It has been my experience that many high yielding dividend stocks are high yielding because of a belief that the stock's dividend is going to be cut. But, it has also been my experience that some high yielding stocks turn out to be winners. So, the intention here is to find high dividend stocks that might just end up being amongst those winners. Only four stocks passed this particular screening criteria that I will discuss.
First, I visited the MSN screener. Their methodology ranks stocks from 1 to 10. A 10 is their highest rating. Only 140 out of the 4,297 stock that they rank achieve a 10. Out of the 140, I found 16 with dividend yields over 8%. Their highest rated stocks are those that they deem to be more likely to outperform the market over the next six months with less than average risk.
So, I was curious as to how these same 16 stocks fared with Zacks rankings. There were four that were also ranked a Strong Buys on Zacks that also have an Outperform Recommendation on Zacks. Zacks Rank is based on how they think the stock will perform in the next 1-3 months. Zacks Recommendation is based on how they think the stock will perform over 6 or more months.
Stocks that met the criteria
These four stocks met the criteria and are worth further investigation. The current dividend and YTD information was gathered at the open on 9/20 on Morningstar. The Zacks and MSN information was gathered at the same time.
TICC Capital Corp. (TICC) is a business development company focused on providing capital to technology-related companies.
KCAP Financial Corp. (KCAP) is a business development company that originates, structures, finances and manages a portfolio of term loans, mezzanine investments and selected equity securities in middle market companies
Medley Capital Corporation (MCC) is a business development company that specializes in credit investing, including direct private lending and corporate credit related strategies. Medley is headquartered in New York with offices in San Francisco.
PennyMac Mortgage Investment Trust (PMT) is a real estate investment trust (REIT) that invests primarily in proprietary loan modification programs, special servicing and other initiatives focused on keeping borrowers in their homes.
|Stock Picks||Dividend||MSN Rating||Zacks Rank||Zacks Recommend||YTD Total Return|
Some History - 10 most recent quarterly dividends
10 most recent quarterly dividends - Most recent first
- MCC has a very strong history in its short life. The dividend has more than doubled in just 6 quarters and has gone up every quarter!
- TICC has increased their dividend every two or three quarters.
- KCAP had a large raise recently, but not much before that.
- PMT has not raised their dividend that past three quarters, but had several nice raises before that.
Investigation and Decisions
- On investigating each stock, here is the additional information I uncovered from Market Watch and Yahoo Finance. I used Market Watch for the analyst estimates because they seem to have had more analysts in their totals than Yahoo. All of the contenders here have price to book ratios in the 1.09 - 1.16 range which is reasonable for stocks in these sectors and none stand out as a bargain in that respect.
- MCC has projected earnings of $1.31 per share this fiscal year and $1.44 projected for next year. Their cash flow has improved over the last few quarters too. This suggests that if they stay on the path they are on they should be able to at least maintain their dividend with a chance they could increase it. Based on their dividend history and the above information, I am buying this stock today.
- TICC has projected earnings of $1.24 per share this fiscal year and drops to $1.19 next year. Further, their cash flow was down in the last quarterly report. Based on this information, they may be able to maintain their dividend, but a dividend increase seems less likely with this stock. I am not buying this one any time soon.
- KCAP has projected earnings of $.85 per share this fiscal year and $.99 per share for next. Their cash flow is flat to very slightly down. If their cash flow is about the same and their earning are up, they can likely keep their dividend the same and there could a chance they could raise it. But, I'm not convinced yet. Their history does not show the strength of dividend increases that the others do except last quarter.
- PMT has projected earnings of $2.93 per share this fiscal year and $3.14 for next. Their cash flow has improved over the last couple of quarters and they have raised their dividends fairly often. This looks like a good bet, but I'm not buying it for a different reason. This company was formed by a dozen former Countrywide executives who were at the center of what many consider the cause of the 2008 economic crisis that we have not fully recovered from to this day. Basically, what they are doing here is to buy up delinquent mortgages from failed banks for pennies on the dollar (hence the name). Since they were part of the cause of at least some of these delinquencies, I don't have the conscience to buy this one. It looks good on paper, but these guys caused a mass disaster before, and I don't want them profiting from it. Plus, I consequently, have trust issues with the stock.
I believe in putting your money where your mouth is. I'm buying MCC today.
Disclosure: I am long MCC.