Best dividend paying stocks

Here are ideas about how to pick the best dividend paying stocks. My friend, an analyst specialized to fundamental ideas, provided them or you.

When trying to assess and quantify which stocks out there in the developed world are the best dividend-paying stock, one has to look at multiple criteria, as value is always a reflection of multiple
inputs.

Let me provide for a brief and simple methodology that takes into account the most meaningful factors of value. Applying this methodology, I will put on my quant hat and build a stocks screener.

Parameters for ideal dividend paying stocks

    1. Dividend yield – looking for dividend-paying stocks, we will naturally start with a dividend yield. In order to draw a line somewhere, we decided to select an arbitrary 6% threshold. Also, we look for stocks that have been delivering such dividend yield for the past 24 months. In order to give some room for dividend raising stock, we set a threshold of 5% for the preceding year.
    2. Sustainability of such dividend is another crucial measure. We want to make sure that operating dividends paid out are less that operating cash flow of the company. It may look a bit rich, but this step filters out some of the bad apples.
    3. Market cap of at least USD 500M .
    4. No 52-week low apples. As we have time and capability constraints to do a detailed analysis of each candidate, we have to implement some technical boundaries, such as positive total return over the past 12 months and at least 5% distance from 52-week lows. Doing this, one puts some faith into market signaling.
    5. As return comes not only from dividends, but also from capital appreciation, we provide for our results in two different rankings. First, we order results by absolute dividend yield. Second, we add analyst expectations to the dividend yield to get an expected 12 month total return.

 

Here are some results generated by such screener this week (14.7.2011):

Ticker

 

Short
Name

 

Dividend
yield

 

Total
retun expectation

 

CMO
US Equity

 

CAPSTEAD
MORTGAG

 

14,61

 

20,2036

 

NLY
US Equity

 

ANNALY
CAPITAL M

 

14,53

 

19,5719

 

ANH
US Equity

 

ANWORTH
MORTGAGE

 

13,79

 

20,259

 

CHR/B
CN Equity

 

CHORUS
AVIATIO-B

 

11,98

 

24,8742

 

WFC
CN Equity

 

WALL
FINANCIAL

 

11,44

 

-88,56

 

KBHL
DC Equity

 

KOBENHAVNS
LUFTH

 

10,04

 

16,7942

 

FTR
US Equity

 

FRONTIER
COMMUNI

 

9,591

 

22,7624

 

PDLI
US Equity

 

PDL
BIOPHARMA IN

 

9,585

 

21,4061

 

 

This best dividend paying stocks screener was produced by Bloomberg terminal, but similar results could also be found by free stock screener available on the FinViz website.

Another viable approach, which we think is much more sensible than following the pure dividend yield, is to look at the total shareholder yield, or direct return of funds to shareholder (equivalent of dividend yield and buybacks together). If this return to shareholder is lower than free cash flow to the firm generated by the company, then we would be bit cautious.

Overall, you can see that some companies are clearly returning money to shareholder in excess of dividends and that is the biggest reason why I love US multinationals so much and a lot of these companies are in my list of best dividend paying stocks that I update from time to time in my Global Macro research notes

Ticker

 

Short
Name

 

Total
shareholder yield

 

FCF
Yld:Y

 

FCF
– shareholder yield

 

ESI
US Equity

 

ITT
EDUCATIONAL

 

18,104409

 

24,884501

 

6,780092

 

DDS
US Equity

 

DILLARDS
INC-A

 

16,664643

 

15,4124

 

-1,252243

 

CVA
US Equity

 

COVANTA
HOLDING

 

15,711013

 

12,0152

 

-3,695813

 

EXPR
US Equity

 

EXPRESS
INC

 

15,334955

 

11,2581

 

-4,076855

 

CACC
US Equity

 

CREDIT
ACCEPTANC

 

15,124775

 

10,6915

 

-4,433275

 

DTV
US Equity

 

DIRECTV-A

 

14,990384

 

7,94

 

-7,050384

 

LTD
US Equity

 

LIMITED
BRANDS

 

14,734892

 

10,8124

 

-3,922492

 

LHN1
GR Equity

 

TYCO
INTL LTD

 

14,07702

 

10,3708

 

-3,70622

 

STX
US Equity

 

SEAGATE
TECHNOLO

 

13,800179

 

19,995501

 

6,195322

 

GILD
US Equity

 

GILEAD
SCIENCES

 

12,40867

 

8,9352

 

-3,47347

 

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