Scott's Investments: A Smarter Way to Pick High-Yield Stocks

Scott's Investments: A Smarter Way to Pick High-Yield Stocks

A Smarter Way to Pick High-Yield Stocks

I was reading Charles Schwab Investing Insights (Volume 8, 2009) and came across a strategy for picking high-yield stocks. The article studied the 1500 largest stocks by market capitalization from 1990-2009 and divided yielding stocks into 4 quadrants. The highest yielding quadrant underperformed the preceding two quadrants. The highest yield group had 12-month returns of 10.04%, versus 10.73% for the next highest and 10.21% for the 3rd highest yield group. The lowest yield group returned 9.58% and stocks that paid no dividends returned 9.85%. In other words, the highest yield stocks did not equate to the highest return.


However, the Schwab study offered an alternative strategy for picking the likely winners among the highest yielding stocks. They ranked the highest yielding stocks by 6 month price momentum, divided them into 5 segments, and found that highest yield stocks with the highest 6 month price momentum outperformed a) all other momentum segments (in other words, those high yield stocks with lower price momentum) and b) the annual return of every quadrant mentioned in paragraph one.


In other words, by applying a 6 month price momentum screen to the highest yielding stocks among the largest 1500 stocks, an investor would have had superior returns from 1990-2009. The average 12 month return was 11.5% for the highest yield, highest 6 month price momentum stocks. The lower momentum highest yield stocks returned, starting with the lowest momentum stocks, 7%, 9.7%, 10%, and 10%.


The Schwab study defined the highest yielding group as historically having a yield of at least 1.5 times the average yield of the S&P 500. I used a dividend screen of 4% or greater to identify highest yielding stocks. Next, we can rank those stocks by 6 month return. Finally, I have screened for stocks in the S&P 500 to make the list more manageable for an individual investor. This gives us a list of 65 stocks as of today. If we pick the top 20% of this list based on 6 month returns, it gives us 13 stocks.


Below is the full list of stocks with a break after the top 13 stocks:


No disclosures.

Ticker	Company	Trend Analysis	Dividend Yield	Performance (Half Year)	Price
RRD	R.R. Donnelley & Sons Company	Here	5.14%	146.59%	20.22
MWV	MeadWestvaco Corporation	Here	4.27%	66.05%	21.57
VTR	Ventas Inc.	Here	5.53%	46.60%	37.06
GE	General Electric Co.	Here	5.34%	42.35%	15.36
PLD	ProLogis	Here	5.47%	40.82%	10.97
HCP	HCP, Inc.	Here	6.76%	40.36%	27.23
MAT	Mattel Inc.	Here	4.18%	38.61%	17.95
NI	Nisource Inc.	Here	6.84%	38.23%	13.45
TEG	Integrys Energy Group, Inc.	Here	7.78%	37.03%	34.97
PM	Philip Morris International, Inc.	Here	4.80%	36.92%	48.36
EQR	Equity Residential	Here	4.72%	36.22%	28.62
NYX	NYSE Euronext, Inc.	Here	4.39%	35.20%	27.31
LEG	Leggett & Platt, Incorporated	Here	5.69%	31.61%	18.28
	TOP 20% By Momentum
	The rest of the list:
AVB	Avalonbay Communities Inc.	Here	5.25%	30.62%	67.99
MTB	M&T Bank Corp.	Here	4.66%	30.46%	60.14
SLE	Sara Lee Corp.	Here	4.10%	29.78%	10.72
SE	Spectra Energy Corp.	Here	5.43%	27.56%	18.42
HCN	Health Care REIT Inc.	Here	6.57%	27.32%	41.38
TE	TECO Energy Inc.	Here	5.89%	26.54%	13.59
DTE	DTE Energy Co.	Here	6.23%	23.11%	34.04
MRK	Merck & Co. Inc.	Here	4.80%	22.77%	31.65
KMB	Kimberly-Clark Corporation	Here	4.08%	22.75%	58.87
LO	Lorillard, Inc.	Here	5.36%	22.55%	74.61
CTL	Centurytel, Inc.	Here	8.58%	22.45%	32.62
WIN	Windstream Corporation	Here	10.22%	21.34%	9.78
DD	EI DuPont de Nemours & Co.	Here	5.37%	20.85%	30.54
RAI	Reynolds American Inc.	Here	7.70%	19.97%	44.16
CNP	Centerpoint Energy Inc.	Here	6.22%	19.69%	12.22
POM	Pepco Holdings, Inc.	Here	7.53%	19.00%	14.34
PNW	Pinnacle West Capital Corp.	Here	6.63%	18.87%	31.68
AEP	American Electric Power Co., Inc.	Here	5.40%	18.86%	30.37
GPC	Genuine Parts Co.	Here	4.34%	17.05%	36.87
FE	FirstEnergy Corp.	Here	4.91%	16.58%	44.79
KFT	Kraft Foods Inc.	Here	4.47%	15.38%	25.95
HNZ	HJ Heinz Co.	Here	4.32%	15.18%	38.85
SCG	SCANA Corp.	Here	5.51%	14.74%	34.09
BMY	Bristol-Myers Squibb Co.	Here	5.57%	13.63%	22.26
D	Dominion Resources, Inc.	Here	5.23%	13.03%	33.49
COP	ConocoPhillips	Here	4.02%	12.80%	46.8
MO	Altria Group Inc.	Here	7.78%	12.20%	17.47
MCHP	Microchip Technology Inc.	Here	5.42%	12.11%	25
DUK	Duke Energy Corporation	Here	6.24%	11.94%	15.38
NU	Northeast Utilities	Here	4.12%	11.78%	23.06
PGN	Progress Energy Inc.	Here	6.50%	10.22%	38.17
PCG	PG & E Corp.	Here	4.20%	9.89%	40
AEE	Ameren Corporation	Here	6.28%	8.64%	24.52
GAS	Nicor Inc.	Here	5.25%	8.58%	35.44
XEL	Xcel Energy Inc.	Here	5.10%	8.47%	19.2
HCBK	Hudson City Bancorp, Inc.	Here	4.64%	7.76%	12.92
CINF	Cincinnati Financial Corp.	Here	6.19%	6.92%	25.51
ED	Consolidated Edison Inc.	Here	5.85%	5.99%	40.35
SO	Southern Company	Here	5.52%	5.07%	31.73
PAYX	Paychex Inc.	Here	4.42%	5.01%	28.06
PPL	PPL Corporation	Here	4.73%	3.99%	29.16
T	AT&T, Inc.	Here	6.18%	2.12%	26.52
FTR	Frontier Communications Corporation	Here	13.76%	1.82%	7.27
LLY	Eli Lilly & Co.	Here	6.03%	1.31%	32.51
EXC	Exelon Corp.	Here	4.38%	0.80%	47.98
PBI	Pitney Bowes Inc.	Here	6.05%	0.13%	23.82
PEG	Public Service Enterprise Group Inc.	Here	4.38%	-0.10%	30.35
SVU	SUPERVALU Inc.	Here	4.84%	-1.30%	14.47
PCL	Plum Creek Timber Co. Inc.	Here	5.70%	-1.80%	29.46
SUN	Sunoco Inc.	Here	4.42%	-2.90%	27.13
Q	Qwest Communications International Inc.	Here	8.96%	-5.05%	3.57
VZ	Verizon Communications Inc.	Here	6.36%	-6.09%	29.89

Wikio