Regular dividend paying stocks always attract more investors as these act as a steady source of income. Most of the time, cash dividends return more than what can be earned from deposits in savings accounts.
Hence, while selecting dividend stocks, investors generally focus on dividend yield (annual dividend per share/stock’s price per share) as this reflects the percentage return on the invested amount. Higher the yield, higher the chances of choosing that stock. Nonetheless, as the dividend yield is based on the stock’s price performance, lower share price indicates higher yield, making the stock attractive. But before buying such a stock, one must ensure that it is not a dividend trap. Decline in the company’s stock price may be on account of certain fundamental weaknesses, and if those persist, there is a high chance of further price decline. Also, one must take into consideration the company’s debt levels. With global corporate debt of a whopping $13 trillion at the end of 2018 (per the Paris-based Organisation for Economic Co-operation and Development data) as well as higher interest rates, dividends might fall if corporates begin to conserve cash to service debt. Additionally, several macroeconomic factors, including slowdown in China’s economy, trade tension and uncertainty pertaining to Brexit could lead companies to conserve cash. This, in turn, might result in the firms maintaining the current dividend levels or even slashing it. VIDEO
Picking High Dividend Paying Stocks Based on the above-mentioned factors, it’s not wise to pick stocks just based on dividend yield. A handful of other factors must also be taken in to consideration before taking any investment decision. One way is to take the help of the Zacks Stock Screener. Through it, we have shortlisted stocks with 5-year average dividend yield of 3% or more and a debt-to-equity (D/E) ratio lower than the respective industry average. Also, these stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here Further, these stocks have a Value Score of A or B. Our research shows that stocks with a Value Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential. Moreover, these stocks have market cap of $1 billion or more. Here are the four stocks: DSW Inc. ( DSW - Free Report) , based in Columbus, OH, has market cap of $2.3 billion and is a branded footwear and accessories retailer. Its debt/equity ratio of 0.00 is lower than the industry average of 0.11. The stock sports a Zacks Rank #1. Annual Dividend: $1.00 per share Dividend Yield (5-year average): 3.24% Value Score: A Headquartered in Fort Mill, SC, Domtar Corporation ( UFS - Free Report) has a market cap of $3.2 billion. It designs, manufactures, markets and distributes various communication papers, specialty and packaging papers, and absorbent hygiene products. The debt/equity ratio for this Zacks Rank #2 stock is 0.34, which is lower than the industry average of 0.61. Annual Dividend: $1.74 per share Dividend Yield (5-year average): 3.84% Value Score: A With a market cap of $1.7 billion and sporting a Zacks Rank #1, NGL Energy Partners LP ( NGL - Free Report) is engaged in the crude oil logistics, water solutions, liquids, retail propane, and refined products and renewables businesses. This Tulsa, OK-based company’s debt/equity ratio of 0.89 is significantly lower than the industry average of 2.36. Annual Dividend: $1.56 per share Dividend Yield (5-year average): 11.23% Value Score: A Based in New York and with a market cap of $2.5 billion, Moelis & Company ( MC - Free Report) is a global investment bank. Its debt/equity ratio of 0.00 is lower than the industry average of 0.32. The stock carries a Zacks Rank #2. Annual Dividend: $2.00 per share Dividend Yield (5-year average): 3.43% Value Score: B Breakout Biotech Stocks with Triple-Digit Profit Potential The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases. Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better. See these 7 breakthrough stocks now>>