{"id":18377,"date":"2013-02-16T09:00:55","date_gmt":"2013-02-16T14:00:55","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=18377"},"modified":"2013-02-16T09:01:00","modified_gmt":"2013-02-16T14:01:00","slug":"high-yield-dividend-stocks-what-every-investor-should-look-for","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2013\/02\/high-yield-dividend-stocks-what-every-investor-should-look-for\/","title":{"rendered":"High Yield Dividend Stocks: What Every Investor Should Look For"},"content":{"rendered":"

It can be mighty hard to earn any interest at all in today\u2019s banking environment. Many in\u00advestors are looking to riskier investments to find the kind of returns they once got from an FDIC-insured CD or even a savings account.<\/p>\n

But don\u2019t despair. There are still a few decent ways to make your cash earn some income without putting it at too great a risk.<\/p>\n

My wife takes care of our filing, and during one of her filing sprees some time ago she walked into my office with the brokerage statement for her IRA and asked me why the interest was less than $1. \u201cInterest rates have gone down that much,\u201d I said.<\/p>\n

She replied, \u201cThat\u2019s terrible,\u201d and turned around, went back into her office, and stuffed the statement into the appropriate file.<\/p>\n

Inflation was eating away at our savings, and our broker had nearly stopped paying any interest at all. When I sent him an email, he wrote back: \u201cI am sad to say the current yield on our money market fund is 0.01%. If we travel back in time to 2007 that rate would have been around 4.00%.\u201d<\/p>\n

I was shocked! I even made him spell it out, and he confirmed that was no typo; it wasn\u2019t supposed to say 1% or 0.01%\u2026 it was actually 1\/100 of 1%.<\/p>\n

In one of our recently published reports, The Cash Book<\/a><\/em>, we showed retirees how to protect their cash. Safety is essential for cash, but safe places \u2013 such as checking accounts, money market funds, and even ultra-short bond funds \u2013 offer virtually no yield, while the threat of inflation is very real. Even with \u201cofficial\u201d inflation moving at a modest 3% per year, settling for a conservative money market fund\u2019s token yield of 0.05% or so means the purchasing power of your cash is leaking away. You need a yield that matches the inflation rate just to stay even<\/strong>.<\/p>\n

You shouldn\u2019t have to accept pathetic yields nor sacrifice safety to the whims of the stock market just to eke out enough to keep up with inflation.<\/p>\n

I\u2019m sure I\u2019m not the only investor who had seen his monthly interest-income cash dwindle but put off dealing with it because I had \u201cbigger fish to fry\u201d in the rest of my portfolio.<\/p>\n

If you\u2019re now in the same boat, it\u2019s time to fix the problem. Don\u2019t ignore those sad yields on your cash any longer. Today, minimum risk and improved yield is more important than ever. While not close to what we enjoyed just a few years ago, a 1% return instead of a 0.01% return is a hundredfold improvement. That improved yield translates into less need to take high risks elsewhere in your portfolio. When your cash is doing its job, you don\u2019t need risky bets to get your portfolio where it needs to go.<\/p>\n

Over the next few weeks we\u2019ll cover a variety of ways you can make your money work harder for you and actually minimize your risk. And given the number of questions I get about high yield dividend stocks I think it\u2019s appropriate to start with them first.<\/p>\n

Equities (stocks) can be another way to beat the yields on bonds in the US market. Of course, when you buy a stock, you don\u2019t even get a promise that your principal will be repaid. Nonetheless, with yields so low elsewhere, there are high-volume, blue-chip equities that can be good additions to your income portfolio. In the best scenario, they may give you both <\/strong>good yield and capital appreciation. The same can\u2019t be said of bonds, since rates are already so low. Keep in mind that dividend equities should be only a part of your yield portfolio, not all of it<\/span>. And don\u2019t weigh yourself too heavily toward any one stock.<\/p>\n

Since the late 1950s, 10-year US Treasury yields have been consistently higher than the average dividend yield for the S&P 500. But now with the S&P average dividend yield at 1.98% and the 10-year Treasury yield at 1.64%, this trend has reversed, making dividend-paying stocks more attractive than almost ever before. That\u2019s just one of the reasons why we\u2019re looking for blue chips that are financially sturdy and that offer yields that more than make up for the market risk.<\/p>\n

