ratio is pretty high. That is one of the reasons why they make it into the top dividends list. Thanks to their nifty distributions, they are pretty popular among retirees. I like these partnerships; they can be great diversifiers with low Beta values. Given their correlations with energy prices, I would wait for a pull-back to add into my portfolio.

Alliance Resources is trading with a single digit P/E ratio and it has an O-Metrix score of 8.13. Sunoco Logistics is also among my favorites with an O-Metrix score of 5.48. TC Pipelines has a score of 4.89.

Southern Copper lost almost 30% since January, offering a deep value with 6.76% yield. Analysts estimate an annualized EPS growth of 25% for the next 5 years. With an average P/E ratio of 11.61, the stock is priced for 5% EPS growth. It could be a huge outperformer if analysts’ estimates hold.

Find more information on O-Metrix Grading System here.

Source: Top Diversified Dividend Picks For The Next 5 Years