Searching for Yield
High-quality bond yields are measured with a microscope, and prices on many dividend-paying stocks have been bid up along with the bond. Where can investors find yield? And what are some of the risks? Running a screen should help find some answers.
The Motley Fool CAPS screener was sent on a search for yield with the following settings:
Dividend yield greater than 4%.
Market capitalization greater than $500 million.
Revenue growth rate over the past three years greater than 2%.
Earnings-per-share growth rate over the past three years greater than 2%.
Price-to-earnings ratio for the past 12 months positive and less than 20.
Rated five stars (out of five) by our CAPS community
I usually use higher thresholds for earnings and revenue growth and add debt-to-equity limits to screens like this, but wanted to loosen up a few of the safeties to see what's out there.
The screen returned 35 hits from seven sectors, including the seven listed in the following table. The bar chart shows the sector breakdown.
Company Name | Current Dividend Yield % | Revenue Growth Rate (Past 3 Years) | EPS Growth Rate (Past 3 Years) | Price-to-Earnings (TTM) | Sector |
|---|---|---|---|---|---|
Martin Midstream Partners (NAS: MMLP) | 9.8% | 24.6% | 22.8% | 8.4 | Basic Materials |
Greif (NYS: GEF) | 4.2% | 14.8% | 8.9% | 11.8 | Consumer Goods |
Prospect Capital (NAS: PSEC) | 10.6% | 82.9% | 61.3% | 6.5 | Financial |
Sanofi (NYS: SNY) | 4% | 3.6% | 9.4% | 15.3 | Health Care |
TAL International (NYS: TAL) | 7% | 16.3% | 26% | 8.2 | Services |
Intel (NAS: INTC) | 4.5% | 16.2% | 51.3% | 8.8 | Technology |
CPFL Energy (NYS: CPL) | 7.3% | 2.7% | 10.6% | 13.6 | Utilities |
Source: Motley Fool CAPS screen results.
More than half of the hits from basic materials are master limited partnerships, or MLPs, and the highest distribution yield from the group is Martin Midstream. MLPs are free from paying income tax, provided they pass the vast majority of their income through to their unitholders. That structure typically results in high yields, and accordingly, Martin's distribution history shows slow, steady growth over its operating history.
Greif produces packaging materials and owns and manages timberland. A recent falloff in year-over-year revenue and earnings growth along with operating margins below historical averages are concerns to watch.
Prospect Capital is one of three business development companies from the six financials that made it through the screen. Like MLPs and REITs, BDCs pass along most of their earnings, and all of their tax liability, to shareholders. Prospect makes loans to and/or takes equity stakes in developing businesses. Investors need to be comfortable with frequent share issues, Prospect has had three so far this year.
Sanofi is the only health-care sector company to make the screen. Brian Pacampara just outlined why our Foolish community thinks Sanofi is poised to outperform.
TAL International leases shipping containers. It trades deep in value territory and has a great yield and enough earnings to comfortably cover the dividend. The only concern I found in a quick glance is lots of debt.
Concerns over the future of PC sales have kept Intel trading in value territory, and the recent CEO retirement announcement helped drive the stock to 52-week lows. Value or value trap? My money is literally on value.
CPFL is a Brazilian utility. My Foolish colleague Sean Williams explains why the stock is unloved and why it belongs on your Watchlist. I'm adding it to mine.
MLPs were the most common return from the screen. I was surprised that only one REIT turned up: Universal Health Realty Income (NYS: UHT) .
The screen shows there are some promising high-income stocks and units out there and that many of them have some risks that come as part of the package. However, screen results should always be considered a starting point for more research and not a buy recommendation.
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The article Searching for Yield originally appeared on Fool.com.
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