Companies hate to cut dividends. Knowing the backlash they'll get from stockholders, many executives and board members consider it a desperate act of last resort. They will halt non-discretionary expenditures, reduce payroll and overhead, and even take on debt in order to maintain distributions.
And that's exactly why dividend hikes send such a strong bullish signal. A company wouldn't bump quarterly payouts to $0.60 per share from $0.50 unless it were fairly certain that incoming cash flows would be more than sufficient to cover the higher dividend, with room to spare. The last thing they want is to raise it today only to lower back down tomorrow. A dividend hike is a clear vote of confidence for future success.
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As you may know, one feature of my premium High-Yield Investing newsletter is a screen for double-digit yielders. As part of my mission to scour the investing universe to find the highest and safest income screens for my premium subscribers, this is just one feature we use to identify potential future additions to our portfolio.
Today's picks, which I'm going to share with you, are only stocks with payouts over 10%. By their very nature, elevated payouts this high are hard to maintain -- let alone increase. So it's rare to see a company with a 10% or 12% yield promising to hand out even more. But, as I discussed above, they don't want to give out any less either (unless absolutely necessary).
So what does that leave? A long string of unchanged payouts. Many of the dividend charts I'm looking at right now resemble horizontal lines.
Steady isn't necessarily bad. I'll take a level $1 annual dividend on a $10 stock all day. The problem is, we don't know how sustainable these dividends are without digging deeper. The companies might barely be scraping together enough cash every 90 days. And this means we might be left with a lower payout -- and a much lower stock price -- if company has so much as a hiccup. But if one of these businesses suddenly boosted its payment, that would surely tell us something.
And it would be unequivocally positive.
After all, you don't put 120 pounds on the barbell if you can barely lift 100. And that's exactly why the stocks in the table below are worth a closer look. The companies behind these double-digit yielders clearly have some confidence in their financial outlook.
They haven't just raised dividends once this year -- but multiple times.
As always, the stocks in this screen meet certain criteria, but they haven't been fully researched and shouldn't necessarily be considered recommendations.
That being said, you don't raise dividends three or four times in succession if you are struggling to make ends meet. So without knowing anything else, I'd say these double-digit yields are far more tenable than most (at least under current conditions).
The One To Buy Today
Of the four stocks in this screen, Buckeye Partners (NYSE: BPL) is the one to watch. The Houston-based master-limited partnership (MLP) owns 6,000 miles of petroleum pipelines and 135 storage terminals with the capacity to hold 173 million barrels. Most of these are strategically located marine terminals from the Gulf Coast to the Middle East to Asia.
The company hasn't missed a quarterly distribution since its formation more than 30 years ago in 1986. Last quarter, it reported distributable cash flow of $182 million for a distribution coverage of 0.98. That means it's just shy right now of covering its $5.00-plus annual dividend. But fee-based cash flows from the firm's marine terminal business have an attractive growth profile and should push it over the top soon.
As a bonus, the company boasts a solid, investment-grade credit rating. Like all high-yielders, KNOT is better suited to risk-tolerant income investors. But with its relative stability and recent dividend increases, the stock certainly deserves a closer look. It has earned a spot on my watch list for High-Yield Investing.
This Is Just A Start
The goal of my double-digit stock screen is to identify stocks that might be well-suited for my High-Yield Investing portfolio. But like any quantitative tool, this screen should not be used in isolation. You should also evaluate the fundamental characteristics of every potential investment opportunity. In addition, you should assess how well a particular stock or fund matches your investment needs. And do your own due diligence on a security to decide if it is right for your portfolio.
If I find a real gem within these screens, a stock that can actually maintain this level of yield through the years to come, my High-Yield Investing subscribers will be the first to hear about it.
So if you'd like to join us in our search for the best high yields the market has to offer, then I want to invite you to learn more about High-Yield Investing. You don't have to settle for the paltry yields offered by most stocks. The high yields are still out there. You just have to know where to look -- and my staff and I are here to help you along.
This article originally appeared on StreetAuthority.