The Best High Dividend Stocks For 2015

| January 12, 2015 | 0 Comments

best dividend stocksWhere do you find the best high dividend stocks for 2015?

Let’s go for a look, and I’ll show you a couple of ways you can make some great finds on your own.

But first, we need to decide how high we really want to go. We need to separate the kind of high dividend stocks that get you income from the ones that get you into trouble.

I’m not interested in rolling the dice on stocks that pay a yield over 10%. There’s just too much risk for my blood.

So instead, we’ll focus on finding the best dividend stocks in the 5-10% range. There’s some risk here, no doubt about it, but with the right approach, it’s a reasonable risk.

The Best High Dividend Stocks Need These 3 Things

Yield, safety, and the opportunity for dividend growth.

Insist on all three.

Remember… Start with a yield of at least 5% and nothing higher than 10%.

There are two good ways to measure safety. Check to see that the company is actually turning a profit. Companies that don’t make money aren’t exactly tailor made for a dividend investor. Leave them to growth investors.

Then, check out the dividend payout ratio. This number shows you the percentage of income that is returned to shareholders as a dividend. This number tells you two things.

If the company has enough money to pay the dividend, and enough to grow the dividend.

The lower the payout ratio the better. This means there’s plenty of room to grow the dividend. When you see a dividend payout ratio in 30-45%, you’re in good shape.

Another good way to get a handle on how much the dividend could grow is to study the stock’s dividend growth history. Look for a stock that has delivered dividend growth for five years in a row.

How much growth? Anything over 8% is good. Double-digit dividend growth over the long haul is difficult to maintain.

How Many High Dividend Stocks Should You Buy?

Keep your portfolio diversified. Make sure you have a common sense mix of assets… stocks, bonds, real estate, precious metals and commodities.

This mix of assets is good because when one class of assets isn’t doing well, another class is.

The same principle holds true with dividend stocks.

Let’s say your overall portfolio is 60% stocks, 25% bonds, and the rest is in real estate, precious metals and commodities.

Use the same asset allocation to carve up your stocks. The exact allocation will depend on your circumstances.

Start by asking yourself two questions.

  • Is your goal building wealth or generating income?
  • How much time do you have?

The answers will help you assign a percentage of your portfolio to different types of dividend stocks.

The more emphasis on wealth creation, the more high yield dividend stocks you’ll buy.

Investing in any kind of stock, including dividend stocks, makes the most sense when your time horizon is five years or more. This lets you ride out most of the market’s inevitable highs and lows.

Stretch this time frame out to ten years, and you’ll have more good reasons to look at the high yield dividend stocks.

Then you ask another question.

How much income will I need and when?

Remember, because of your asset allocation, you have different investments that will create income at different dates.

Let’s say you’re 61. You might have a bond fund that will provide you with income when you turn 65. You can invest in high yield dividend stocks today, sit back, and wait 10 years for this stream of income.

Just don’t invest in high yield dividend stocks without giving yourself some time to ride through the ups and downs.

And stay away from those high-fliers that pay a yield over 10%.

So let’s go exploring.

The Search For Solid High Dividend Stocks

If you have a brokerage account, chances are you have a screening tool.

If you’ve never used one, play around with it, and set the filters to screen out stocks that don’t fit your criteria.

I’ve just used my screener to find stocks that pay a yield in the 5%-10% range, and have a dividend payout ratio that’s below 45%.

Here are 3 suspects…

Dividend Aristocrats Paying The Lowest Yield

Stock Yield Annual Payout Payout Ratio
PDL BioPharma Inc. (PDLI) 7.63% $0.60 23.52%
TransGlobe Energy Corp. (TGA) 5.73% $2.00 19.63%
Ocean Rig UDW Inc. (ORIG) 8.03% $0.76 24.20%

The next thing we’ll do is check to see if the dividend has been growing.

Definitely not the case with PDL BioPharma. Its dividends bounce up and down.

TransGlobe Energy… there’s been a dividend cut in the past year.

Ocean Rig UDW… it’s only been paying dividends since May 2014. It’s paid 3 quarterly dividends, each the same 0.19 per share.

So Ocean Rig UDW deserves our attention. Let’s look at the P/E Ratio and see how expensive it is compared to the overall market.

At 5.61, it’s a steal compared to the S&P 500 P/E Ratio of 18.

But there’s a very good reason for this low P/E.

Ocean Rig UDW is in the energy business. With the plunge in oil prices and the big oil companies cutting back on exploration and production, an independent company that’s an offshore drilling contractor is probably in for a pretty rough ride.

Then again, maybe the stock price has been unfairly hammered. Let’s take a look…

high dividend stocks chart Ocean Rig UDW

Well…

Fairly or not, it’s sure been hammered.

So if you’re still interested, and think that Ocean Rig UDW might be one of your solid high dividend stocks for 2015, you’ll want to know if it has plenty of money to ride the storm out.

It has $7.6B in assets, and $3.9B in long-term debt. Not bad. There’s some cash in the bank, and in 2013 it made money.

So if you’re a bit of a contrarian, and you figure Ocean Rig can hang on until things get better, the stock fits the bill.

Anything ugly that should send you running for the exits?

Definitely. The company focuses on a piece of the energy business that could take longer than others to recover… the “ultradeepwater” and harsh-environment segment of offshore drilling.

Companies like Exxon Mobil (XOM) can get the oil and gas they need from lower hanging fruit. So this stock could take longer than the rest of the energy sector to rebound. It is definitely for the patient, long-term investor.

Go Find Your Best High Dividend Stocks For 2015

Now that I’ve shown you some of the ways I like to size up a stock, go do some exploring and see what you turn up.

Stay in that 5%-10% dividend yield range. Keep the dividend payout ratio down below 45%. Look for a P/E ratio that’s not way above the market, review the balance sheet, and see how the company makes its money.

Want to make sure you’ve got all the basics covered?

Check out my article on how to find the best stocks for dividend income.

This is how you’ll find the best high dividend stocks for 2015, and add some nice performance to your portfolio.

Best Regards,

Michael Jennings

Note:  Michael Jennings writes and edits DividendStocksResearch.com. Sign up for our free dividend reports and dividend newsletter at https://dividendstocksresearch.com/free-sign-up. We’ll show you how to create regular income by investing in dividend stocks, easily, step-by-step.

 

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Category: Dividend Stocks

About the Author ()

Michael Jennings writes and edits DividendStocksResearch.com showing how you can profit from dividend stocks. His passion for stocks and especially Dividend Stocks began at an early age. Now he shares his knowledge and wisdom with anyone who asks... He shows beginning investors, retirees, and even trading pros how to create regular income by investing in dividend stocks, easily, step-by-step! You can Sign up for his free Dividend reports and dividend newsletter at http://www.dividendstocksresearch.com/free-sign-up

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