Stocks that pay high dividends can provide comfort during times of market turmoil. It is much easier to be patient if money is rolling in, and a strategy of reinvesting dividends may outperform when the broader market falls.
But the last thing an investor wants to see is a dividend cut, and a surprise dividend cut can be punishing for a stock’s price.
Then again, high dividend yield might mean the market has already anticipated a dividend cut by pushing the shares lower. This means that after a payout is reduced, a stock might actually increase in price. Intel Corp.
has provided an example of this, with shares rising 2% early on Feb. 22 after the company cut its dividend yield by 66%.
Why would investors cheer this dividend cut? Because the writing was already on the wall. In January, this screen of the 30 companies in the iShares Semiconductor ETF
showed that Intel was the only company expected by analysts to run negative free-cash flows for calendar 2023 and 2024. A company’s free-cash flow is its remaining cash flow after expenditures. It is money that can be used to pay dividends, buy back shares, expand organically or through acquisitions, or for other corporate purposes.
At a time when Intel was laying off employees to cut costs, paying $6 billion a year in dividends didn’t appear viable.
A dividend stock screen from UBS
In a report on Feb. 22, investment strategists at UBS led by Alastair Pinder wrote that high-yielding dividend stocks were presenting an attractive risk/reward proposition, in part because they expect dividend growth to outpace earnings growth for companies this year.
They added that the high-yielding dividend stocks they selected had compelling valuations and tended to pay out less of their earnings than the broad market, “implying upside to dividend growth.”
Some investors anticipate a recession in light of soaring interest rates. According to the UBS strategists, “dividend stocks outperformed the market by 4.5%, with high quality dividend stocks up 7.5% on a relative basis” during recessions in 2001, 2008 and 2020.
Stocks passing the screen needed to have estimated 2023 dividend yields of at least 2%, “high-quality” scores in the top 25% “and a strong relative dividend growth prediction over the next 6 months according to [UBS’s] machine learning model,” the strategists wrote.
Forty stocks passed the screen. Here are the 20 with the highest current dividend yields, according to data provided by FactSet:
|Company|| Ticker||Dividend yield|
|Cal-Maine Foods Inc.|| CALM,||9.08%|
|Lamar Advertising Co. Class A|| LAMR,||4.57%|
|Extra Space Storage Inc.|| EXR,||4.09%|
|Public Storage|| PSA,||4.01%|
|Packaging Corp. of America|| PKG,||3.73%|
|United Parcel Service Inc. Class B|| UPS,||3.63%|
|Amgen Inc.|| AMGN,||3.58%|
|Watsco Inc.|| WSO,||3.20%|
|Broadcom Inc.|| AVGO,||3.16%|
|H&R Block Inc.|| HRB,||3.11%|
|Comcast Corp. Class A|| CMCSA,||3.07%|
|Paychex Inc.|| PAYX,||2.83%|
|Tapestry Inc.|| TPR,||2.83%|
|Home Depot Inc.|| HD,||2.83%|
|Murphy Oil Corp.|| MUR,||2.82%|
|Fastenal Co.|| FAST,||2.72%|
|General Mills Inc.|| GIS,||2.69%|
| Union Pacific Corp.|| UNP,||2.68%|
|Merck & Co.|| MRK,||2.68%|
|Snap-on Inc.|| SNA,||2.63%|
|Sources: UBS, FactSet|
Click on the ticker for more about each company or exchange-traded fund.
Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
The yields on the list are based on the companies’ most recently announced regular quarterly dividends. Pioneer Natural Resources Co.
was excluded from the list because it pays a base dividend plus a variable dividend. The base quarterly dividend for the third quarter was $1.10 per share, while the variable dividend was $4.61. Based on the regular dividend and the closing price of $205.94 on Feb. 21, the dividend yield would be 2.14%. Based on the third-quarter fixed-plus-variable dividend, the dividend yield would be 11.09%. Pioneer is scheduled to announce its fourth-quarter results and dividend after the close on Feb. 22.
Any stock screen has its limits. If you are interested in any stock, you should do more research to form your own opinion about the company’s business strategy and its likelihood of remaining competitive over the next decade, at least.
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