Evaluate High Yield Stocks Carefully

When a stock carries a high yield, there is an underlying reason. Here are some questions to consider to help you understand the stock:

- Is the high yield a result of a sudden drop in price?
- Is the high yield above the industry average?
- Is the high yield above the stocks average?
- Is the high yield a result of a widespread economic downturn?
- Is the high yield a result of a company specific problem?

Be Honest In Your Evaluation

They say statistics can be used to prove anything. In the same vein, if you are determined to buy a stock, an analysis can be constructed to support the position. Instead of trying to find a reason to buy the stock, look for all the reasons NOT to buy the stock. Then weigh the positives against the negatives. Does the stock still look as appealing?

Start With List of Higher Quality Stocks

If you are looking for high yield, the temptation is to use a stock screen to search for yield and apply it to the entire universe of stocks. As this screen demonstrates, yield is easy to find. Add in growth and sustainability, then the list will dramatically shrink. Currently, I track 198 dividend growth stocks. The list is made up of Dividend Aristocrats, Achievers, Champions and few other dividend stocks for good measure. Below is a list of the stocks from my database yielding more than 5% and with 15 more years of consecutive dividend growth:

Investors Real Estate Trust (IRET)
Yield: 7.7% | Years of Growth: 36
The REIT engages engages in the ownership and operation of income-producing real estate properties in the United States.

CenturyLink, Inc. (CTL)
Yield: 6.9% | Years of Growth: 37
CTL acquired larger telecom peer Embarq in a stock deal in July 2009. Combined, the company provides voice service to 6.7 million customers and Internet service to 2.4 million customers in rural towns as well as larger cities such as Las Vegas.

Universal Health Realty Income Trust (UHT)
Yield: 6.7% | Years of Growth: 24
UHT, a real estate investment trust (REIT), invests in healthcare and human service related facilities.

National Retail Properties, Inc. (NNN)
Yield: 6.1% | Years of Growth: 19
This REIT invests in high-quality, freestanding retail properties subject to long-term net leases with major retail tenants.

AT&T Inc. (T)
Yield: 5.9% | Years of Growth: 27
AT&T Inc. provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006.

Buckeye Partners LP (BPL)
Yield: 5.7% | Years of Growth: 15
BLP is one of the largest independent U.S. pipeline common carriers of refined petroleum products, with over 5,400 miles of pipeline.

Mercury General Corp. (MCY)
Yield: 5.6% | Years of Growth: 23
Mercury General Corp. is an insurance holding company, operating primarily in California, writes a full line of automobile coverage for all classifications of risk.

Old Republic International (ORI)
Yield: 5.4% | Years of Growth: 29
The company writes property and liability, mortgage guaranty, title and life, and disability insurance.

Vectren Corporation (VVC)
Yield: 5.2% | Years of Growth: 51
Vectren Corp. delivers gas and/or electricity to more than one million utility customers in Indiana and Ohio, and offers other energy related products and services.

Realty Income Corp. (O)
Yield: 5.1% | Years of Growth: 16
O is a real estate investment trust that owns a diversified portfolio of 2,339 retail properties as of Dec. 31, 2009.

The above yields aren’t nearly as eye-popping as those from the screen. You will notice the above list is heavy in REITs (interest rate risk), telecommunications (technology risk), financials (equity and interest rate risks), along with MLPs and utilities (slow growth). Ultimately, we want to determine if the yield is sustainable. If we go looking for high yield, we will find it, but it may not be what we really want.

Full Disclosure: Long CTL, UHT, NNN, T, O. See a list of all my income holdings here.

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(Photo: Gravity X9)

Here are some eye-opening statistics from saperston.com:

The latest census figures indicate that only one in every ten Americans today is financially prepared to retire when they reach age 65. Here are a few other facts on retirement gathered from a variety of sources.

* Forty-seven percent of U.S. households are not covered by either a defined benefit or defined contribution plan (The WEFA Group). Twenty-five percent of employees who qualify for 401(k) plans do not contribute to them (an estimate from Buck Consultants).

* At the end of WWII, there were 42 workers paying into Social Security for each person receiving benefits. Today, barely three people contribute for each recipient. Projections are that by 2030, when most baby boomers will have retired, just two working people will contribute for each person receiving benefits (Social Security Administration, Trust Funds Report, 1992).

