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In many cases, stocks carry above-average dividend yields because investors have knocked the share price down, based on concerns about a company's fundamentals. But suppose you could find stocks with market-beating yields and attractive fundamentals? You'd have something that looked like this week's screen.
First, we went with the yield part. We wanted to find stocks with a dividend yield well above that of the market. So we sifted for stocks with a yield greater than 3.2% -- twice the average of stocks in the Standard & Poor's 500 stock index.
HISTORICAL GAINS. To ensure that these companies had a strong payment history, our next step was to separate out those issues that had increased their dividend in each of the last 10 years. While that is no guarantee that they will continue to do so, it is an indication of long-term strength.
Then, to address the fundamental part, we turned to two key proprietary S&P measures. We looked for those issues with an S&P investment ranking of 4 STARS (buy) or 5 STARS (strong buy). Shares with those designations are expected by S&P equity analysts to outperform the overall market over the coming 12 months, rising in price on an absolute basis.
Finally, each stock had to carry an S&P Quality ranking of A- or higher based on their earnings and dividend history over the past 10 years.
Our search turned up six names, with financial companies well represented: