Finding companies that pay a high dividend yield can be easy. But selecting the right ones to invest in requires an important understanding of how company fundamentals work.
In this article, we show you step by step exactly how to build a high dividend yield stock screener but then also help you decide if the company is worth an investment by analyzing financials. But don’t worry, with the right stock screener it is all automated.
If you are unsure of the dividend terminology in this article jump to the dividend screening criteria section at the bottom of this page.
- Select Your Dividend Stock Screener Software
- Selecting Your High Dividend Yield Strategy
- Select or Build Your High Dividend Screener
- Perform Further Deep Research & Comparisons
- Purchase Stocks & Maintain Your Portfolio
Using Microsoft Excel to number crunch company financials is long dead, so you will need a powerful yet simple Stock Screening platform that will enable you to implement first-class dividend income investing strategies.
Option 1 – Get Stock Rover – For U.S.A. & Canadian Investors
The best tool for the job is Stock Rover the Winner of our Top 10 Best Stock Screeners Comparison. Also, Stock Rover won our Best Value Investing Stock Screener Comparison.
Sign Up For A Free 14 Day Trial of Stock Rover (no card required), this will give you the Premium Plus Service for free for 14 days. You need the Premium Plus Service to access the awesome 10-year dividend & financials history, Fair Value and Margin of Safety criteria, exclusive to Stock Rover.
Option 2 – For International Investors
If you are planning to build a portfolio of dividend stocks outside of the USA & Canada, then you will need to select either TradingView or MetaStock
MetaStock + Refinativ Xenith provides a great package of fundamental screening through Refinativ and also real-time news. Very powerful technical analysis and system backtesting is also part of the package. Try MetaStock 3 for 1
TradingView provides detailed value and dividend stock screening for nearly every stock on the planet. Easy to use yet powerful, TradingView is an excellent choice for the international investor. Try TradingView Free
What is a High Dividend Yield?
Lets quickly establish what is high dividend yield, by looking at the highest dividend yield stocks in each of the major U.S. indices.
Highest Dividend Stocks per Index:
- NASDAQ 100: Kraft Heinz (Ticker: KHC) 6%
- S&P500: Macy’s (Ticker: M) 10.9%
- Dow Jones Industrial Average (DJIA): Exxon Mobil (Ticker: XOM) 6.4%
- OTC Pink Sheets: Cia de Transmissao de Energia Eletrica Paulista (Ticket: CTEEP) 30%
As you can see, in the over the counter markets (OTC), the dividend could get as high a 30%, but you will be taking too much risk. The dividend will not be maintained at this level and the lack of liquidity in these markets could mean you may have trouble selling your stocks, or experience severe stock price volatility. So be careful.
So now we know, a good high dividend yield is anywhere from 4% to 11% maximum.
3 Potential Strategies For High Dividend Yield Stocks
- Highest Dividend Yield Strategy – Risky
- High Dividend Yield + 3 Year Dividend Growth Strategy – Less Risky
- Value + High Dividend Strategy – Safest
Here we share 3 possible dividend/income strategies you could adopt, choose the one that is right for your investing style.
1. Highest Dividend Yield Strategy – Risky
|Highest Yield Dividend Screening Criteria|
The first thing someone new to income and dividend investing would do is to look for stocks with the highest dividend yield. Naturally, they will want to choose a company that will pay the most in dividends.
Using the criteria on the right will help you find those highest yielding stocks.
Ideally, you will choose companies that are worth at least $500 M in Market Capitalization, any lower is simply far too risky. Next, you will search for any stocks with a dividend yield of greater than 4%. In this example, I have also chosen to scan for companies with at least 3 years of dividend payouts. Finally a Payout Ratio of less than 90%.
This scan will show you a list of stocks looking like this, I have sorted the list on dividend yield.
It is important that you drill down and take a deeper look into any company you are thinking about investing in. Take a look at the highest dividend yield stock in this list. CTPZY is currently yielding 30% and is listed on the OTC Pink Sheets Market. This could be a great deal, but first, let’s take a closer look.
Now although we have scanned for Dividend Yield higher than 0% you can see that the dividends are in constant decline to match the dip in share price and the reduction in earnings. Also, I am not really comfortable with a payout ratio of 54.2%, this means it is paying out over 50% of its earnings in dividends, this is on the high side and not really sustainable.
Is that something you really want to invest in? Perhaps if on further investigation you find it has a bright future in a growing market.
2. High Dividend Yield + 3 Year Dividend Growth Strategy – Less Risky
|High Dividend Yield Stock Screening Criteria|
The most obvious first strategy to pursue is to look for companies with the highest dividend yield. If a company has a current dividend yield of 10% then should you expect 10% income from your investment for that year?