* Social Security benefits will replace only 16% of the income of married couples earning $50,000 to $100,000 and only 9.5% of the income of married couples earning $100,000 and only 9.5% of the income of married couples earning $100,000-plus (Office of Research and Economic Analysis, Pension and Welfare Administration).

* Sixty-nine percent of American adults aged 25 to 44 expect to retire in the “traditional” sense of spending retirement in leisure. But reality hits home as they near retirement-63% of 45- to 54-year-olds expect a retirement of leisure, and only 49% of those 55 or older say the same (Aetna Life Insurance and Annuity Co.).

* Working people tend to think their retirement lifestyle will be better than their current lifestyle, but retirees report their standard of living has declined. Example: Twenty-six percent of workers say they are “just making ends meet,” but only 16% think they will live this way in retirement. Of retirees, 20% are “just making ends meet,” while 16% describe their pre-retirement lifestyle this way (Employee Benefit Research Institute).

* A Baby Boom Retirement Savings Index, published each year by Merrill Lynch, shows that as of November ’94, baby boomers were saving only 38.2% of what they will need to maintain growth-adjusted living standards in retirement. The index is basically unchanged in the three years the index has been published (Merrill Lynch Strategic Planning).

It doesn’t have be this way. A little knowledge and planning will get you on the road to financial security. Often the first question is ‘what will I make in retirement if I start saving today?’ This can be difficult to answer given all the uncertainties in the future. However, I have made it easy for you by setting up a Google Documents Retirement Calculator Spreadsheet that can be used to model your projected retirement income from dividend stocks. Please do NOT edit the spreadsheet, only enter values in the yellow cells and leave the calculator usable for the next person. For those with access to Excel or Open Office, you can download the spreadsheet here.

The spreadsheet is really easy to use. It has three relevant tabs: 1.) Input, 2.) Results and 3.) Details. Let’s work through a simple example. On the input tab enter:

Current Age: 20
Retirement Age: 65

Income Stocks Current Value: 5000
Income Stocks Cost Basis: 4000 (What you paid for the stocks)
Income Stocks Annual Dividend Income: 225
Annual Contribution: 1200 (or $100 per month)

Dividend Growth Rate: 6%
Contribution Growth Rate: 4% (e.g. your annual raise from your employer)
Inflation Rate: 3% (important, but often overlooked)

Enter this in then go to the Results Tab. Here you will see what things will look like at retirement if all your assumptions are correct. In this case:

In 45 years when you retire at age 65:

- Your portfolio’s market value will be: $2,334,233
- Your portfolio’s cost basis will be: $1,061,365

- Your portfolio’s current yield will be: 4.50%
- Your portfolio’s yield-on-cost will be: 9.90%

- Your portfolio’s annual income will be: $105,040
- The above income In today’s dollars will be: $27,777

The 4.5% yield may seem high, but it is an average yield. Consider the following basket of stocks that would give you about a 4.5% yield and 6% dividend growth rate:

A $2 million dollar portfolio paying me $105 thousand a year sounds pretty good, but look at the last line. Could you live on $27,777 today? With 3% annual inflation that $105 thousand in 45 years has the same purchasing power as $27 thousand dollars today. Ouch!

It sounds bad but the reality is that if you know this is coming you can plan for it. After the kids are out of college and your house is paid for you will have a lot more disposable income to put toward retirement. The problem is that many people don’t realize they have a problem and that disposable income goes toward European trips, vacation homes, bass boats, et. al. Also, there will likely be other retirement income sources, such as a pension, 401(k), social security, etc.

Remember, everyone has a retirement plan – some have a thoughtful roadmap that they are following, while the others, by default, are planning to fail. Which group are you in?

Full Disclosure: Long ABT, CL, CTL, HGIC, JNJ, LEG, PG, T, UHT. See a list of all my income holdings here.

Related Posts
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(Photo: Steve Woods)

Linked here is a detailed quantitative analysis of Universal Health Realty Income Trust (UHT). Below are some highlights from the above linked analysis:

Company Description: Universal Health Realty Income Trust is  a real estate investment trust (REIT) that invests in healthcare and human service related facilities.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

UHT is trading at a premium to all four valuations above. The stock is trading at a 6.9% premium to its calculated fair value of $30.41. UHT did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

UHT earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. UHT earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1987 and has increased its dividend payments for 24 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

UHT earned a Star in this section for its NPV MMA Diff. of the $1,881. This amount is in excess of the $1,100 target I look for in a stock that has increased dividends as long as UHT has. The stock’s current yield of 7.43% exceeds the 3.71% estimated 20-year average MMA rate.

