Deep Dive: Looking for high income? These 23 dividend stocks provide it

In this seemingly eternal period of historically low interest rates, stocks have become increasingly popular as income-seeking investors have been forced to take on more risk. Last year, the S&P 500 Index set a record for dividend payouts, though dividends increased at their slowest pace since 2011.

Still, we have identified a group of stocks, listed below, that appear to be well-positioned to increase dividend payouts considerably.

Only 12 S&P 500 SPX, -0.51%  companies cut their dividends in the first quarter, but there’s plenty of negativity, when considering just how many sectors are expected to post earnings declines. Here are the latest estimates of how the sectors will fare when first-quarter earnings season is complete:

S&P 500 sector Estimated EPS growth – first quarter, 2016 Actual EPS growth – first quarter, 2015
Consumer Discretionary 11.1% 8.5%
Consumer Staples 2.9% 4.3%
Energy -76.2% -54.6%
Financials 2.3% 18.3%
Health Care 5.8% 21.4%
Industrials 3.0% 8.7%
Information Technology 2.3% 9.1%
Materials 0.2% -0.7%
Telecommunications Services 2.2% 2.1%
Utilities 3.0% 0.4%
S&P 500 0.4% 3.2%
S&P 500, excluding energy 2.8% 11.8%
Source: S&P Global Market Intelligence

Even when excluding the energy sector, the trend is weak for most sectors.

Also see: The best dividend stocks among the S&P’s strongest sectors of 2016

This is how we found attractive stocks. We began with the S&P 500 stocks with dividend yields of at least 3.50%, and pared the list to include only companies whose free cash flow yields over the past 12 months exceeded their dividend yields. Free cash flow is a company’s remaining cash flow, after capital expenditures, which is available for dividend payments, stock repurchases or acquisitions. The idea is that having free cash flow “headroom” makes dividend increases more likely and dividend cuts less likely.

We then narrowed that list to companies that had increased their sales (or revenue) per share over the past 12 months. We used the per-share figures since those would reflect any dilution to investors’ holdings from the net issuance of shares to fund acquisitions or stock-based compensation for executives, as well as net declines in share counts from buybacks. We focused on sales, rather than earnings per share, because EPS figures can be skewed by one-time events.

Finally, we checked to make sure the companies hadn’t cut their dividends over the past five years. Some may have cut dividends during the last recession, and some started paying dividends or resumed paying dividends over the past five years.

This left us with 23 companies. Here they are:

Company Ticker Industry Dividend yield Free cash flow yield ‘Headroom’
HCP Inc. HCP, -0.24% Real Estate Investment Trusts 6.53% 9.00% 2.47%
Host Hotels & Resorts Inc. HST, +0.00% Real Estate Investment Trusts 5.04% 9.71% 4.67%
Navient Corp. NAVI, +1.41% Finance/ Rental/ Leasing 4.94% 39.44% 34.50%
AT&T Inc. T, +0.47% Major Telecommunications 4.93% 6.59% 1.66%
Welltower Inc. HCN, -0.34% Real Estate Investment Trusts 4.82% 6.14% 1.32%
GameStop Corp. Class A GME, -0.30% Specialty Stores 4.56% 14.19% 9.63%
Viacom Inc. Class B VIAB, -3.54%   Media Conglomerates 4.49% 14.06% 9.58%
Ford Motor Co. F, -3.76% Motor Vehicles 4.46% 16.68% 12.22%
Kohl’s Corp. KSS, -2.66% Department Stores 4.46% 9.35% 4.89%
Verizon Communications Inc. VZ, -0.16% Major Telecommunications 4.34% 9.95% 5.61%
People’s United Financial Inc. PBCT, -0.19% Savings Banks 4.10% 5.00% 0.90%
Crown Castle International Corp. CCI, -0.30% Real Estate Investment Trusts 4.02% 5.13% 1.11%
Mosaic Co. MOS, -2.03% Chemicals: Agricultural 3.90% 8.62% 4.72%
Gap Inc. GPS, -1.49% Apparel/ Footwear Retail 3.84% 9.01% 5.17%
AbbVie Inc. ABBV, -0.33% Pharmaceuticals 3.79% 7.10% 3.31%
Realty Income Corp. O, -0.45% Real Estate Investment Trusts 3.77% 4.36% 0.59%
Cisco Systems Inc. CSCO, -1.68% Computer Communications 3.67% 8.73% 5.06%
Prologis Inc. PLD, -0.53% Real Estate Investment Trusts 3.67% 5.13% 1.46%
Altria Group Inc. MO, +0.84% Tobacco 3.66% 4.62% 0.96%
Pfizer Inc. PFE, -0.61% Pharmaceuticals 3.65% 6.38% 2.73%
Principal Financial Group Inc. PFG, -0.44% Financial Conglomerates 3.60% 33.91% 30.31%
Kimco Realty Corp. KIM, -1.06% Real Estate Investment Trusts 3.56% 5.44% 1.88%
Macy’s Inc. M, -2.49% Department Stores 3.50% 6.72% 3.22%
Source: FactSet

