These dividend stocks yield at least 5% and have plenty of room to increase payouts

This year’s share price drops contribute to a growing number of stocks with high dividend yields of at least 5%. Below is a screen that highlights 29 that seem to be able to significantly increase your payouts.

There are different approaches to selecting dividend stocks. For example, John Kornitzer, who co-manages the Buffalo Flexible Income Fund BUFBX,
-0.85%,
selects companies that he expects will provide growth and income. Current dividend yields may not be high, but are expected to compound over the long term.

Here is a list of 15 of the best dividend compounds among the S&P 500 SPX,
-0.19%
in the last 10 years.

But what if you don’t want to wait to increase income? You can simply buy shares of companies with the highest dividend yields. But you don’t want dividend payments to be cut – they tend to have dire effects on stock prices.

One way to try to lessen this risk is to compare companies’ current dividend yields to their free cash flow yields.

A stock screen for high income and room for growing dividends

A company’s free cash flow is the cash flow remaining after covering all planned capital and overhead expenses. It’s money that can be used to raise dividends, buy back shares, make acquisitions, finance 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 get its estimated free cash flow yield. If the estimated FCF yield is greater than the dividend yield, there appears to be “free space” to increase the dividend.

The search began with the S&P Composite 1500 Index SP1500,
-0.11%,
which is made up of the S&P 500, the S&P 400 Mid Cap Index MID,
-0.30%
and the S&P 600 Small Cap Index SML,
-0.14%.
The S&P Composite 1500 excludes business development companies and energy partnerships.

We then narrowed the S&P Composite Index down to a group of higher-yielding stocks with an indicated margin to cover higher payouts for stocks that meet these criteria.

  • Dividend yield of at least 5.00%.

  • Estimated FCF yield at least 2 percentage points above dividend yield, based on consensus estimates for the next 12 months. These estimates are not available for all companies in the S&P Composite 1500, and to gain confidence in the published estimates, we have limited the list to companies covered by at least five analysts surveyed by FactSet. Also, for many financial services companies, especially banks and insurance companies, free cash flow estimates are not available. But in these heavily regulated industries, earnings per share is considered a good indicator of how much cash generated will be available to cover dividends, so we use consensus EPS estimates. For real estate investment funds, we look at estimated funds of operations (FFO), a non-GAAP measure widely accepted in the REIT industry to measure the estimated ability to pay dividends. FFO adds depreciation and amortization back to earnings while offsetting gains on property sales.

  • No dividend cuts in the past five years, based on data collected by FactSet. Some of the companies have started paying dividends recently. Some of the companies cut their dividend payments before the most recent five-year period. That doesn’t mean they’re more likely to cut payments from here, but it’s one of the many reasons why you should do your own research to gain confidence in a company’s business model and long-term prospects before buying stock.

Of the S&P Composite 1500, 29 stocks met the criteria. The following table is sorted by dividend yield. Remember for banks, insurers and REITs, the “FCF yield” column is based on EPS (for banks and insurers) or FFO (for REITs). Data are as of closing on June 22.

Here is the list:

Company

Industry

Highlighter

dividend yield

Estimated FCF Yield

estimated height

Price change – 2022

Trust of Industrial Logistics Properties

REIT

ILPT,
+1.82%

9.80%

12.87%

3.06%

-46%

Brandywine Realty Trust

REIT

BDN,
-0.95%

7.98%

14.80%

6.81%

-29%

Medical Properties Trust Inc.

REIT

MPW,
+0.82%

7.92%

12.78%

4.87%

-38%

SL Green Realty Corp.

REIT

SLG,
+1.26%

7.91%

14.59%

6.68%

-36%

New York Community Bancorp Inc.

Savings Boxes

NYCB,
-1.21%

7.84%

15.23%

7.39%

-29%

Coterra Energy Inc.

Integrated Oil

CTRA,
-5.75%

7.66%

16.46%

8.80%

42%

MDC Holdings Inc.

building houses

MDC,
+6.68%

6.96%

27.92%

20.96%

-49%

Oneok Inc.

Oil and Gas Pipelines

OK,
-2.30%

6.95%

9.58%

2.63%

-8%

Kinder Morgan Inc. P class

Oil and Gas Pipelines

KMI,
-1.81%

6.79%

9.62%

2.82%

3%

Janus Henderson Group PLC

Investment Managers

JHG,
-0.21%

6.53%

10.95%

4.43%

-43%

Hudson Pacific Properties Inc.

REIT

PPH,
+0.33%

6.52%

13.58%

7.06%

-38%

Devon Energy Corp.

Oil and Gas Production

DVN,
-6.17%

6.26%

16.47%

10.21%

31%

CareTrust REIT Inc.

REIT

CTRE,
-0.22%

6.19%

8.65%

2.46%

-22%

Highwoods Properties Inc.

REIT

HIW,
-0.33%

5.93%

11.74%

5.81%

-24%

Store Capital Corp.

REIT

GREAT,
+0.62%

5.93%

8.65%

2.72%

-24%

Hanesbrands Inc.

Clothing/Footwear

HBI,
-0.44%

5.91%

9.77%

3.87%

-39%

Williams Cos. Inc.

Oil and Gas Pipelines

WMB,
-1.52%

5.56%

8.60%

3.04%

17%

LyondellBasell Industries NV

Chemicals

LYB,
-3.66%

5.44%

16.19%

10.75%

-5%

Dow Inc.

Chemicals

DOW,
-2.28%

5.35%

14.91%

9.56%

-8%

Prudential Financial Inc.

Life/Health Insurance

PRU,
-1.71%

5.15%

12.95%

7.80%

-14%

Essential Properties Realty Trust Inc.

REIT

EPRT,
+0.28%

5.11%

7.80%

2.69%

-27%

Huntington Bankshares Inc.

Regional Banks

HBAN,
-2.83%

5.09%

11.86%

6.77%

-21%

DT Midstream Inc.

Oil and Gas Pipelines

DTM,
-2.47%

5.09%

7.12%

2.03%

0%

Umpqua Holdings Corp.

Regional Banks

UMPQ,
-3.05%

5.07%

10.78%

5.71%

-14%

National Retail Properties Inc.

REIT

NNN,
+2.02%

5.05%

7.45%

2.40%

-13%

Douglas Emmett Inc.

REIT

OF,
-0.27%

5.05%

9.52%

4.47%

-34%

Verizon Communications Inc.

Telecommunications

VZ,
+1.63%

5.04%

8.90%

3.86%

-two%

Best Buy Co. Inc.

Electronics/Appliances stores

ABY,
+1.75%

5.04%

11.25%

6.21%

-31%

Newell Brands Inc.

Industrial Conglomerates

NWL,
+3.72%

5.04%

10.01%

4.98%

-16%

Source: FactSet

Click on the tickers to start your own research on any of the companies.

And you should read Tomi Kilgore’s in-depth guide to the wealth of information for free on the MarketWatch quote page.

Don’t miss: Here is a winning investment strategy for a long period of commodity shortages

And for a different apapproach: four value stock picks from a fund manager who shuns the energy sector

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