You probably know by now that I like to invest in companies with strong fundamentals. I mention it a lot on this blog but I think if you stick to well known blue chip companies that have good financials then you have a really high chance of picking stock market winners. But of course just investing for the capital growth is one thing; it can get even better if you invest in those that also have high dividend yields.
Investing for the income is often a strategy that people take in volatile markets (er, like now) because even if your stock doesn’t seem to be doing that great you still receive lovely checks from the company every quarter (depending on how often they pay) for investing with them.
There are many ways to choose dividend stocks with good yields and most online stock brokers will have tools to allow you to do this, but if you wanted to stick with just those high cap stocks within the Dow Jones Industrial Average (DJIA) then I’ve listed them below.
The reason I’m not a fan of choosing companies based JUST on their div yields is because often times you are looking at poor growth stocks that don’t really change in price year to year. Also often these high yield companies are only set up for the short term. This is fine if you are aware of that going in and only want a short term solution. But if you want consistent income year after year then it also pays to look at those with strong fundamentals and a good record of return. That way you can take advantage of both high income and strong growth.
If you have a look at this spreadsheet showing the companies in the DJI and their div yields you can see at a glance which ones are the highest paying dividend stocks.
Now having a look at this chart will show you that they range in price from 0.5% to 6%. I’ve highlighted all of those that are over 3% yield since this is generally higher than you’ll get from most high interest bank accounts today.
I’ve already mentioned that I liked AT&T (T) here since it has both strong growth and a high dividend yield so it’s a win win for investors looking for high growth, good capital gain and income.
But there are also some other high div stocks here as well including Verizon (VZ) at 5.6% and Merck & Co (MRK) at 4.7%.
It’s interesting to note that both AT&T and VZ have increased in share price over the last twelve months as well with 5.61% and 14.22% respectively. So it’s still positive to know that stock prices ARE still rising even in this uncertain economy.
Verizon also fits ALL of my simple rules as well with ROE of 16.23%, very high earnings growth (224.8%), good levels of debt and is currently trading at less than 16 times earnings. It’s a very good buy right now.
So if you if are investing for the long term and want stocks with good growth and high dividend yield, those are the companies I’d be investing in.