Shares of DineEquity, the owner of Applebee’s Neighborhood Grill & Bar, have a dividend yield of 5.13%.
Income-hungry investors continue to flock to stocks over bonds, where yields, while rising, remain relatively low. But how to find attractive investments?
Last year’s “flight to yield” pushed many stock valuations to relatively high levels, making some dividend stocks appear to be risky short-term investments. For long-term growth investors, there are plenty of solid arguments against dividend stocks, including these from Meb Faber.
But dividend stocks still appeal to investors who need income now and to those who think it’s only fair for companies to reward their owners with a good portion of the profits. And if a high dividend-payer’s sales and profits are also increasing, so much the better.
Meanwhile, yields on investment-grade corporate bonds range from 75 to 150 basis points over 10-year U.S. Treasury notes TMUBMUSD10Y, -0.11% according to professional income portfolio managers. Even at the top range of that range, a yield of 3.90% isn’t very attractive, especially if rates continue to rise, pushing down prices and creating the potential for losses for those who don’t hold bonds to maturity.
We’ve already come up with a list of 28 S&P 500 companies with cheap stock valuations expected to see the biggest earnings increases in 2018. Now it’s time to develop a list of dividend stocks using a similar screening method.
This time, we broadened our horizons to the S&P 1500 Composite Index, which is made up of the large-cap S&P 500 SPX, +0.28% the S&P 400 Mid Cap Index MID, +0.35% and the Small Cap 600 Index SML, +0.35%
We then excluded any company with a dividend yield below 3% as well as any company expected to show declines in earnings per share or sales in 2018 versus 2017.
This left us with 164 stocks.
We then excluded any stock trading above the aggregate forward price-to-earnings ratio (based on consensus 2018 earnings estimates) for its sector or for the entire S&P 1500, whichever was lower.
Here are the forward P/E ratios for the index and its 11 sectors:
| S&P 1500 Sector | Price/consensus 2018 EPS estimate - Jan. 9 |
| Consumer discretionary | 16.3 |
| Consumer staples | 17.8 |
| Energy | 23.5 |
| Financials | 12.8 |
| Health care | 13.8 |
| Industrials | 16.2 |
| Information technology | 15.4 |
| Materials | 16.2 |
| Real Estate | 15.8 |
| Telecommunications services | 13.4 |
| Utilities | 16,3 |
| S&P 1500 Index | 15.5 |
| Source: FactSet | |
That last cut left us with 50 stocks. Here are the 20 with the highest dividend yields, as of the market close on Jan. 9:
| Company | Ticker | Sector | Industry | Dividend yield | Price/consensus 2018 EPS estimate |
| Omerga Healthcare Investors Inc. | OHI,-0.37% | Real Estate | Investment Managers | 7.53% | 13.3 |
| Medical Properties Trust Inc. | MPW,+0.24% | Real Estate | Real Estate Investment Trusts | 7.34% | 12.1 |
| Stein Mart Inc. | SMRT,+0.76% | Consumer Discretionary | Apparel/ Footwear Retail | 7.04% | 12.9 |
| Kindred Healthcare Inc. | KND,-0.63% | Health Care | Hospital/ Nursing Management | 6.00% | 9.4 |
| DineEquity Inc. | DIN,-0.04% | Consumer Discretionary | Restaurants | 5.13% | 11.1 |
| Tupperware Brands Corp. | TUP,+0.55% | Consumer Discretionary | Home Furnishings | 5.05% | 11.0 |
| Entergy Corp. | ETR,+0.65% | Utilities | Electric Utilities | 4.90% | 15.3 |
| AT&T Inc. | T,-0.49% | Telecom. Services | Major Telecom. | 4.80% | 13.1 |
