Regular dividend paying stocks usually attract more investors as these are a steady source of income. Most of the time, cash dividends return more than what can be earned from deposits in savings accounts.
Therefore, 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 selecting that stock.
Nonetheless, as dividend yield is based on the stock’s price, lower share price indicates higher yield, making the stock attractive. So, 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 dip in price.
Also, one must take into account the company’s debt levels. With significantly high level of global corporate debt, dividends might fall if corporates begin to conserve cash to service debt.
Further, continued uncertainty related to the U.S.-China trade conflict, expectations of global economic slowdown and several other geopolitical matters could lead companies to conserve cash. This, in turn, might result in the firms maintaining the current dividend levels or even slashing it.
Choosing High Yield Dividend Stocks
It’s not wise to pick stocks just based on high dividend yield. A few other factors must also be taken in to consideration before taking any investment decision. So, we have taken 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) and have a market cap of $5 billion or more. 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.
Here are the three stocks:
MDU Resources Group, Inc. MDU, based in Bismarck, ND, has market cap of $5.9 billion and is a utility natural gas distribution company. Its debt/equity ratio of 00.81 is lower than the industry average of 0.99. The stock carries a Zacks Rank #2.
Dividend Yield (5-year average): 3.17%
Value Score: B
Earnings growth for 2020: 6.3%
Headquartered in Minneapolis, MN, Target Corporation TGT has a market cap of $63 billion. It operates as a general merchandise retailer in the United States. The debt/equity ratio for this Zacks Rank #2 stock is 1.10, which is lower than the industry average of 1.33.
Dividend Yield (5-year average): 3.26%
Value Score: B
Earnings growth for fiscal 2021: 7.6%
With a market cap of $47 billion and carrying a Zacks Rank #2, MetLife, Inc. MET is an insurance-based global financial services company providing protection and investment products. This New York-based firm’s debt/equity ratio of 0.20 is slightly lower than the industry average of 0.21.
Dividend Yield (5-year average): 3.36%
Value Score: A
Earnings growth for 2020: 10.3%
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MDU Resources Group, Inc. (MDU) : Free Stock Analysis Report
MetLife, Inc. (MET) : Free Stock Analysis Report
Target Corporation (TGT) : Free Stock Analysis Report
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