Back to top

Screening Ideas

What investor doesn't like getting paid a dividend?

Besides having cash in your pocket, dividends can also tell you a lot about the health of a company. Dividends can't be faked. If a company is paying one, it signals it has cash on hand.

Investors commonly seek out high dividend yielding stocks in order to boost their returns. Dividend yield, therefore, is one of the most popular screening methods investors use to find stocks.

Criteria Defined

Dividends are declared by the board of directors and are usually awarded to shareholders on a quarterly basis, although some companies pay out just once or twice a year.

Most investors actually seek out the dividend yield, instead of simply the dividend itself. The yield tells you the return you're getting on your investment.

The yield is calculated as:

  • Annual dividends per share/share price

Dividend yields are always a percentage.

A company, for example, that pays a $2.00 annual dividend and is trading with a share price of $50 will have a dividend yield of 4%.

How to Use the Dividend Yield to Find Stocks

Everyone is looking for the holy grail of investing, which is the perfect growth stock that goes up every year and also pays a dividend yield of 7% or higher.

An investor can find out if such a company even exists by screening for it on Zacks.com.

  1. Go to "Screening" at the top of the Zacks.com home page.
  2. Once on the screening page, click on "Custom Screener".
  3. In the Custom Screen window, select the "Dividends" category and then the "Dividend Yield%" (Div. Yield %) item (as shown below).
  4. Put in your parameters for the dividend yield and you’re ready to go.

Feel free to add in other items as well to narrow your search down even more.

For example: you can also screen for 5 Yr. Div Yield% or 5 Yr Hist. Div. Growth%.

You can also screen for the actual dividend itself such as 25 cents or $2.00.

Improving Your Dividend Screening Result

Although the custom screener has several dividend yield options, an investor might want to know even more details about when the dividend is actually going to be paid out.

As part of the screening, you should consider:

  1. What is the company’s dividend paying schedule? An investor might want to buy the stock ahead of a payout.
  2. What is the annual cash dividend per share for the last 2 years? This would show if there have been any cuts or increases in the dividend in that time. That’s a good way to determine if that juicy yield is actually going to be sticking around for awhile.

This can be screened for in Zacks’ Research Wizard program by looking under the "Dividend and Payout" for the Last Ex-Dividend Date as well as the "Annual Cash Dividend per Share (2 Yr)".

You can also add in other metrics to make sure your dividend paying stocks are on solid ground and will keep paying you the dividend such as Cash Flow, Current Ratio, Return on Equity (ROE) and more.

Conclusion

The Dividend Yield can be a good screening method to determine companies that are actually generating cash and then healthy enough to pay it to shareholders.

Income stocks can provide a boost to any portfolio.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.

Please login to Zacks.com or register to post a comment.