The answer is maybe.
10% is a very high yield and it could be because of a number of reasons. For example, the stock price may have recently dropped dramatically, which would mean the dividend yield looks a lot higher because dividend yield is the dividend payment per share dividend by the price per share.
So in addition to a high yield strategy, you need to be able to ensure the dividend can be paid in the future, so you would look for a payout ratio that is not too high, ideally less than 50, which is still somewhat high.
This yields a list of 127 stocks, let’s take a look at the two highest yielding stocks on the list and compare them. Which one would you rather invest in?
Screener Results – Enel Americas (Ticker: ENIA)
ENIA is the highest yield stock in the list with 7.2% per year and a payout ratio of 35.4%, which looks OK. In Stock Rover when you look at the Dividend Payments Trend on the right of the image, you can see the dividend are in continual decline. Also, if you look closely you can see the Buffett Margin of Safety (Exclusive to Stock Rover) is at zero. This means that the companies market capitalization (stock market valuation) is equal to is future discounted cashflow (see intrinsic value). So there is some risk here.
Screener Results – Brookfield Property (Ticker: BPR)
Second in the list is Brookfield Property, a Real Estate Investment Trust (REIT). High Dividend Yield & solid Dividend Growth now this is a company I like the look of. They have an excellent dividend yield of 7%, probably because the stock price has declined so much. Here you can see the relationship between stock price and dividend yield. The big difference between these two companies is that BPR has an excellent 10-year record of increasing dividend payments (see the right panel) and it has a huge margin of safety of 47%.
The problem with this stock is that if you had purchased it 2 years ago you would be down 30% on the stock price, but you would be up 14% on the dividend. That would be a net loss. However, you only lose money when you sell the stock, if you are in for the long-term and buying now then you can choose when to sell for an overall profit.
Which one would you invest in?
3. Value + Dividend Strategy – Safest
|Value + Dividend Strategy Screening Criteria|
Looking for value stocks in addition to stocks paying dividends is a great strategy, and the cornerstone of Warren Buffett and Ben Graham’s investing strategy. While you may buy stock in a company for the dividends, if the stock price is likely to go down within your holding period the dividends might not offset the loss, so looking for value stocks that pay a dividend. It’s like buying extra insurance and avoiding unnecessary risks.
In this strategy, you want to look for dividend-paying companies that are inexpensive by traditional measures such as low price to earnings, price to sales and price to book. These companies should still be growing sales and earnings.
If you select Stock Rover as your screener you will have access to an exclusive set of criteria based on the Warren Buffett value investing principles of Fair Value/Intrinsic Value and Margin of Safety.
So let’s take a look at the results of this screen.
Screener Results – Carnival (Ticker: CUK)
Here we take a look at the second-highest dividend yield in the stock screen results.
From the initial view (above) I can see that despite a terrible year for the stock price, earnings have continued to grow.
The dividend yield is 5.1% which is healthy. It has a 45% payout ratio which is reasonable.
It also has a nice looking margin of safety of 47%. So at this price of $39 per share, there is very little risk in the deal.
If you think this is a good stock you should drill into the financials. On the right, you can see the Stock Rover Ratings for Carnival.
Value Score – 83. The Stock Rover value score looks at EV / EBITDA, P/E, EPS Predictability, Price / Tangible Book, and Price / Sales. The Price / Tangible Book and Price / Sales values are compared within a sector whereas the other metrics are compared across all stocks with adequate data. The best companies score a 100 and the worst score a 0.
Growth Score – 90. The Stock Rover growth score looks at the 5 year history and also the forward estimates for EBITDA, Sales, and EPS growth to rank the best companies across all stocks with adequate data. The best companies score a 100 and the worst score a 0.
Quality Score – 91%. The Stock Rover quality score compares profitability and balance sheet metrics to find high-quality companies. Our computation includes ROIC, Net Margin, Gross Margin, Interest Coverage, and Debt / Equity ratio values. The best companies score a 100 and the worst score a 0.
So, this stock is looking like something I might invest in.
[Related Article: 4 Steps to Build the Ultimate Warren Buffett Value Stock Screener]
In the previous section, I highlighted 3 specific dividend screening strategies along with the potential criteria from the financial income statement and balance sheet. You can choose to implement them in your favorite stock screener as needed. Many of these criteria are available with our recommended stock screeners, but all of these are available with Stock Rover. In addition, the Stock Rover team has already programmed similar strategies into the software for you. So this next section I will show how you could use Stock Rover to import existing screeners and adapt them for your usage.
