Finding companies that pay a high dividend yield can be easy with the right stock screener. 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. Here I share three possible dividend/income strategies you could adopt, choose the one that is right for your investing style.
What is a High Dividend Yield Stock?
High dividend yield stocks are a double-edged sword. The higher the dividend yield, the harder it is for the company to keep paying the high dividend. Because the dividend yield is calculated by dividing the dividend payout by the stock price, the yield goes up as the stock price goes down. That is why you also need to pay attention to the dividend payout ratio.
1. High Dividend Yield Strategy: High Risk
The first thing someone new to income and dividend investing would do is look for stocks with the highest dividend yield. Naturally, they will want to choose a company that will pay the most in dividends.
Using these criteria will help you find those highest-yielding stocks.
High Dividend Yield Screening Criteria
- Market Capitalization > $500 M
- Dividend Yield > 4%
- Dividend 1 Year Change % > 0%
- Dividend 3 Year Average % > 0%
- All Exchanges (including OTC)
- Payout Ratio < 90%
Ideally, you will choose companies worth at least $500 million 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%. I have also chosen to scan for companies with at least three years of dividend payouts in this example. Finally, select a Payout Ratio of less than 90%.
This scan will show you a list of stocks, but many of the stocks are OTC/Pink Sheet stocks; this represents a risk as these stocks are thinly traded and lack liquidity.
You must 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 a 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: Medium Risk
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 a 10% income from your investment for that year?
The answer is maybe.
10% is a very high yield, and it could be because of several 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.
High Dividend Yield + 3 Year Growth Stock Screening Criteria
- Market Capitalization > $500 M
- Dividend Yield > 3%
- Dividend 1 Year Change % > 2%
- Dividend 3 Year Average % > 2%
- EPS 5 Year Average > 0
- Payout Ratio < 50
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 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 on 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. 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 its future discounted cashflow (see intrinsic value). So there is some risk here.
Screener Results – Brookfield Property (Ticker: BPR)
Second on 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 two 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 buy now, you can choose when to sell for an overall profit.
Which one would you invest in?
3. High Dívidend Yield + Value: Low Risk
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.
High Dividend Yield + Value Strategy Screening Criteria
- Dividend Yield > 2
- Dividend 5 Year Average > 1%
- EPS 5 Year Avg > 8%
- Payout Ratio < 60
- Sales 5 Year Avg > 3%
- Price / Sales < 2
- Margin of Safety > 1
In this strategy, you want to look for inexpensive dividend-paying companies 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 earnings have continued to grow despite a terrible year for the stock price.
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 minimal 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 five-year history and the forward estimates for EBITDA, Sales, and EPS growth to rank the best companies across all stocks. 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]
The Best High Dividend Yield Stock Screeners
Using Microsoft Excel to number crunch company financials is long dead and very inefficient. Out of all the screeners we have tested, Stock Rover is clearly the best for dividends, growth stocks, and value investing. It will enable you to implement first-class dividend income investing strategies.
Option 1 – Get Stock Rover – For USA & 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 & financial history, Fair Value, and Margin of Safety criteria, exclusive to Stock Rover.
Get A Free 14 Day Stock Rover Premium+ Trial
Option 2 – For International Investors
If you plan to build a portfolio of dividend stocks outside of the USA & Canada, 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. Compelling technical analysis and system backtesting are 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
Setting Up Your High Dividend Yield Screener
In the previous section, I highlighted three specific dividend screening strategies and 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. The Stock Rover team has already programmed similar strategies into the software for you. This next section 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 five 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 six key strategies available in your screener list already populated with potential investments.
Researching High Dividend Yield Stocks
Now you have your potential buy list with stocks that passed your first wave of checks. You may want to deep-dive into the company’s financials 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 Ratings for 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 company’s financial health.
- 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 Debt to Equity but higher than the 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, you see Peers Financial Strength Scores; you can see the excellent visualization of this company’s financial strength 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. 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 the 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.
Now you have analyzed the companies you are interested in, it is 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,”
Buying High Dividend Yield Stocks
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 you want to buy to 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 long-term. If you have done your job well, you will not need to sell for the foreseeable future.
If you do not already have a broker to enable the purchase of shares, I would recommend the only major $0 commissions broker Firstrade, the winner of our Top 10 Stock Brokers Comparison.
High Dividend Yield 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 Stock Rover will handle the portfolio performance and risk reporting.
Simply select Brokerage Connect from the left navigation menu and follow the instructions.
Manage Your Portfolio With 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 ten years.
- The selection of stocks has appreciated by 88.1%
- The total return on investment is 116%
- The total income generated through dividends is $26 M
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Summary: High Dividend Yield Stocks
The five easy steps to building a powerful high dividend yield stock screener entail finding the rights stock screening software and choosing your dividend investing strategy. You follow by building your screening criteria to form your list of great companies. Finally, you perform a deep analysis and decide which stocks will for the foundation of your future portfolio.
Important Dividend 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. The 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 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 its 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 one year earlier.
Dividend 3‑Year Avg (%). The average annual compound dividend growth for the last three years is based on the last paid dividend and the corresponding dividend three years earlier.
Dividend 5‑Year Avg (%). The average annual compound dividend growth for the last five years is based on the last paid dividend and the corresponding dividend five years earlier.
Dividend 10‑Year Avg (%). The average annual compound dividend growth for the last ten years is based on the last paid dividend and the corresponding dividend ten 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 is based on the trailing twelve months dividend paid, updated by the forward forecast if available. Useful to compare against the 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 is established by a company 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 Rating 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 and 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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