There are seven real estate investment trusts, or REITs, on the list. For this group, we used funds from operations (FFO) to calculate free cash flow yield. FFO is a REIT’s net income, plus depreciation and amortization, less gains on the sales of property. It’s a non-GAAP figure, but is commonly used to gauge REITs’ cash flow available for dividend payouts.

Two of the companies on the list, HCP Inc. HCP, -0.24%  and AT&T Inc. T, +0.47% are included in the S&P 500 Dividend Aristocrats Index SPDAUDP, -0.45% which is maintained by S&P Dow Jones Indices. There are 50 so-called Dividend Aristocrats, which are companies that have raised dividends for at least 25 consecutive years.

Also see: These ‘Dividend Aristocrat’ stocks have risen up to 24% a year for a decade

Interestingly, many of the Dividend Aristocrats have much lower yields than the stocks listed here, since yield itself is not a factor for the stocks making up the index.

Here’s how the 23 companies have grown sales per share over the past 12 reported months, through Tuesday:

Company Ticker Sales per share – past 12 months Sales per share – year earlier Growth of sales per share
HCP Inc. HCP, -0.24% $5.49 $4.96 10.6%
Host Hotels & Resorts Inc. HST, +0.00% $7.06 $6.95 1.6%
Navient Corp. NAVI, +1.41% $14.12 $13.48 4.8%
AT&T Inc. T, +0.47% $25.95 $25.37 2.3%
Welltower Inc. HCN, -0.34% $11.05 $10.87 1.7%
GameStop Corp. Class A GME, -0.30% $88.02 $82.65 6.5%
Viacom Inc. Class B VIAB, -3.54%   $32.66 $32.39 0.8%
Ford Motor Co. F, -3.76% $37.37 $35.72 4.6%
Kohl’s Corp. KSS, -2.66% $99.28 $93.33 6.4%
Verizon Communications Inc. VZ, -0.16% $32.17 $32.14 0.1%
People’s United Financial Inc. PBCT, -0.19% $4.67 $4.43 5.4%
Crown Castle International Corp. CCI, -0.30% $11.10 $11.07 0.2%
Mosaic Co. MOS, -2.03% $24.68 $24.10 2.4%
Gap Inc. GPS, -1.49% $38.31 $37.44 2.3%
AbbVie Inc. ABBV, -0.33% $13.96 $12.43 12.3%
Realty Income Corp. O, -0.45% $4.38 $4.30 1.9%
Cisco Systems Inc. CSCO, -1.68% $9.68 $9.31 4.0%
Prologis Inc. PLD, -0.53% $4.11 $3.44 19.4%
Altria Group Inc. MO, +0.84% $9.62 $9.07 6.0%
Pfizer Inc. PFE, -0.61% $7.81 $7.72 1.1%
Principal Financial Group Inc. PFG, -0.44% $39.98 $35.25 13.4%
Kimco Realty Corp. KIM, -1.06% $2.84 $2.47 14.9%
Macy’s Inc. M, -2.49% $81.88 $78.01 5.0%
Source: FactSet

Read: These 12 U.S. companies have increased sales for at least 60 straight quarters

The idea here is to help you get started in picking common stocks for dividend income. When you do your own research, think about how likely a company is to be successful in its long-term strategy. Then you have a basis for a conversation with your broker or financial adviser.

Income investments require long-term commitments, and since receiving dividends is your main objective for this part of your portfolio, you need to be willing to ride out fluctuations rather than sell into panics. One thing that may affect you is rising interest rates. If the Federal Reserve raises interest rates, dividend stocks might take a hit. But strong companies tend to recover. And remember, you will be paid, in the form of dividends, as you wait.

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