Memberships and Peers: UHT is a member of the Broad Dividend Achievers™ Index. UHT’s peer group includes: Hersha Hospitality Trust (HT) with a 3.9% yield, Cogdell Spencer Inc. (CSA) with a 5.9% yield, LTC Properties Inc. (LTC) with a 6.1% yield and Pittsburgh & West Virginia Railroad (PW) with a 4.5% yield.

Conclusion: UHT did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks UHT as a 3 Star-Hold..

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $39.76 before UHT’s NPV MMA Differential decreased to the $1,100 minimum that I look for in a stock with 24 years of consecutive dividend increases. At that price the stock would yield 6.07%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,100 NPV MMA Differential, the calculated rate is negative (0.8%). This dividend growth rate is below the 1.5% used in this analysis, thus providing a margin of safety. UHT has a risk rating of 1.75 which classifies it as a medium risk stock.

UHT’s property portfolio includes hospitals, medical office buildings, and child-care centers with mare than half of the firm’s square footage located in Arizona, Nevada, and Texas. At 3 Stars UHT is the highest ranked REIT that I follow. It’s dividend fundamentals, including debt to total capital of 38% are good. Being a REIT, its free cash flow payout is high due to legal requirements of the structure. However, the company had no negative free cash flows over the last 10 years, which is highly unusual for a REIT. I recently initiated a position in UHT for allocation purposes. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in UHT (2.5% of my Income Portfolio). See a list of all my income holdings here.

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One concern is how will Social Security, pensions and other retirement vehicles withstand the strain. The 2008 market crash has added concern to the viability of these plans. In a New York Times article, “The Unloved Annuity Gets a Hug From Obama“, income annuities are what the administration is promoting to alleviate the pending problem, but is this really a workable solution?

What are income annuities?

The New York Times article describes annuities  as:

“At its simplest, which is how the White House seems to want to keep it, an annuity is something you buy with a large pile of cash in exchange for a monthly check for the rest of your life.”

What are the problems with income annuities?

Charlie Farrell in “Why Annuities Won’t Fix The Retirement Problem“, described the following problems with income annuities:

I. Cash Out Is Determined By Cash In
The income an annuity will produce is directly related to the amount of money you put into the annuity. So if you don’t have much money saved for retirement, you won’t get much of an income stream from an annuity. And most people don’t have much money saved for retirement.

II. Payment Rates Aren’t High
At today’s interest rates, you’ll get about $5.85 of income per year for every $100 you contribute to the annuity (based on a recent quote from a highly-rated insurer). And this $5.85 would be paid to you and your spouse for as long as you both live. That’s basically a 5.85% payout on your savings in retirement.

III. No Provision For Inflation
Annuity payments don’t increase and are fixed for life. So if inflation runs at 3% a year (the average for the last 80 years), your retirement income will be cut by about 45% by the time you’re 85. Meaning that the $5,850 of income will buy you about $3,220 of stuff in today’s dollars, and the $58,500 will buy you about $32,200. You can buy an inflation-adjusted annuity, but when you do that, your initial payout goes down to somewhere around 4%.

IV. Investment Risk
With an annuity, you lose access to your money. Essentially, you gave your money to the insurance company to purchase the annuity. It’s theirs to keep forever, and your income is dependent on the insurance executives running a sound insurance company for the next 30 or so years. That’s always hard to predict and carries it’s own risks.

Dividend Stocks – A Viable Alternative

Instead of turning over your life-savings to an insurance company (that could be the next AIG), why not build a diversified portfolio of dividend growth stocks? This works best if you have time before retirement. The initial rate may not be as high as the 5.85% quoted above, but careful stock selection will allow growth well in excess of inflation. Unlike depending on a single insurance company, a diversified portfolio of at least 30 stocks will greatly reduce the risk. Below are some good dividend growth stocks that will provide a yield-on-cost greater than 5.85% in ten years, based on the listed assumptions:

