Not Just Any Dividend Payer

S&P screens for the most attractive -- stocks with high yields, a history of payout growth, and potential share-price gains

By Michael Kaye, CFA

In this choppy, uncertain market, dividend-paying stocks -- already made more attractive by tax-code changes in recent years -- have acquired even greater appeal. The notion of a steady cash payout can be a comfort amid equity-market gyrations. But how can an investor identify the most attractive issues among the dividend payers?

We thought we'd take a crack at the question in this week's screen. Our first thought: While it's nice to own a stock with a steady payout, it's even better to get one with a dividend yield well above the market average. So we looked for issues with a yield of 3.5% -- roughly double the average for the Standard & Poor's 500-stock index.


  But some caveats are in order. Investors should never buy a stock on the basis of yield alone, according to Joseph Tigue and Joseph Lisanti, authors of S&P's The Dividend-Rich Investor. In some cases, a higher-than-average yield may signal that a stock's price is depressed by factors like disappointing earnings or adverse news about a stock. "The high yield could signal either a dividend cut or dividend omission somewhere down the line," note Tigue and Lisanti.

That's where our second criterion comes in. We tried to get history on our side by looking for stocks with a long-term record of dividend growth. So we sifted for those issues that have increased their dividend in each of the past 10 years.

As a final filter we looked for stocks that are also attractive based on their potential for capital appreciation. So we screened for those issues ranked 4 STARS (accumulate) or 5 STARS (buy) by analysts from Standard & Poor's Equity Research Services. Stocks with those designations are expected to outperform the overall market on a total return basis over the next 6 to 12 months.

Our search yielded these 10 names:

Company Ticker S&P STARS Rank
Alllied Irish Banks AIB 4
Altria Group MO 4
AmSouth Bancorp ASO 4
Colonial Properties Trust CLP 4
EastGroup Properties EGP 4
Hospitality Properties Trust HPT 4
Hudson United Bancorp HU 4
Macerich MAC 4
National City NCC 5
ProLogis PLD 4

Kaye is an analyst for Standard & Poor's Portfolio Services

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