how to find better dividend paying stocks (motley fool)

10 Highest Dividend Yielding Stocks

Lets put these high-yielding stocks to the test to determine if any are actually worth owning.

Brian Feroldi

Dec 31, 2016 at 1:08PM

IMAGE SOURCE: GETTY IMAGES.

One sound long-term investing strategy is to buy stocks that offer up high dividend yields.This strategy has become particularly enticing in today's low interest rate environment, since it offers investors a chance to generate a lot of income from their portfolio. However, just because a stock offers up a high yield doesn't make it an automatic buy, especially because sky-high yields are often accompanied by sky-high risks. Knowing that, lets take a look at the 10 highest yielding stocks from the S&P 500 to see if any of them are worth buying today.  For simplicity's sake, we'll exclude all real estate investments trusts, or REITs, from this article since they play by their own set of rules.

Company	Ticker	Dividend Yield
Frontier Communications	(NASDAQ:FTR)	12.3%
CenturyLink	(NYSE:CTL)	9%
Seagate Technology	(NASDAQ:STX)	6.4%
Mattel	(NASDAQ:MAT)	5.4%
Staples	(NASDAQ:SPLS)	5.2%
Ford	(NYSE:F)	4.8%
Pitney Bowes	(NYSE:PBI)	4.8%
Entergy Corp.	(NYSE:ETR)	4.8%
FirstEnergy	(NYSE:FE)	4.6%
AT&T	(NYSE:T)	4.6%

DATA SOURCES: FINVIZ

Is the payout sustainable?

Most dividend investors know that a key metric for any dividend stock is the payout ratio, which is the percentage of a company's earnings that it uses to pay dividends. In general, a payout ratio over 85% is worrisome as it hints that the dividend could be on the chopping block if the company's earnings ever take a hit. A payout ratio greater than 100% means that the company is paying out more in dividends than it generates in net income.

Here's a look at the current payout ratio for each of these companies.

Company	Payout ratio
Frontier Communications	N/A
CenturyLink	127%
Seagate Technology	200%
Mattel	144%
Staples	54%
Ford	33%
Pitney Bowes	56%
Entergy Corp.	48%
FirstEnergy	51%
AT&T	82%

DATA SOURCES: YAHOO! FINANCE

Right away we can see that this metric removes several companies from contention. Frontier Communications isn't expected to be profitable this year, which is why it doesn't even have a payout ratio. That makes it an easy pass in my book.

CenturyLink, Seagate Technology, and Mattel all boast payout ratios well over 100%, which means their dividend payments currently exceeds their net income. That lets us remove them from consideration, too.

Just like that, our list of 10 has been cut down do 6.

Is the business growing?

The remaining companies all appear to offer up stable dividend payments, but even dividend investors also need to think about growth. After all, if a company's profits are stagnant or declining, its dividend isn't likely to be increased over time, making it a far less attractive investment.

Let's take a look at the projected profit growth rates of our remaining list of companies to see what analysts believe is going to happen over the next five years. 

Company	Estimated 5 year growth rates
Staples	1.3%
Ford	1.5%
Pitney Bowes	4%
Entergy Corp.	(8.2%)
FirstEnergy	(5.1%)
AT&T	8.4%

DATA SOURCES: FINVIZ.

While Entergy and FirstEnergy are profitable and paying out solid dividends, Wall Street believes that both of these companies are about to see their profits head in the wrong direction. Those numbers tell me that we should look elsewhere for investment opportunities.

Staples is another company that should give investors pause. The company's business model is under attack from e-commerce companies like Amazon.com, which is a big reason why same store sales numbers have been in decline. To fight back, the company is closing down its under-performing stores and investing heavily in Staples.com, but those moves are going to take their toll on the company's profitability.

The markets also appear to be quite concerned with Ford's long-term prospects. That's likely owing to worries about peaking auto sales in North America -- a theory which, if true, suggest that the company's sales and profit margins are currently unsustainable. In addition, autonomous vehicles and ride-sharing services are both long-term opportunities and threats to the auto industry. Given those realities, it's not hard to understand why analysts are being cautions with their growth estimates.

For these reasons, conservative investors might want to consider removing both Ford and Staples from contention, too.

And then there were two

Pitney Bowes sailed through our first two tests with ease, but that doesn't mean that this is a risk-free stock. In fact, the markets have been punishing shareholders for more than two years as the company has been struggling with growth. Last quarter the company's earnings fell by more than 22% due to lower-than-expected license revenue, which is one of the company's most lucrative business lines. That caused the company to reign in its full year profit forecast. That's a troubling development that could suggest that analysts are over estimating this company's growth prospects.