After you have signed up for Stock Rover, you will need simply 5 clicks to be up and running with the above strategies.
5 Clicks to Implement the Dividend Stock Screeners
- Click on Library – This opens a library of hundreds of pre-built screeners, portfolios, watchlists, and views
- Click on Screener – This shows over 150 (and growing) different pre-built screeners
- In the Search Box type “Dividend“
- Select the 6 Dividend Strategy Screeners highlighted in the below screenshot.
- Click Import Selected Items
You now have 6 key strategies available in your screener list already populated with potential investments.
Now you have your potential buy list with stocks that passed your first wave of checks. You may want to deep-dive into the financials of the company to look at debt, interest coverage, return on equity or even the quick ratio.
Stock Rover allows you to do some very powerful financial research on your selected companies. But not only that, the Stock Rover team has intelligently designed the Stock Ratings reported to enable you to compare a company against its sector and industry over time. This is called the Stock Ratings system.
Using Stock Rover Ratings for Powerful Company Analysis
In the left-hand navigation select Stock Ratings and you will be presented with in-depth comparison and ratings of:
- Growth – How is this company growing in comparison with its competitors?
- Valuation – Is this company good value in comparison with its competitors?
- Efficiency – Is the company run more or less efficiently than its peers?
- Financial Strength – we look at this report below
- Dividend Analysis – we look at this report below
- Stock Price Momentum – shows whether the company’s stock price is historically performing better or worse than its peers.
Stock Ratings – Financial Strength Report
In figure 4, I have selected the Financial Strength tab because I need to evaluate the financial health of the company.
- We can see that Stock Rover rates MSFT with a Financial Strength Score of 73 (out of 100)
- The first chart Financial Strength Industry Percentiles shows that MSFT is below the industry average in terms of Debt to Equity but higher than average for the Interest Coverage Ratio.
- The following two charts show the 10-year trend for Total Debt to Equity and the Interest Coverage Ratio.
- In the charts at the bottom Peers Financial Strength Scores, you can see the excellent visualization of the financial strength of this company against its competition. This is extremely useful for uncovering potential new opportunities.
Stock Ratings – Dividend Analysis Report
In the Dividends section of Stock Ratings, we see the following interesting comparisons for Apple Ticker: AAPL
- The Dividend Industry Percentiles chart shows that AAPL has a slightly below-average dividend yield (45th percentile) compared to the industry, but that the dividend growth is amongst the best in the industry (92nd percentile), which could be very promising.
- The Trailing Yield shows us that APPL historically keeps its dividend yield to between 1.5 and 2.5% of stock price. Notably, the dividends were re-established in 2012 and the Dividend per Share has seen strong growth since.
- Finally, in the Peers Dividend Scores report, we see that Hewlett Packard Inc. (Ticker: HPQ) is currently offering a vastly superior Dividend Yield, but Apple’s Dividend Growth is industry-leading.
So now you have analyzed the companies you are interested in, it may be time to build your portfolio. If you need further food for thought on the topic of qualitatively analyzing a business and its industry see this section in the article “How to Build a Buffett Value Screener“,
If you do not already have a broker, or your broker is charging you more than $1 per trade, the next section will help.
1. Select The Best Commission Free Broker
Now you have narrowed down the stocks that you want to buy so that you can build your portfolio. Remember, Warren always says:
The best time to sell is never
Although not a strict rule, it pertains more to the fact that you need to buy and hold for the long-term. If you have done your job well, you will not need to sell for the foreseeable future.
2. Connect Stock Rover To Your Brokerage Account To Get Dividend Portfolio Analytics
If you have indeed selected Stock Rover as your stock screener of choice, you can move ahead to connecting it to your Broker if you so wish.
Making this connection enables some excellent portfolio reporting through Stock Rover that is not usually available with most brokers.
You will still execute the trades with your selected broker, but the portfolio performance and risk reporting will be handled by Stock Rover.
Simply select Brokerage Connect from the left navigation menu and follow the instructions.
3. Manage Your Portfolio With Excellent Dividend Income Reporting
You can connect Stock Rover to your broker, or simply add the stocks you have purchased manually or via a text file import. Either way, you will be presented with some nice portfolio reporting.
In the example below, I have selected the Warren Buffett Top 25 Holdings portfolio. This is pre-built and reflects the Top 25 companies that Warren Buffett owns.
Selecting the Value Over Time Tab we can see the following metrics:
- This portfolio has made an annual rate of return of 7.3% over the last 10 years.
