By Numer de Guia, CFA In investing circles, 2004 may go down as the year of the dividend. Market pundits and investors alike appear to have rediscovered the charms of owning stocks that feature a steady cash payout. (Of course, more favorable tax treatment of dividend income and still-low long-term interest rates may have had something to do with it.)
But what are the most appealing dividend plays right now? High yields are nice, but we think investors should take a good look at a stock's underlying fundamentals first. So in this week's screen, we started out by looking for stocks with the potential for capital appreciation -- those ranked 5 STARS (strong buy) by S&P equity analysts. That means they're expected to outperform the overall market by a wide margin over the next 6 to 12 months.
BROAD APPEAL. You may be guessing the next step: Find the list of the 5-STARS with the highest dividend yield. That's logical, but this time we wanted to broaden our focus to take advantage of the breadth of sector coverage S&P offers. So instead, we selected the two 5-STARS stocks with the highest indicated dividend yields in their respective Global Industry Classification, or GICS, sectors.
The 20 stocks that turned up carry yields ranging from 0.43% to 9.86%, with an average yield of 2.75%. Here they are:
CBL & Associates
Burlington Northern Santa Fe
Automatic Data Processing
De Guia is an analyst for Standard & Poor's Portfolio Advisors