Tuesday, March 7, 2023

3 Higher Yield Dividend Growth Stocks

It's human nature for new income investors to focus on yield. Many eventually learn that above average yields often carry an above average risk of a dividend cut, loss of invested capital or both. People involved in extreme sports/hobbies, such as base jumping, hang gliding and shark diving, do things to minimize risk and protect themselves.

In much the same way those investing in high yield dividend stocks, can do certain things to increase their chance of success...

Evaluate High Yield Stocks Carefully

When a stock carries a high yield, there is an underlying reason. Here are some questions to consider to help you understand the stock:

- Is the high yield a result of a sudden drop in price?
- Is the high yield above the industry average?
- Is the high yield above the stocks average?
- Is the high yield a result of a widespread economic downturn?
- Is the high yield a result of a company specific problem?

Be Honest In Your Evaluation

They say statistics can be used to prove anything. In the same vein, if you are determined to buy a stock, an analysis can be constructed to support the position. Instead of trying to find a reason to buy the stock, look for all the reasons NOT to buy the stock. Then weigh the positives against the negatives. Does the stock still look as appealing?

Start With List of Higher Quality Stocks

If you are looking for high yield, the temptation is to use a stock screen to search for yield and apply it to the entire universe of stocks. Yield is easy to find. Add in growth and sustainability, then the list will dramatically shrink. Currently, I track over 150 dividend growth stocks. The list is made up of select Dividend Aristocrats, Achievers, Champions and few other dividend stocks for good measure. Below is a list of the stocks from my database yielding more than 5% and with 45 or more years of consecutive dividend growth:

Leggett & Platt Inc. makes a broad line of bedding and furniture components and other home, office and commercial furnishings, as well as products for non-furnishings markets.
Yield: 5.1% | Years of Growth: 50

3M Co. provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives and other chemical additives.
Yield: 5.5% | Years of Growth: 50

Telephone and Data Systems Inc. (TDS) is a services company that provides wireline service in rural markets and is the majority owner of regional wireless carrier U.S. Cellular.
Yield: 6.0% | Years of Growth: 45

The above yields aren't nearly as eye-popping as those from a high-yield screen. Investments that usually show up in a screen like that are REITs (interest rate risk), telecommunications (technology risk), financials (equity and interest rate risks), along with MLPs and utilities (slow growth). Ultimately, we want to determine if the yield is sustainable. If we go looking for high yield, we will find it, but it may not be what we really want.

Full Disclosure: Long LEG,

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Tags: LEG, MMM, TDS,