		Current	Dividend	10-Year
Company	Analysis	Yield	Growth	YOC
Sysco Corp. (SYY)	Link	3.16%	6.52%	5.95%
Piedmont Nat. Gas (PNY)	Link	4.17%	3.74%	6.02%
Clorox Company (CLX)	-	3.24%	6.83%	6.27%
Intel Corporation (INTC)	-	3.07%	7.44%	6.29%
Coca-Cola (KO)	Link	3.19%	7.32%	6.47%
Chevron Corp. (CVX)	Link	3.73%	5.95%	6.64%
General Dynamics (GD)	Link	2.68%	10.07%	6.99%
Procter & Gamble (PG)	Link	2.95%	9.87%	7.55%
Universal Health (UHT)	-	7.26%	1.47%	8.40%
CenturyLink, Inc. (CTL)	-	8.14%	3.57%	11.56%

Social Security was never intended as a retirement plan, but as a supplement to savings. The key to a successful retirement is not to rely on any single income stream, but to build multiple income streams. These would include Social Security, 401(k), IRA (Roth and/or Traditional), pension plan, bonds, and of course, good dividend growth stocks. There is a reason the insurance companies are excited that Obama is focusing on annuities, and it isn’t because they care about you.

Full Disclosure: Long SYY, CLX, INTC, KO, CVX, PG, CTL. See a list of all my income holdings here.

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(Photo: sanja gjenero)

A portion of my retirement planning includes dividend growth investments. Here are a few select companies that have recently followed through on their vision of providing increased cash dividends to their shareholders:

Flowers Foods (FLO) is one of the largest producers and marketers of bakery products in the United States. June 4th the company increased its quarterly dividend 14.3% to $0.20/share. The dividend is payable on July 2 to shareholders of record on June 18. The ex-dividend date is June 16. The yield based on the new payout is 3.22%.

Universal Health Realty (UHT) invests in healthcare and human service related facilities. June 4th the company raised its quarterly dividend to $0.605/share. The dividend is payable on June 30, 2010 to shareholders of record as of June 16, 2010. The ex-dividend date is June 14, 2010. UHT is a Dividend Achiever and has raised its dividend for 23 consecutive years. The yield based on the new payout is 7.59%.

Tri-Continental (TY) one of the largest publicly traded diversified U.S. closed-end funds. June 4th the fund increased its quarterly distribution 11% to $0.05/share. The dividend is payable on July 1 to shareholders of record on June 14. The ex-dividend date is June 10. The yield based on the new payout is 1.77%.

Communications Systems (JCS) provides modular connecting and wiring devices for voice and data communications and media and rate conversion products for telecommunications networks. June 7th the company raised its quarterly dividend 7% to $0.15/share. The dividend is payable on July 1 to shareholders of record on June 21. The ex-dividend date is June 17. The yield based on the new payout is 5.75%.

Caterpillar (CAT) is the the world’s largest producer of earth-moving equipment, is also a big maker of electric power generators and engines used in petroleum markets. June 9th the company increased its quarterly dividend to $0.44/share. The dividend is payable August 20, 2010, to stockholders of record at the close of business, July 20, 2010. The ex-dividend date is July 16. CAT is a Dividend Achiever and has raised its dividend for 17 consecutive years. The yield based on the new payout is 3.10%.

Target (TGT) operates about 1,490 Target and 250 SuperTarget general merchandise stores across the U.S. June 9th the company raised its quarterly dividend 47% to $0.25/share. The dividend is payable on September 10 to shareholders of record on August 20. The ex-dividend date is August 18. TGT is a Dividend Aristocrat and has raised its dividend for 43 consecutive years. The yield based on the new payout is 1.90%.

American Eagle (AEO) is a specialty retailer of casual apparel, accessories and footwear primarily for young men and women between the ages of 15 and 25. June 9th the company increased its quarterly dividend 10% to $0.11/share. The dividend is payable on July 9, 2010 to stockholders of record at the close of business on June 28, 2010. The ex-dividend date is June 24. The yield based on the new payout is 3.60%.

Del Monte (DLM) is one of the largest producers, distributors and marketers of premium quality, branded food and pet products for the U.S. retail market. Also produces private label food and pet products. June 10th the company raised its quarterly dividend 80% to $0.09/share. The yield based on the new payout is 2.29%.

National Fuel Gas (NFG) is an integrated energy company with six operating segments: utility, pipeline & storage, exploration & production, international, energy marketing, and timber. June 10th the company raised its quarterly dividend 3% to $0.345/share. The dividend is payable on July 15 to shareholders of record on June 30. The ex-dividend date is June 28. NFG is a Dividend Champion and has raised its dividend for 40 consecutive years. The yield based on the new payout is 2.80%.