| Ford Motor Co. | F,-1.40% | Consumer Discretionary | Motor Vehicles | 4.75% | 7.4 |
| Pitney Bowes Inc. | PBI,-0.74% | Industrials | Office Equipment/ Supplies | 4.66% | 8.2 |
| PPL Corp. | PPL,+0.88% | Utilities | Electric Utilities | 4.44% | 14.8 |
| Buckle Inc. | BKE,-1.79% | Consumer Discretionary | Apparel/ Footwear Retail | 4.40% | 10.9 |
| Verizon Communications Inc. | VZ,-0.57% | Telecom. Services | Major Telecom/ | 4.38% | 12.7 |
| Western Refining Inc. | WNR,+0.11% | Energy | Oil Refining/ Marketing | 4.29% | 11.7 |
| HollyFrontier Corp. | HFC,+1.11% | Energy | Oil Refining/ Marketing | 4.26% | 11.8 |
| General Motors Co. | GM,+1.61% | Consumer Discretionary | Motor Vehicles | 4.22% | 6.3 |
| HSN Inc. | HSNI,-2.21% | Consumer Discretionary | Catalog/ Specialty Distribution | 4.19% | 11.1 |
| Computer Programs and Systems Inc. | CPSI,-0.43% | Health Care | Health Industry Services | 4.17% | 11.8 |
| AES Corp. | AES,+3.88% | Utilities | Electric Utilities | 4.16% | 9.2 |
| AbbVie Inc. | ABBV,-3.61% | Health Care | Pharmaceuticals | 3.99% | 10.0 |
| Source: FactSet | |||||
This group of dividend stocks is certainly not universally loved by Wall Street analysts, as the following summary shows. Then again, the analysts’ ratings are built on one-year price targets, rather than current income and the hope of long-term capital growth to sweeten the pot.
Note that while only three of these stocks have “buy” ratings from 50% of the analysts and just one does better than that, only three are expected by analysts to show price declines over the next 12 months. Those expected price decline, however, are small, and shareholders are being paid to wait through the dividends.
| Company | Share “buy” ratings | Share neutral ratings | Share “sell” ratings | Closing price - Jan. 9 | Consensus price target | Implied 12-month upside potential |
| Omerga Healthcare Investors Inc. | 40% | 40% | 20% | $32.40 | $34.07 | 5% |
| Medical Properties Trust Inc. | 27% | 53% | 20% | $12.54 | $13.50 | 8% |
| Stein Mart Inc. | 0% | 100% | 0% | $4.26 | $5.00 | 17% |
| Kindred Healthcare Inc. | 10% | 70% | 20% | $8.00 | $7.69 | -4% |
| DineEquity Inc. | 50% | 50% | 0% | $75.56 | $93.50 | 24% |
| Tupperware Brands Corp. | 10% | 60% | 30% | $53.86 | $58.86 | 9% |
| Entergy Corp. | 9% | 74% | 17% | $71.09 | $74.25 | 4% |
| AT&T Inc. | 48% | 48% | 4% | $40.80 | $41.78 | 2% |
| Ford Motor Co. | 31% | 58% | 11% | $12.63 | $12.98 | 3% |
| Pitney Bowes Inc. | 57% | 43% | 0% | $16.10 | $19.17 | 19% |
| PPL Corp. | 16% | 84% | 0% | $34.22 | $36.00 | 5% |
| Buckle Inc. | 0% | 86% | 14% | $22.75 | $21.67 | -5% |
| Verizon Communications Inc. | 36% | 61% | 3% | $52.68 | $52.30 | -1% |
| Western Refining Inc. | 31% | 69% | 0% | $35.44 | $36.09 | 2% |
| HollyFrontier Corp. | 39% | 55% | 6% | $30.95 | $35.31 | 14% |
| General Motors Co. | 38% | 58% | 4% | $36.01 | $37.74 | 5% |
| HSN Inc. | 50% | 38% | 12% | $33.40 | $41.13 | 23% |
| Computer Programs and Systems Inc. | 0% | 83% | 17% | $23.00 | $23.75 | 3% |
| AES Corp. | 43% | 43% | 14% | $11.53 | $12.31 | 7% |
| AbbVie Inc. | 50% | 50% | 0% | $64.21 | $71.37 | 11% |
| Source: FactSet | ||||||
No method of screening stocks can save you from doing the important research that will help you form an opinion about a company’s likelihood of long-term success with its business strategy. So that’s your next step, hopefully with the help of your broker or investment adviser, if you seen any names you like here.
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