Collecting a bigger dividend yield than your neighbours is fun, but add in capital gains and a history of dividend increases, and you have the recipe for a really good portfolio mix.
Think there is no such thing as "investing utopia?" Think again, because I make a habit of seeking out stocks that not only have a history of raising their dividends, but are also profitable and are in a bull trend.
I start by focusing on stocks I already either trade or follow and those with large dividends. I add in a screen for large-yield stocks and add the ones that meet the following criteria:
- A stock must be highly liquid to avoid slippage.
- The company must have a history of increases in dividend payments.
- The company needs to demonstrate a likely ability to continue paying at least the current dividend.
- The chart must be in a bullish uptrend; there is no point in looking for an oversized yield if the shares are expected to drop as much or more in the next year.
How does a dividend investor exploit the following list of bullish high-yielders? This should be your beginning point, not an end-all for your research.
Make sure the company is a match for your investment objectives. Use your current professional knowledge as applicable to garner a market edge when entering or exiting a position. Being an industry insider for any company you're considering is a big edge compared to other market participants.
52-Week Range: $48.63 to $67.45
Yield: 3.1 per cent
Abbott currently pays $2.04 per share in yearly dividends. Looking back at the three year history of declared dividends, this company has paid on average $1.72 per share each year. Over the last five years, the dividend has witnessed incredible growth, with an average increase of 10.1 per cent per year.
More than half the analysts covering Abbott rate it as a buy or strong buy and they also expect earnings of $5.06 per share this year. At $2.04 a year, the payout ratio is under 50 per cent, and Abbott can be expected to continue the strong performance.
Abbott's prognosis, based on the stock price chart, looks fantastic. All the key moving averages that I track are moving higher at a steady 45-degree angle. If you're not fully allocated in this space, I easily recommend researching this big pharma to see if this is the right prescription for your portfolio.
The last reported short interest is very small. Short interest is only 1.1 per cent.
Background: Abbott Laboratories is a global, broad-based health care company devoted to discovering new medicines, new technologies and new ways to manage health.
Abbott products span the continuum of care, from nutritional products and laboratory diagnostics through medical devices and pharmaceutical therapies. Abbott Laboratories trades a recent average of 3.4 million shares per day with a marketcap of $102.8-billion.
52-Week Range: $86.68 to $113.87
Yield: 3.21 per cent
Investors are receiving $3.60 a year in dividends. Over the last five years, the dividend has grown by an average of 9 per cent per year. The payout ratio, based on estimated earnings of more than $12 this year, is very small. It's not easy to imagine anything short of cold fusion disrupting the flow of profits out of the ground and into your portfolio for the foreseeable future.
Chevron's chart isn't the best looking chart in this list. The relative stability of Chevron's share price makes it clear that even a slow uptrend can have advantages. Last week wasn't kind to shareholders, but after the previous two months, it appears that normal profit-taking may provide a window of opportunity.
The last reported short interest is tiny. Short interest is 1.1 per cent.
Background: Chevron is the fifth-largest integrated energy company in the world. The company was founded in 1879 and trades a recent average of 4.9 million shares per day with a marketcap of $219.5-billion.
Eli Lilly & Co.
52-Week Range: $34.94 to $44.67
Yield: 4.5 per cent
Investors are receiving $1.96 in dividends for a yield of 4.62 per cent. Reviewing the dividend payment history of a company is essential research. While past payments don't guarantee future dividends, the history does provided color. Over the last five years, the dividend has grown by an average of 4.1 per cent per year.
Eli Lilly appears to have no problem maintaining the current dividend, and based on the dividend growth history during the past five years, Eli Lilly appears able to continue the dividend increases. Eli Lilly is expected to earn $3.38 per share this year.
The last reported short interest is tiny. Short interest is 1.4 per cent.
Background: Eli Lilly discovers, develops, manufactures and sells products in one significant business segment: Pharmaceutical products. Eli Lilly was founded in 1876 and trades a recent average of 5 million shares per day with a marketcap of $50-billion.
Altria Group, Inc.
52-Week Range: $25.27 to $36.29
Yield: 4.82 per cent
I don't care for the smell of cigarettes, but making money has a sweet aroma I find hard to resist. I was out of town on vacation last week, or I would have likely picked up shares of Altria on Friday. If I am able to light up, and acquire shares at a price near $33, I intend to add this one as a longer-term hold.
Shareholders receive $1.64 annually in dividend payments. Examining the dividend history of a company is a great way to help understand what we may expect in the future. Of course the past doesn't guarantee future dividends, but it does paint a useful picture. The three-year average amount they have distributed to shareholders per year is $1.45. $2.21 per share this year in estimated earnings is enough to keep the dividend addiction more than satisfied.
Currently, the short interest based on the float is small and not a big concern. Short interest is 2.4 per cent.
Background: Altria is the parent company of Philip Morris USA, U.S. Smokeless Tobacco Company, John Middleton, Ste. Michelle Wine Estates and Philip Morris Capital Corporation. Their tobacco company brand portfolios consist of successful and well-known brand names such as Marlboro, Copenhagen, Skoal and Black & Mild. The company was founded in 1919 and trades an average of 9 million shares per day with a marketcap of $68-billion.
52-Week Range: $34.65 to $46.41
Investors are receiving $2 a year in dividends for a yield of 4.73 per cent. During the last three years of dividend payments, the average yearly dividend declared was $1.91. Over the last five years, the dividend has increased by an average of almost 4 per cent per year.
Verizon is estimated to make $2.50 per share this year, and while the payout rate is above some of the others, this company has a utility feel to it. The stock has retraced off the highs of July; however, it appears the lower prices are more of a bargain sale than a change in the trend direction.
The moving averages are moving higher, but the price did fall below the 60– and 90-day moving averages before bouncing back above the 90-day moving average. The 200-day moving average price support doesn't become a factor until $40.30. I don't believe Verizon will move below the key 200-day moving average support absent a large catalyst.
Background: Verizon, formed by the merger of Bell Atlantic and GTE, is one of the world's leading providers of high-growth communications services. Verizon companies are the largest providers of wireline and wireless communications in the United States. Verizon trades an average of 10 million shares per day with a marketcap of $120-billion.
52 Week Range: $17.05 to $24.49
Yield: 3.67 per cent
Investors are receiving 88 cents in dividends. Reviewing the last three years of dividends, the average yearly dividend declared was 77 cents. Over the last few years, Pfizer has raised its dividend about once a year.
With estimated earnings of $2.20 per share this year, the payout ratio is small enough to expect dividend increases to continue for the foreseeable future.
All the key moving averages are in a bullish uptrend. I focus on the 60-, 90-, and 200-day moving averages and they are all trending from the bottom left to the upper right of the chart.
Short sellers are next to impossible to find. Short interest is so low I only include it to demonstrate the smart money is not betting against this company. 0.8 per cent of the float is short, based on the last reported numbers.
Background: Pfizer is a research-based, global pharmaceutical company that discovers and develops innovative, value-added products that improve the quality of life of people around the world and helps them enjoy longer, healthier and more productive lives. Pfizer was founded in 1849 and trades a recent average of 22.9 million shares per day with a marketcap of $177.8-billion.
Robert Weinstein currently blogs, mentors traders, and writes several weekly columns in Rocco Pendola's Option Investing newsletter from his home in northern Wisconsin.