7 stocks paying outsize dividends

By Harry Domash

Yes, almost all stocks go down in a bear market. But it seems to me that things are getting a little ridiculous, especially for many dividend-paying stocks.

I know banks have taken a beating, probably deservedly so. But many stocks in other industries with stronger fundamental outlooks are also down substantially.

A dividend, of course, is money you get paid simply for owning a stock. And since the dividend yield is the next 12 months' expected dividends divided by the recent share price, yields go up when share prices drop, assuming the dividend isn't cut.

Because so many babies have been thrown out with the bath water, relatively solid companies are now paying dividends equating to 8%, 10% and even higher yields. That kind of return on your money is hard to match these days -- in stocks, in funds or at a bank.

Sure, if things get bad enough, even apparently solid companies may cut their dividends to conserve cash. But we're a long way from there.

Besides, with yields so high, a dividend cut wouldn't be the end of the world. Say a company paying a 10% yield cuts its payout by 50%. The resulting 5% yield is still good compared with 3%, which is the most you're likely to get from a bank. As investing goes these days, that's pretty easy money and worth trying to tap.

Safe, superior payouts

I've come up with a screen for finding high-dividend stocks that should be able to weather a moderate slowdown without cutting their payouts. The screen looks for midcap and large-cap stocks paying high, but not too high, yields (I'll define those terms below). From that larger group, it zeroes in on profitable companies expected to stay that way, even given the current problematic economic outlook.

This screen isn't necessarily looking for fast growers. I'm satisfied with stocks likely to at least maintain earnings at current levels. Any growth in this environment would be a bonus.

Since the screen is all about dividend yields, I'll start there.

Not too small, not too big

I limited the screen's field to stocks with 8%-to-20% dividend yields.

I picked 8% for my minimum because, even given a moderate dividend cut of 20% to 25%, the resulting 6% to 6.4% yield would still be substantially above bank rates and high enough to still qualify as a high-dividend stock. Since I picked 8% arbitrarily, try moving that figure down if you want to see more stocks and up if you want to limit the field to only the highest-dividend payers.

Although I also arbitrarily picked 20% as my maximum yield, I don't suggest raising that limit. In my experience, stocks with yields above that mark are trouble.

Screening parameter: Current Dividend Yield >= 8

Screening parameter: Current Dividend Yield <= 20

Avoid small stocks

High dividends or not, small stocks are riskier than big stocks, and the last thing you need in this market is extra risk.

Most analysts use market capitalization, which is the recent share price multiplied by the number of shares outstanding, to measure company size. The market cap is how much you'd have to pay to buy all of a company's shares. Companies with market caps below $1 billion to $2 billion are considered small caps, those above $8 billion are large caps, and those in between are midcaps.

I set my minimum market cap at $1 billion, which rules out small stocks. Don't even think of cutting that minimum, but consider raising it to $2 billion or even $5 billion if you want to reduce your risk.

Screening parameter: Market Capitalization >= 1,000,000,000

When I first ran the screen, only 156 stocks met my dividend-yield and market-cap requirements. Next, since companies must generate profits to pay dividends, I added a simple test to rule out unprofitable stocks.

Continued: Returns

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