Stocks with high dividend yields may be found by using stock screeners, such as those offered by Yahoo! Finance, Google and MSN or by consulting lists compiled by financial publications. Investors must be cautious when selecting high dividend yield stocks. Stocks with the highest yields, above 5 percent to 10 percent, may have trouble paying dividends. Like all stocks, dividend stocks may decline in value, even if the company makes timely dividend payments.
- Consult a stock screener or a published list
Using a stock screener, such as the one offered by Yahoo! Finance. Alternatively, lists published by reputable financial publications or the stock exchanges may be used. If using a published list, jump to Step 3.
- Specify the minimum and maximum dividend yield acceptable to you
Choose the minimum and maximum acceptable dividend yield. Select Find Stocks at the bottom of the screener. Results may be ordered highest to lowest or lowest to highest by clicking the Div/Yld column heading.
- Research financial statements of selected companies
Research each prospective company's quarterly and annual financial statements paying particular attention to free cash flow, cash on hand, net debt, debt service obligations, earnings and earnings growth.
- Calculate the amount of money the company will need to pay dividends
Multiply the company's number of shares outstanding by the dollar amount of an expected dividend per share. Is this figure reasonable compared to a company's cash on hand, cash that will be generated before the dividend payment is made and other obligations beyond the dividend payment? In general, the lower the ratio of a company's dividend payment to its cash on hand, the better. A ratio of 10 percent may be considered excellent. A ratio of 90 percent may be considered high and may signal that a company may have difficulty fulfilling dividend payments. However, this will vary by company, industry and specific situation. Sometimes companies make special dividend payments specifically to distribute surplus cash to investors. In cases like this a ratio of 90 percent may be considered reasonable. Thoroughly understand the business of every company you invest in and regularly review its performance.