Selecting stocks with increasing dividends is critical for an income growth strategy. The above list contains stocks that recently raised their dividends, it is not a list of recommend buys. As always, due diligence should be performed before buying or selling any stock. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: No position in the aforementioned securities. See a list of all my income holdings here.

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(Photo Credit)

Below is some background information on REITs from REIT.com:

Congress created REITs in the U.S. in 1960 as a way to make investment in large-scale, income-producing real estate accessible to all investors in the same way they typically invest otherwise – through the purchase and sale of liquid securities. U.S. REITs have seen their equity market capitalization soar from $90 billion to roughly $200 billion in just the past 10 years.

In order for a company to qualify as a REIT in the U.S., it must comply with certain ground rules specified in the Internal Revenue Code. These include: investing at least 75 percent of total assets in real estate; deriving at least 75 percent of gross income as rents from real property or interest from mortgages on real property; and distributing annually at least 90 percent of taxable income to shareholders in the form of dividends.

The 90% distribution requirement and no corporate taxes are the reasons REITs yields are often above average. However, it is important to note that because REITs pay no income tax, they are not eligible for the special treatment as a “qualified dividends”, which are normally taxed at 15%.  When comparing REIT yields to investments with qualified dividends, you must always  look at them on an after-tax basis.

Consider an example where a taxpayer with a federal marginal tax rate of 30% owns AT&T (T) with a yield of 6.56% and Universal Health Realty Income Trust (UHT) with a yield of  6.82%. On an after-tax basis T, which qualifies for the 15% tax rate, will yield 5.58%, while UHT will only yield 4.78%.

Like utilities, most REITs rely on new capital either in the form of debt or equity to fund investments, pay debt and pay dividends, albeit to a lesser extent. Consider the following:

Universal Health Realty Income Trust (UHT) – Yield: 6.82%
Shares Outstanding: 2000 9m; 2008 11m
Long-Term Debt: 1999 $75.2m; 2008 $32.7m
Years of Negative Free Cash Flow: 0 of 10

National Retail Properties, Inc. (NNN) – Yield: 6.76%
Shares Outstanding: 2000 30m; 2009 79m
Long-Term Debt: 1999 $101.7m; 2009 $0m ($961.1m in short-term)
Years of Negative Free Cash Flow: 5 of 10

HCP, Inc. (HCP) – Yield: 6.12%
Shares Outstanding: 2000 102m; 2009 274m
Long-Term Debt: 2000 $1,158.9m; 2009 $5,456.1m
Years of Negative Free Cash Flow: 5 of 10

Realty Income Corporation (O) – Yield: 6.00%
Shares Outstanding: 2000 53m; 2009 103m
Total Debt: 2000 $404m; 2009 $1,354.6m
Years of Negative Free Cash Flow: 7 of 10

Essex Property Trust (ESS) – Yield: 4.56%
Shares Outstanding: 2000 18m; 2009 29m
Long-Term Debt: 2000 $595.5m; 2009 $0.0m ($1,847.4m short-term)
Years of Negative Free Cash Flow: 6 of 10

Corporate Office Properties Trust, Inc. (OFC) – Yield: 4.07%
Shares Outstanding: 2000 25m; 2009 56m
Long-Term Debt: 2000 $193.7m; 2009 $0.0m ($2,053.8m short-term)
Years of Negative Free Cash Flow: 9 of 10

Federal Realty Investment Trust (FRT) – Yield: 3.67%
Shares Outstanding: 2000 39m; 2009 59m
Long-Term Debt: 2000 $485.3m; 2009 $1,731.6m
Years of Negative Free Cash Flow: 2 of 10

Each of the above companies are growing their debt and/or shares outstanding, while not always generating sufficient cash to fund their operating expenses, including normal capital replacements (except for UHT). For a company to consistently raise its dividend, it must generate cash flows sufficient to meet operating obligations and to service outstanding debt. Since a REIT is legally required to pay out 90% of its earnings, it is less likely to eliminate its dividend, but it could drastically cut the dividend in the face of persistent weak earnings (like any company).

Similar to the utilities mentioned last week, I purchased some of the above companies many years ago, but I won’t be rushing to add to increase my positions.

Full Disclosure: Long T, NNN, HCP, O. See a list of all my income holdings here.