AT&T, on the other hand, has a lot going for it. The company's wireless division continues to be a cash cow that is supporting by very low churn rates. AT&T also offers investors the potential for growth thanks to its recent purchase of DirecTV. Its pending merger with Time Warner could also be a big win for shareholders if it goes through. . Even if the deal falls through, AT&T should still be able to crank out consistent earnings growth, allowing it to retain its status as a dividend aristocrat.

So there you have it. This simple list of criteria shows that income investors would be wise to add AT&T to their watch list and largely ignore the rest. 

Warning on High Dividend Yields (motley fool)

10 Highest Dividend Yielding Stocks

Not all high yields are worth chasing. Only three of these stocks pass the sniff test.

Brian Stoffel

(TMFCheesehead)

Sep 9, 2016 at 7:28AM

IMAGE SOURCE: GETTY IMAGES.

It's no secret that dividend-yielding stocks are the cornerstones of a solid retirement portfolio. Usually, such stocks represent ownership in stalwart businesses that pay shareholders on a quarterly basis. Those payments not only offer downside protection, but they can also compound returns over time.

Still, one of the dangers of dividend investing is chasing after high yields. Case in point: The 10 stocks listed below have the highest yields of all the companies in the S&P 500, but not all of them are worth your investing dollars. In many cases, there's a good reason such stocks have high yields -- because there's a lot of risk involved.

Company	Dividend Yield
Frontier Communications (NASDAQ:FTR)	9.2%
CenturyLink (NYSE:CTL)	7.7%
Seagate Technology (NASDAQ:STX)	7.4%
HCP, Inc.	5.9%
Staples	5.6%
ONEOK	5.1%
Iron Mountain	5%
Ford (NYSE:F)	4.8%
General Motors	4.7%
AT&T	4.7%

DATA SOURCES: FINVIZ.COM, YAHOO! FINANCE.

If you're a dividend investor, there's nothing more important than free cash flow (FCF). This represents the amount of money a company was able to put in its pocket at the end of the year, minus capital expenditures. It is from FCF that dividends are paid, and investors should generally aim for companies that use less than 85% of their FCF to pay dividends.

Here's how the companies above stack up in FCF payouts.

There are sometimes reasonable explanations for a company having a high payout ratio. Frontier, for instance, has made some huge acquisitions that have yet to pay off fully, and its cash flow is far greater than its GAAP earnings. But we're in search of the best high-yielding stocks of the bunch, so we'll eliminate Frontier, Staples, ONEOK, and Iron Mountain right off the bat.

Business momentum

Beyond just paying a dividend, it's important to take note of whether or not the long-term thesis for investing in these companies is intact. Sometimes, a low payout ratio can hide a declining business that has strong FCF for the time being -- but is in long-term decline.

Ideally, we should see companies that are increasing revenue by at least 2% per year to outpace inflation, over a two-to-three-year time frame. Of the remaining companies, here's how they have performed in terms of revenue growth.

CenturyLink, a regional telecom, and Seagate, a provider of data storage devices, are both in long-term declines. The former is losing out to much larger national players while the latter is seeing its business be commoditized. General Motors, on the other hand, just hasn't shown the same type of growth that rival Ford has.

And then there were three...

That leaves us with three high-yielding dividends from the S&P 500 that are worth investigating.

For Ford, the main thing holding the stock back -- and the yield up so high -- is the fact that investors are worried we're on the brink of a downturn in car-buying behavior. This is a very cyclical industry, as everyone tends to upgrade to new cars at the same time -- when the economic winds are encouraging. That's been the case for a while now. If you're willing to wait out a downturn -- or you believe there's still room for revenue to grow globally -- then this may be a stock for you.

AT&T, on the other hand, benefits from huge market share in terms of mobile market share in America, as well as a smaller share in providing Internet services. The recent purchase of DirecTV also gives the company a hand in the content-delivery game. The barriers to entry are relatively high in the telecom industry, offering protection for investors. While the dividend is unlikely to grow by leaps and bounds, investors interested in a big payout would do well to investigate AT&T.

Finally, we have HCP, a real-estate investment trust (REIT) that focuses on healthcare properties. Obviously, with rising healthcare costs and a generation of Baby Boomers set to retire, there's a lot of potential growth for HCP. The company will be spinning off its post-acute care and skilled-nursing facilities portfolio in the near future, but the remaining company will still have lots of opportunity for growth.

Remember, not every high yield is worth chasing, but in the case of these three dividends, it might be worth buying shares for your retirement portfolio.