When evaluating the stability of a high-yielding dividend paying stock, the first metric to look at is the company\u2019s fundamentals. Much of this information is freely available online on websites like Yahoo! Finance and MSN Money, or through research tools with your online brokerage account. You might have to do a little math, but there\u2019s nothing complicated about this. So here are the first set of questions you need to ask about any stock, regardless of whether it pays a dividend.<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Do they have more current assets than current lia\u00adbilities?<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Do they have enough cash to cover average operating expenses?<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 What about debt? What percentage of operating income goes toward servicing long-term debt payments?<\/p>\n

Answering these questions should give you a good idea as to the company\u2019s finan\u00adcial stability. Also, stable free cash flow and operating margins greater than or equal to its competitors can help identify any potential competitive advantages.<\/p>\n

Once we have established that the company is fundamentally sound, the firm\u2019s dividend needs evaluation. Companies will sometimes publish their dividend policies on their web\u00adsite (often on a page titled \u201cInvestors\u201d or wording to that effect) or annual reports, but they also frequently withhold this information. Luckily, there are a few metrics that can help assess the durability of the dividend.<\/p>\n

The most common indicator for dividend stability is the payout ratio. The payout ratio is equal to Dividends per Share\/Earnings per Share, and shows you how much of the com\u00adpany\u2019s earnings went toward dividend payments. The lower the better and anything over 80% should be considered a red flag.<\/p>\n

As an aside, the S&P dividend payout ratio is currently at 37%, well below its long-term average of 50%. This means that the potential for dividend increases is more likely than usual. And, since companies have been hoarding cash as a result of overarching uncer\u00adtainty in the economy, we could see rising dividend payouts in coming years.<\/p>\n

Next, you\u2019ll want to look at the company\u2019s dividend history. A few questions you\u2019ll want to pose:<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Has the dividend been cut recently or in times of economic or market turmoil?<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 How many years in a row has the company raised its divi\u00addend payout?<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Has the dividend payout been rising while the payout ratio and debt levels remain the same?<\/p>\n

A consistent track record of raising dividends is a good sign. Some companies that have raised their dividends 25 consecutive years fall into the elite category of Dividend Aristocrats (only 51 stocks fall into this category).<\/p>\n

However, the last metric is the most important. If a company is able to consistently raise its dividend without having to divert profit and\/or take on debt, that company\u2019s dividend is safe.<\/p>\n

These metrics reflect a company\u2019s ability to meet its short-term debts and help assess the safety of the dividend. In case of rough waters, the companies with better fundamentals will be the survivors and the ones less likely to bail on dividend payouts when times get tight.<\/p>\n

With these tools in hand you should be able to start doing research on dividend stocks for your own portfolio.<\/p>\n

In our Money Forever<\/em> letter we recently developed a monthly income plan using some of the safest dividend stocks on the market. The plan is easy to start and doesn\u2019t require an extensive background in investing, just a willingness to learn and a desire for monthly income. Click here to find out more<\/a>.<\/p>\n

By: Dennis Miller<\/p>\n","protected":false},"excerpt":{"rendered":"

It can be mighty hard to earn any interest at all in today\u2019s banking environment. Many in\u00advestors are looking to riskier investments to find the kind of returns they once got from an FDIC-insured CD or even a savings account. But don\u2019t despair. There are still a few decent ways to make your cash earn […]<\/p>\n","protected":false},"author":41,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[2105,4345,4647,7948,4735],"class_list":["post-18377","post","type-post","status-publish","format-standard","hentry","category-general","tag-casey-research","tag-caseyresearch-com","tag-dennis-miller","tag-guest-bloggers","tag-high-yield-dividend-stocks"],"yoast_head":"\nHigh Yield Dividend Stocks: What Every Investor Should Look For - INO.com Trader's Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/wwwtest.ino.com\/blog\/2013\/02\/high-yield-dividend-stocks-what-every-investor-should-look-for\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"High Yield Dividend Stocks: What Every Investor Should Look For - INO.com Trader's Blog\" \/>\n<meta property=\"og:description\" content=\"It can be mighty hard to earn any interest at all in today\u2019s banking environment. 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