- The selection of stocks has appreciated in value by 88.1%
- The total return on investment is 116%
- The total income generated through dividends is $26 M
|Get A Free 14 Day Stock Rover Trial||Read The Stock Rover Review||10 Best Stock Screeners Comparison|
The 5 easy steps to building a powerful high dividend yield stock screener entail finding the rights stock screening software and then choosing your dividend investing strategy. You follow by building your screening criteria to form your list of great companies. Finally, you perform deep analysis and decide which stocks will for the foundation of your future portfolio.
Let me know how you get on, any questions or feedback, please leave a comment below, I promise to reply 🙂
List of Dividend Stock Screening Criteria?
Dividend Yield. The percentage of the price per share a company pays out to its shareholders as dividends annually, calculated by dividing the forecasted 12-month dividend payout by the current price.
Payout Ratio. The dividend payout ratio is Dividend Per Share as a percent of Diluted Earnings Per Share based on the TTM from the most recent quarterly report. Dividend Payout ratio can be used to measure the chance of a dividend increase or cut. For example, a company with a small Payout Ratio has room to increase its dividend.
Free Cash Flow Payout Ratio. This alternative dividend payout ratio aims to be more accurate by excluding accounting earnings and including only actual cash generation. It is calculated as Dividend Per Share as a percent of Free Cash Flow per Share and values less than 70 are considered best. Note that the Forward Dividend Yield is used along with the TTM Free Cash Flow. (Exclusive to StockRover)
Dividend Coverage Ratio. The dividend coverage ratio is calculated by dividing the stock’s annual earnings per share by the annual dividend. This indicates that a company can cover it’s dividend payments with its profits. Should be positive > 1.5
Dividends Cash Flow. The cost of payments made by this company to its common shareholders, preferred shareholders, and Noncontrolling interests over the trailing twelve-month period.
Dividend 1‑Year Chg (%). The percentage between the last paid dividend and the corresponding dividend 1 year earlier.
Dividend 3‑Year Avg (%). The average annual compound dividend growth for the last 3 years based on the last paid dividend and the corresponding dividend 3 years earlier.
Dividend 5‑Year Avg (%). The average annual compound dividend growth for the last 5 years based on the last paid dividend and the corresponding dividend 5 years earlier.
Dividend 10‑Year Avg (%). The average annual compound dividend growth for the last 10 years based on the last paid dividend and the corresponding dividend 10 years earlier. (Exclusive to StockRover)
Expected Dividend Growth Rate. The growth rate between the forward dividend per share and the trailing dividend per share. A great indication of company and analyst expectations of future dividend growth.
Forward Dividend Growth. The percentage change in dividend per share implied by the forward yield vs. the trailing 12-month yield. This is highest when a company has just announced a dividend increase.
Dividend Yield Industry Decile. The decile rank of the company’s Dividend Yield among all companies in the same industry. Companies with the highest yields score a 1 and the lowest yielding companies score a 10. Great for comparing companies in the same industry. (Exclusive to StockRover)
Dividend Yield Sector Decile. The decile rank of the company’s Dividend Yield among the yields of all companies in the same sector. Companies that have the highest yields score a 1 and the lowest yielding companies score a 10. (Exclusive to StockRover)
Dividend Per Share. The dollar amount paid per share in dividends each year based on the trailing twelve months dividend paid, updated by the forward forecast if available. Useful to compare against current stock price to assess your income per share.
Next Dividend Payment Per Share. The dollar amount of the next dividend payment, quarterly or yearly.
Expected Yearly Dividends. The expected annual dividend income, calculated as Quantity times Dividend Per Share.
Percent of Expected Yearly Dividends. The percent of the portfolio’s expected annual dividend income from this holding. Useful to have in your portfolio view to predict future income totals. (Exclusive to StockRover)
Dividend Frequency. The number of times per year a dividend will be paid.
Dividend Payment Date. The payment date of the last dividend.
Dividend Record Date. The cut-off date established by a company in order to determine which shareholders are eligible to receive a dividend or distribution. Thinking of buying a stock for dividend, then purchase before this date.
Ex‑Dividend Date. The first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment.
Dividends Ratings Score. The Stock Rover dividends percentile rating of a stock, where a score of 99 is best. The proprietary algorithm compares a company to its peers and considers the consistency of key dividend metrics as well as their direction of change. (Exclusive to StockRover)
Consecutive Dividend Growth Years. The number of years in a row that the dividend per share has increased. This provides the ability to sort potential purchases on their ability to deliver consistent dividend growth. (Exclusive to StockRover)
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