Turmoil Breeds Dividends

 | Jan 10, 2013 | 4:00 PM EST  | Comments
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Stock quotes in this article:

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The fiscal cliff has been averted, but that does not mean the U.S. economy is out of the woods. Further battles over the debt ceiling, spending cuts and Medicare costs, as well European economic uncertainty, are on the horizon. The turmoil makes this a good time to add high-yielding stocks to your portfolio.

To pick these stocks, I created computerized strategies that mirror how Wall Street's great guru investors analyze stocks. I found three that provide a 5% yield or more. I started with a strategy based on the writings of James P. O'Shaughnessy. It looks at four variables: a market cap above $1 billion; cash flow per share that exceeds the market mean of $1.42; shares outstanding in excess of the market average of 612 million; and trailing 12-month sales that are 1.5x or more than the market mean of $20.3 billion.

German auto giant, Daimler AG (DDAIF), maker of Mercedes-Benz, easily passes this test. The last step of the analysis is to identify the top 50 based on dividend yield. With a yield of 5.2%, Daimler makes it into this select group.

Another foreign company worth looking at is U.K.-based electric and gas distributor National Grid PLC (NGG), which also has significant operations in the Northeastern U.S. My Peter Lynch-based strategy focuses on the price-earnings-growth, or PEG, ratio, which measures how well a company's stock is priced. The maximum PEG this test allows is 1.0, and National Grid just makes it with a yield-adjusted PEG of 0.93. The company's dividend yield is a solid 5.7%.

Domestic refiner and pipeline operator Northern Tier Energy (NTI) has a high yield 5.87%. Applying a strategy I created from the writings of Joel Greenblatt that ranks stocks by earnings yield and return on total capital, Northern Tier is 86th in earnings yield out of the thousands of companies in our database and 172nd based on return on total capital. The strategy then combines these two variables for a final, overall ranking. Here, NTI is ranked a strong 35.

If you want solid cash flow in your portfolio, consider these three high-yielding stocks.

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