As you may have noticed, predicting what happens next
in the stock market is harder than it looks.
So instead of trying to time the
market, why not set up a portfolio of high-dividend paying stocks
likely to continue paying those dividends under most foreseeable
circumstances?
By doing that, we’ll enjoy a steady income stream
while we’re waiting for the market to recover. But as you’ll see in
a minute, that’s only half of the story.
Strong Dividend Outlook
But first, how can we be sure that the stocks we pick
will continue paying the same or higher dividends?
It’s simple! Dividends come from earnings. So, the
trick is to choose stocks unlikely to experience an earnings drop.
Consequently, we’ll look for stocks more likely to enjoy earnings
growth than an earnings cut. We’ll win two ways if we can pull that
off.
Win Two
Ways
For starters, the higher
earnings will ensure that these stocks continue paying, or even
raise their current dividends. Even better, in normal markets, share
prices track earnings per share more than any other single factor.
Thus, when the market downdraft ends, the expected earnings growth,
if it happens, should drive share prices higher.
Free Stock Screener
As usual, I’ll use the free and user-friendly Finviz
stock screener to demonstrate how to find these stocks.
Start at the Finviz home page (www.finfiz.com) and
select “Screener.” The screener uses filters to pipoint stocks
meeting your specifications. Select “All” on the Filters bar to see
the available filters. Then use the associated dropdown menus to
select values for the filters that you want to use.
Start by selecting “USA” using the Country filter and
“over 3%” using the Dividend Yield filter to limit your list to
U.S.-based high-dividend payers.
Profitability Required
Then, we’ll use profitability gauge “return on
assets,” which compares net income to total assets, to isolate
solidly profitable high-dividend payers. Do that by using the Return
on Assets filter and specifying “Over +5%.”
Cheap Stocks Not!
Cheap stocks get that way for a reason. I’ve found
that stocks trading for over $15 typically outperform lower-priced
stocks. So, use the Price filter and specify “Over $15.”
Earnings Growth
Essential
Earnings per-share growth is what will drive share
prices higher once the market normalizes.
Specify “over 15%” for “EPS Growth This Year,” EPS
Growth Next Year” and “EPS Growth Next 5 Years.”
While individual analyst forecasts are frequently
wrong, consensus (average) forecasts, which Finviz uses, are more
accurate, and are the best single gauge of a stock’s share price
growth prospects.
Five Passing Stocks
• Apollo Global (APO):
private equity firm specializing in credit, private
equity and real estate markets. It’s paying a 3.2% dividend yield.
• Kennametal (KMT):
produces tungsten carbides, ceramics, and super-hard materials and
solutions for use in metal cutting and extreme wear applications.
3.0% yield.
•
Medifast (MED): produces weight management and other
nutritional products. 4.0% yield.
•
Management
NRG
Energy (NRG): sells energy services to customers across the
U.S. and Canada. 3.1% yield.
•
Tapestry (TPR): markets luxury women’s clothing and
accessories internationally. 3.1% yield.
The stocks turned up by any screen are research
candidates, not a buy list. You still have to do your due diligence.
published
5/23/22
