At a time of market uncertainty and volatility, some view dividend paying stocks as safe havens. They provide a probable (though not guaranteed) income stream no matter what the stock does, which is why they are popular in this current market environment.
I just did a screen of stocks that, if you are looking for dividend payers, may fit your needs. The elements of the screen include:
- 4% or more dividend yield: With today's low interest rates, a yield of 4% or more is an attractive yield.
- 50% or less dividend payout ratio: The dividend payout ratio tells you the percentage of a company's earnings paid out in dividends. The lower the ratio, the more secure the dividend and the more money available for investment in the company's operations.
- The stock earns a high grade from one of my guru strategies: These are strategies I created that mirror how well known investors choose investments.
Seagate Technology (STX) has been in business since 1979, the dawn of the personal computer. The company is a major manufacturer of hard drives and other computer storage solutions. Seagate's dividend yield is 4.41%, and its dividend payout ratio is 17.48%.
The strategy I based on the writings of Joel Greenblatt identifies Seagate as having strong investment potential. This strategy looks at earnings yield, which is found by dividing a company's earnings before interest and taxes by its enterprise value; enterprise value is the value of the company's shares plus debt. It also considers return on total capital, which it calculates by dividing a company's earnings before interest and taxes by its tangible capital employed; tangible capital is net working capital plus fixed assets. It ranks each of these variables among all the stocks in our database, of which there are thousands. It then takes these rankings and calculates a final ranking. Seagate is ranked a strong 32 among all the stocks in our database.
H&R Block (HRB), the well-known tax preparation company, has a 5.22% yield and a 47.64% payout ratio. Like Seagate, it is a favorite of my Greenblatt-based strategy. Among all the stocks in the database, H&R Block comes in at No. 12.
Cliffs Natural Resources (CLF) gets a nod from my Peter Lynch-based strategy. This Canadian company is the world's largest iron ore producers. Its stock provides a dividend yield of 5.17%, and offers an 8.82% payout ratio. The Lynch strategy's primary variable is the P/E/G ratio, which is price-to-earnings relative to growth, and is a measure of what growth costs the investor given today's stock price. Using the three, four and give year historical EPS growth rate of 38.30% and a P/E of 4.16, Cliff has a very impressive P/E/G ratio of 0.11.
All of these stocks provide good dividend yields backed by reasonably strong dividend payout ratios. Plus, they get high grades from the guru strategies. If you've been looking for dividend payers, consider any of these three stocks.