Every week, I compile a table of all U.S.-listed stocks with dividend yields of 10% or higher. Some of the names come and go, while others reappear time and again.
I’ve become familiar with many of them, and can safely say that the list is dominated by tiny companies with market caps between $50 million and $300 million.
Some of these are even smaller nano-caps, such as medical device maker Digirad (Nasdaq: DRAD), whose entire market value is just $36 million.
There is absolutely nothing wrong with small businesses. I own shares of quite a few in my personal account.
But for the most part, I use them to fill out the growth sleeve of my portfolio and don’t consider them stable income producers.
That doesn’t necessarily mean that larger businesses are inherently safer.
But when market values are measured by the billion rather than the million, you will usually be dealing with established customer bases, developed brands, and deeper financial resources. There is a reason why major stock indexes such as the S&P 500 weight their components by market girth.
These more mature businesses have also reached a point where they can typically afford to be more generous with dividends.
Given that the whole point of this stock screen is to dig up candidates that might be worthy of a closer look, I wanted to identify the largest companies on my 10% list — but ranked by sheer profit rather than market cap.
Here they are.
As always, this list is just a starting point from which to conduct further research. The stocks in the table above shouldn’t necessarily be considered portfolio recommendations.
That being said, Icahn Enterprises (NYSE: IEP) has made the cut on at least three of four of these screens. And since we’re always looking for positive attributes, that bodes well.
Of course, net income doesn’t mean as much in absolute terms as it does relative to the size of the company. There could be some smaller businesses on this list with wider profit margins. Still, all of these companies generate at least $1 billion in annual earnings — an impressive accomplishment.
That, by itself, doesn’t mean their dividends are on solid ground. However, Energy Transfer Partners (NYSE: ETP) deserves a closer look. Like many master limited partnerships (MLPs), it has pulled back over the past week because of a new ruling from the Federal Energy Regulatory Commission (FERC), which regulates tariffs on interstate pipelines.
I’ll be discussing this complex tax ruling in more detail in the weeks to come within my premium income newsletter, High-Yield Investing. For now, suffice it to say that it could adversely affect the rates that some pipeline owners charge on their interstate systems.
Following a recent merger with Sunoco Logistics, ETP is now one of the nation’s largest midstream energy companies, with 70,000 miles of pipelines that carry oil, gas, liquids, and refined products. The company also operates storage and processing assets in multiple states.
The company just announced that the new FERC policy will have zero material impact on earnings or cash flow. But it did just hike quarterly distributions to $0.565 per unit ($2.26 annually), lifting the yield to 13.3%.
Most companies with payouts in this range are only covering them by the skin of their teeth, or have come up short and are looking for creative ways to meet the deficit. But ETP is generating enough distributable cash flow (DCF) to cover its distribution 1.3 times over. That’s a comfortable margin.
I already have ample exposure to the MLP group in High-Yield Investing, including holdings that have made 156.1% and 396% for investors. But for new investors, ETP deserves consideration for your portfolio.
— Nathan Slaughter
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The goal of my double-digit stock screen is to identify stocks that might be well-suited for my High-Yield Investing portfolio. But like any quantitative tool, this screen should not be used in isolation. You should also evaluate the fundamental characteristics of every potential investment opportunity.
In addition, you should assess how well a particular stock or fund matches your investment needs. And do your own due diligence on a security to decide if it is right for your portfolio.
If I find a real gem within these screens, a stock that can actually maintain this level of yield through the years to come, my High-Yield Investing subscribers will be the first to hear about it.
So if you’d like to join us in our search for the best high yields the market has to offer, then I want to invite you to learn more about High-Yield Investing. You don’t have to settle for the paltry yields offered by most stocks. The high yields are still out there. You just have to know where to look — and my staff and I are here to help you along.
Source: Street Authority