Screening for High Dividend Yields WIth a Twist


I have been seeing a lot of differnt screens for high dividend yield stocks lately and while dividend investing is not a bad idea for a portion of a balanced portfolio, I believe that most of those screens are flawed. Here’s how, they only take into consideration the amount of the dividend yield (keep in mind that you have to hold the stock for one year to receive all four, in most cases, dividend payments). A lot can happen to share price over the course of the year which is why I believe a better approach is to combine the dividiend yield with what stage the stock is in (see chart above, Stage 1- Accumulation, Stage 2- Markup, Stage 3- Distribution and Stage 4- Decline). To me it seems obvious that share price should be neutral (stage 1 or 3) at the least and even better, the stock should be in an uptrend (stage 2). Going even further, Stage 3 (Distribution) is typically followed by a stage 4 Decline which makes these stocks higher risk so these stocks may not make good purchase candidates.

I created a simple scan on the Profiler (see banner on right hand side) which first included all stages (1-4) on both a weekly and daily timeframe. I also put a price range of $10.00 to $200.00 Average daily volume (last 20 days) had to show a minimum of 500,000 and a maximum of 100 million shares. The list included Nasdaq, NYSE and AMEX stocks. PE was not considered and the stock had to have a dividend yield of at least 4%. This search yielded 82 stocks.

In order to cull this list further, I added a filter for PE ratio. The new list had all the criteria mentioned above and they had a PE ratio between 1 and 50, this cut the list down to 70 stocks.

Once again, I refined the search to disclude all stocks which were in a Stage 4 decline on either the daily or weekly timeframe, the list was further cut to just 53 stocks.

Still wanting the list to be shorter, I also eliminated stocks which were in a Stage 3 Distribution on either the daily or weekly timeframe, only 28 stocks remained.

This is the list of stocks which survived the successively stricter criteria. I have not reviewed any of these stocks and would not suggest that anyone buy them just because of a dividend. As always, you must do your own homework and decide if any of them are appropriate for your objectives and risk tolerance.

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TLT NXL SO VZ SHY
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