(Photo Credit)

An increasing cash dividend keeps pressure on management to ensure the company is well run. If there are too many missteps, eventually the dividend will slip. Here are several stocks where management recently met the challenge by raising their cash dividends:

New Jersey Resources (NJR) supplies gas to more than 478,000 customers in central and northern New Jersey. December 1st the company increased its quarterly dividend 10% to $0.34/share. The dividend will be paid January 4, 2010 to shareholders of record on December 15, 2009. The ex-dividend date is December 11, 2009. The yield based on the new payout is 3.78%.

Toro Co. (TTC) makes, and markets outdoor maintenance and beautification products for home, recreation, and commercial landscapes. December 2nd the company raised its quarterly dividend 20% to $0.18/share. The dividend is payable on January 12, 2010 to shareholders of record on December 18, 2009. The ex-dividend date is December 16, 2009. The yield based on the new payout is 1.77%.

Lincoln Electric (LECO) manufactures arc welding products, robotic welding systems, and oxyfuel cutting equipment. December 2nd the company boosted its dividend 3.7% to $0.28/share. The dividend is payable January 15, 2010, to shareholders of record on December 31, 2009. The yield based on the new payout is 2.02%.

Enbridge (ENB) transports crude oil and other liquid hydrocarbons; and engages in gas utility operations that serve residential, commercial, industrial customers in Canada. December 2nd the company increased its quarterly dividend 15% to $0.425/share. The dividend is payable on March 1, 2010 to shareholders of record on February 15, 2010. The yield based on the new payout is 3.67%.

Nucor Corporation (NUE) the largest minimill steelmaker in the U.S. with one of the most diverse product lines of any steelmaker in the Americas. December 2nd the company raised its quarterly dividend 3% to $0.36/share. The dividend is payable on February 11, 2010 to stockholders of record on December 31, 2009. The ex-dividend date is December 29, 2009. Yield on the dividend is 3.2%. NUE is a Dividend Achiever and has increased its dividend for 36 consecutive years. The yield based on the new payout is 3.29%.

Universal Health Realty Income Trust (UHT) is a real estate investment trust invests in healthcare and human service related facilities. December 2nd the company boosts its quarterly dividend to $0.60/share. The dividend will be paid on December 31, 2009 to shareholders of record as of December 16, 2009. The yield based on the new payout is 7.86%.

Hillenbrand (HI) manufactures and sells gasketed caskets made of carbon steel, stainless steel, copper & bronze; offers a cremation marketing system for funeral service professionals. December 2nd the company increased its quarterly Dividend to $0.1875/share. The dividend is payable December 31, 2009, to shareholders of record at the close of business on December 17, 2009. The yield based on the new payout is 3.94%.

Comcast (CMCSA) is the largest U.S. cable multiple system operator (MSO), as well as a provider of cable programming content. December 3rd jumped its annual dividend 40% to $0.378/share. The dividend is payable on January 27, 2010 to shareholders of record as of the close of business on January 6, 2010. The yield based on the new payout is 2.38%.

Cameco Corporation (CCJ) explores, develops, mines, refines, converts, and fabricates uranium for sale as fuel for generating electricity in nuclear power reactors in Canada and globally. December 3rd the company increased it annual dividend 17% to $0.28/share. The company’s board of directors also declared a quarterly cash dividend of $0.06 per common share, payable on January 15, 2010 to shareholders of record on December 31, 2009. The yield based on the new payout is 0.71%.

OGE Energy (OGE) delivers and manages electricity and natural gas primarily in the south central United States. December 3 the company raised its annual dividend to $1.45/share. The dividend will be paid Jan. 29, 2010, to shareowners of record Jan. 8, 2010. The yield based on the new payout is 4.05%.

Ecolab (ECL) is the leading worldwide marketer of cleaning, sanitizing and maintenance products and services for the hospitality, institutional and industrial markets. December 3rd the company boosted its quarterly 11% to $0.155/share. The dividend will be paid January 15, 2010, to shareholders of record at the close of business on December 15, 2009. The ex-dividend date is December 11, 2009. ECL is a Dividend Achiever and has increased its dividend for 18 consecutive years. The yield based on the new payout is 1.37%.

Earnings can be manufactured, cash can not. One sign of a company’s ability to generate cash is an ever-increasing dividend. For a list of stocks with a long string of consecutive dividend increases, see this list.

Full Disclosure: Long NUE. See a list of all my income holdings here.

