This year’s stock price declines make for an increasing number of stocks with high dividend yields of at least 5%. Below is a screen that highlights 29 that appear to be able to raise their payouts considerably.
There are different approaches to selecting dividend stocks. For example, John Kornitzer, who co-manages the Buffalo Flexible Income Fund
selects companies that he expects to provide growth and income. Current dividend yields may not be high, but they are expected to compound over the long haul.
Here’s a list of 15 of the best dividend compounders among the S&P 500
over the past 10 years.
But what if you don’t want to wait to grow the income? You might simply buy stocks of companies with the highest dividend yields. But you don’t want those dividend payouts to be cut — those tend have dire effects on stock prices.
One way to try to lower that risk is to compare companies current dividend yields to their free cash flow yields.
A stock screen for high income and headroom for rising dividends
A company’s free cash flow is its remaining cash flow after it covers all overhead and planned capital expenditures. It is money that can be used to raise dividends, buy back shares, make acquisitions, fund organic expansion or for other corporate purposes.
If we look at a company’s estimated cash flow per share for the next 12 months and divide that by the current share price, we have its estimated free cash flow yield. If the estimated FCF yield is higher than the dividend yield, there appears to be “headroom” to raise the dividend.
The search began with the S&P Composite 1500 Index
which is made up of the S&P 500, the S&P 400 Mid Cap Index
and the S&P 600 Small Cap Index
The S&P Composite 1500 excludes business development companies and energy partnerships.
We then narrowed down the S&P Composite Index to a group of higher-yielding stocks with indicated headroom to cover higher payouts to stocks…