(Photo Credit)

High-yield investing often carries a greater degree of risk than I am willing to accept. Recently, a reader alerted me to an article describing a 20-year study by the Schwab Center for Financial Research demonstrates that investments with the highest yields don’t necessarily provide the highest returns and offers a safer way to implement a high-yield approach. Here are some key excerpts from the article:

• Stocks with the highest dividend yield haven’t provided the best total return.
• Research found the highest-yielding stocks had twice as many dividend cuts as the other dividend-paying groups.
• Price momentum is a stock indicator based on the idea that stocks that have been outperforming in the past will continue to do so.
• A simple screen using the six-month price momentum strategy applied to the highest-yielding stocks can help you pick the best performers.
• The screen is implemented using:
  • Stocks in the S&P 500, 400 and 600 indexes.
  • Dividend Yield and click the dividend yields greater than 1.5 times the S&P 500 yield.
  • Capture analyst ratings.
  • 6 Months Price Performance > Price Change.
  • Sort by price performance and select the highest analyst ranked  stocks within the top 45.

Since the article was very Schwab specific, I tried to generalize the above screen. If you have a Schwab account, please refer to the article for more specific instructions.

So, what does all this mean? If you are an income investor that enjoys trading instead of buy and hold, then this may be something you want to explore further.  However, the 11.5% earned with this strategy vrs. the  10.73% for dividend stocks not in the highest yielding group hardly seems worth the effort.

For me, I will continue to focus on high-quality dividend stocks at lower, but growing,  yields. However, for those looking to bump their yield a little, below are several Dividend Aristocrats and Achievers that are currently yielding more than 5%:

CenturyLink Inc. (CTL) – Aristocrat – Yield: 8.6%
Lilly Eli & Co. (LLY) – Aristocrat – Analysis -Yield: 6.0%
Integrys Energy Group Inc. (TEG) – Aristocrat – Yield: 7.8%
Consolidated Edison Inc. (ED) – Aristocrat – Yield: 5.8%
Progress Energy Inc. (PGN) – Achiever – Analysis – Yield: 6.5%
Realty Income Corp (O) – Achiever – Yield: 7.1%
Health Care Property Investors, Inc. (HCP) – Achiever – Yield: 6.8%
Cincinnati Financial Corp. (CINF) – Aristocrat – Yield: 6.2%
Leggett & Platt Inc. (LEG) – Aristocrat – Analysis – Yield: 5.7%
Pitney Bowes Inc. (PBI) – Aristocrat – Yield: 6.0%
AT&T Inc. (T) – Achiever – Yield: 6.2%
Black Hills Corp. (BKH) – Achiever – Yield: 5.8%
Capital City Bank Group (CCBG) – Achiever – Yield: 5.6%
Universal Health Realty Income Trust (UHT) – Achiever – Yield: 7.5%

This by no means is an endorsement of the above stocks. If you are looking for high-yields, you might lower your risk some by looking at a pool of stocks that have a long history of increasing their dividends.

Full Disclosure: Long CTL, LLY, TEG, ED, PGN, O, HCP . See a list of all my income holdings here.

(Photo: Steve Woods)

An increasing cash dividend keeps pressure on management to ensure the company is well run. If there are too many missteps, then eventually a dividend will slip. Earnings can be manufactured, cash can not. Always follow the cash and it just might lead you to a great company. Here are eight stocks striving to be a great by raising their cash dividends:

• Stryker (SYK) Boosts Dividend 21% to $0.40/Share (0.88%)
• Lincoln Electric (LECO) Raises Qtr. Dividend by 8% to $0.27/Share (2.27%)
• OGE Energy (OGE) Boosts Annual Dividend 3c to $1.42/Share (5.57%)
• J & J Snack Foods (JJSF) Boosts Qtr. Dividend by 5.4% to $0.0975/Share (1.22%)
• Wisconsin Energy (WEC) Raises Qtr. Dividend by 25% to $0.3375/Share (2.61%)
• AXIS Capital (AXS) Increases Qtr. Dividend by 8% to $0.20/Share (3.05%)
• Ecolab Inc. (ECL) Increases Qtr. Dividend by 8% to $0.14/Share (1.47%)
• Universal Health Realty (UHT) Raises Qtr. Dividend to $0.59/Share (1.47%)

After running these companies through my D4L-PreScreen.xls model, the Dividend Achiever UHT is worthy of a more complete evaluation with a NPV of MMA Differential of $9,282. None of the other companies’ NPV of MMA Differentials were close enough to warrant a more complete evaluation.

Disclosure: No position in the aforementioned stocks.

(Photo: Steve Woods)

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